Exhibit 10-1
CREDIT AGREEMENT
dated as of May 4, 2005
among
▇▇▇▇▇▇ PETROLEUM, INC.,
as Borrower,
MPC, INC.,
as Guarantor,
and
PROSPECT ENERGY CORPORATION
as Administrative Agent and a Lender
and
PETRO CAPITAL III, LP,
as a Lender
TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS 1
1.01 Certain Defined Terms. 1
1.02 Other Interpretive Provisions. 10
1.03 Accounting Principles. 10
ARTICLE II. THE CREDIT 10
2.01 Amounts and Terms of the Commitment. 10
2.02 Prepayment. 10
2.03 Repayment. 11
2.04 Fees. 11
2.05 Computation of Fees and Interest. 12
2.06 Payments by Borrower. 12
2.07 Interest Recapture. 12
2.08 Taxes. 12
2.09 Sharing of Payments, Etc. 13
ARTICLE III. SECURITY 13
3.01 The Security. 13
3.02 Agreement to Deliver Security Documents. 13
3.03 Perfection and Protection of Security Interests and Liens. 14
3.04 Offset. 14
3.05 Production Proceeds. 14
ARTICLE IV. CONDITIONS PRECEDENT. 15
4.01 Conditions of Initial Loan. 15
ARTICLE V. REPRESENTATIONS AND WARRANTIES 17
5.01 Corporate Existence and Power. 17
5.02 Corporate Authorization; No Contravention. 17
5.03 Governmental Authorization. 17
5.04 Binding Effect. 17
5.05 Financial Condition. 17
5.06 Litigation. 17
5.07 No Default. 18
5.08 ERISA. 18
5.09 Margin Regulations. 18
5.10 Title to Properties. 18
5.11 Oil and Gas Reserves. 18
5.12 Initial Reserve Report. 18
5.13 Gas Imbalances. 18
5.14 Taxes. 19
5.15 Environmental Matters. 19
5.16 Regulated Entities. 19
5.17 No Burdensome Restrictions. 19
5.18 Solvency. 19
5.19 Subsidiaries/Investments/Ownership. 19
5.20 Insurance. 19
5.21 Full Disclosure. 19
ARTICLE VI. AFFIRMATIVE COVENANTS 20
6.01 Financial Statements. 20
6.02 Certificates Other Production and Reserve Information. 20
6.03 Notices. 21
6.04 Preservation of Corporate Existence, Etc. 21
6.05 Maintenance of Property. 21
6.06 Insurance. 22
6.07 Payment of Obligations. 22
6.08 Compliance with Laws. 22
6.09 Maintenance of Books and Records. 22
6.10 Environmental Laws. 22
6.11 Use of Proceeds. 22
6.12 Further Assurances. 22
6.13 Guarantees. 22
6.14 Security Documents. 22
6.15 Commodity Risk Program. 23
6.16 Equity Offering. 23
6.17 Interest Reserve. 23
ARTICLE VII. NEGATIVE COVENANTS 23
7.01 Limitation on Liens. 23
7.02 Disposition of Assets. 24
7.03 Consolidations and Mergers. 24
7.04 Loans and Investments. 24
7.05 Limitation on Indebtedness. 25
7.06 Financial Covenants. 25
7.07 Transactions with Affiliates. 25
7.08 Margin Stock. 26
7.09 Contingent Obligations. 26
7.10 Restricted Payments. 26
7.11 Change in Business, Organization Documents, Name and Address. 26
7.12 Accounting Changes. 26
7.13 Restrictions of Pledges. 26
ARTICLE VIII. EVENTS OF DEFAULT 26
8.01 Event of Default. 26
8.02 Remedies. 28
8.03 Set-off. 28
8.04 Payments Set Aside. 28
8.05 Subordination of the Loan Party Liens. 28
8.06 Rights Not Exclusive. 29
ARTICLE IX. ADMINISTRATIVE AGENT 29
9.01 Appointment and Authorization. 29
9.02 Delegation of Duties. 29
9.03 Liability of Administrative Agent. 30
9.04 Reliance by Administrative Agent. 30
9.05 Notice of Default. 30
9.06 Credit Decisions. 31
9.07 INDEMNIFICATION. 31
9.08 Administrative Agent in Individual Capacity. 31
9.09 Successor Administrative Agent. 32
9.10 Administrative Agent's Limited Liability. 32
ARTICLE X. MISCELLANEOUS 32
10.01 Amendments and Waivers.
32
10.02 Notices.
32
10.03 No Waiver; Cumulative Remedies.
33
10.04 Costs and Expenses.
33
10.05 Indemnity.
33
10.06 Environmental Indemnification.
34
10.07 Successors and Assigns.
35
10.08 Interest.
35
10.09 Counterparts and Facsimile Signatures.
36
10.10 Severability.
36
10.11 No Third Parties Benefited.
36
10.12 USA PATRIOT Act Notice.
36
10.13 Governing Law.
36
10.14 Submission To Jurisdiction.
36
10.15 Waiver Of Jury Trial.
37
10.16 Entire Agreement.
37
10.17 NO ORAL AGREEMENTS.
▇▇
▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ I Specific Terms, Fees and Conditions
SCHEDULES
SCHEDULE I Security Documents
EXHIBITS
Exhibit A Form of Convertible Promissory Note
Exhibit B Form of Letters in Lieu
Exhibit C Form of Warrant Agreement
Exhibit D Form of Guaranty
Exhibit E Form of Compliance Certificate
CREDIT AGREEMENT
This CREDIT AGREEMENT, dated as of May 4, 2005, is entered into among ▇▇▇▇▇▇
PETROLEUM, INC., a Tennessee corporation ("Borrower"), its wholly owned
subsidiary, MPC, INC., a Tennessee corporation ("MPC"), PROSPECT ENERGY
CORPORATION, a Maryland corporation ("PSEC"), as a lender and as
administrative agent for the Lenders (in its capacity as administrative agent,
"Administrative Agent") and PETRO CAPITAL III, L.P., a Texas limited
partnership ("PC III," PC III and PSEC are each herein a "Lender" and
collectively "Lenders").
In consideration of the mutual agreements, provisions and covenants
contained herein and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I.
DEFINITIONS
1.01 Certain Defined Terms.
In addition to the terms defined in the preamble of this Agreement, the
following terms have the following meanings herein:
"Acquisition" means any transaction or series of related transactions for
the purpose of or resulting, directly or indirectly, in (a) the acquisition of
all or substantially all of the assets of a Person, or of any business or
division of a Person, (b) the acquisition of in excess of 50% of the capital
stock of a corporation (or similar entity), which stock has ordinary voting
power for the election of the members of such entity's board of directors or
persons exercising similar functions (other than stock having such power only
by reason of the happening of a contingency), or the acquisition of in excess
of 50% of the partnership interests or equity of any Person not a corporation
which acquisition gives the acquiring Person the power to direct or cause the
direction of the management and policies of such Person, or (c) a merger or
consolidation or any other combination with another Person provided that
Borrower is the surviving entity.
"Affiliate" means, as to any Person, any other Person which, directly or
indirectly, is in control of, is controlled by, or is under common control
with, such Person. A Person shall be deemed to control another Person if the
controlling Person possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of the other Person,
whether through the ownership of voting securities, by contract, or otherwise.
"Agent-Related Person" as to Administrative Agent, means Administrative
Agent, its Affiliates, and the officers, directors, employees, agents, and
attorneys-in-fact of Administrative Agent and its Affiliates.
"Agreement" means this Credit Agreement including all Appendices, Schedules
and Exhibits attached hereto, as same may be amended in writing from time to
time.
"Alternative Financings" has the meaning set forth under Section 7.05.
"Assignee" has the meaning specified in Subsection 10.07.
"Bankruptcy Code" means the Federal Bankruptcy Reform Act of 1978 (11 U.S.C.
Section 101, et seq.).
"Borrowing" means a borrowing hereunder consisting of Loans made to Borrower
by Lenders under Article II.
"Business Day" means any day other than a Saturday, Sunday or other day on
which commercial banks located in the city of Administrative Agent's Payment
Office are authorized or required by law to close.
"Capital Expenditures" means, without duplication, the aggregate of all
expenditures and costs (whether paid in cash or accrued as liabilities during
that period and including that portion of Capital Leases which is capitalized
on the balance sheet) of Borrower on a consolidated basis during such period
that, in conformity with GAAP, are required to be included in or reflected by
the property, plant, or equipment or similar fixed asset accounts reflected in
the balance sheet of Borrower
"Capital Lease" means, when used with respect to any Person, any lease in
respect of which any of the obligations of such Person thereunder constitute
Capitalized Lease Obligations.
"Capitalized Lease Obligations" means, all obligations of such Person to pay
rent or other amounts under any lease of (or other arrangement conveying the
right to use) real or personal property, or a combination thereof, which
obligations shall have been or should be, in accordance with GAAP, capitalized
on the books of such Person.
"Cash Equivalents" means: (a) securities issued or fully guaranteed or
insured by the United States Government or any agency thereof and backed by
the full faith and credit of the United States having maturities of not more
than twelve (12) months from the date of acquisition; (b) certificates of
deposit, time deposits, Eurodollar time deposits, or bankers' acceptances
having in each case a tenor of not more than three (3) months from the date of
acquisition issued by any U.S. commercial bank or any branch or agency of a
non-U.S. commercial bank licensed to conduct business in the U.S. having
combined capital and surplus of not less than Five Hundred Million Dollars
($500,000,000); and (c) commercial paper of an issuer rated at least A-1 by
S&P or P-1 by ▇▇▇▇▇'▇ at the time of acquisition, and in either case having a
tenor of not more than twelve (12) months.
"Change of Control" means (a) a purchase or acquisition, directly or
indirectly, by any "person" or "group" within the meaning of Section 13(d)(3)
and 14(d)(2) of the Securities and Exchange Act of 1934 (a "Group"), of
"beneficial ownership" (as such term is defined in Rule 13d-3 under the
Exchange Act) of securities of Borrower which, together with any securities
owned beneficially by any "affiliates" or "associates" of such Group (as such
terms are defined in Rule 12b-2 under the Exchange Act), shall represent more
than fifteen percent (15%) of the combined voting power of Borrower's
securities which are entitled to vote generally in the election of directors
(or managers, in the case of a limited liability company) and which are
outstanding on the date immediately prior to the date of such purchase or
acquisition; or (b) a sale of all or substantially all of the assets of
Borrower taken as a whole to any Person or Group; or (c) the liquidation or
dissolution of Borrower; or (d) the first day on which a majority of the
directors (or managers, in the case of a limited liability company) of
Borrower are not Continuing Directors (as herein defined). As herein defined,
"Continuing Directors" means any Director (or Manager) of Borrower who is a
Director (or Manager) of Borrower as of the date of this Agreement as listed
on Appendix I hereto.
"Closing" means the date on which all conditions precedent set forth in
Section 4.01 are satisfied or waived by Administrative Agent and the Lenders.
"Code" means the Internal Revenue Code of 1986 and regulations promulgated
thereunder.
"Collateral" means all Oil and Gas Properties, Pipelines and Pipeline
Properties now owned or hereafter acquired by Borrower and its Subsidiaries
including Books and Records (as defined in Section 8.05(b)), which is subject
to a Lien in favor of Administrative Agent for the benefit of Lenders or which
under the terms of any Security Document is purported to be subject to such
Lien.
"Commitment" means Lenders' commitment to lend to Borrower under the Loan
Commitment.
"Compliance Certificate" means that certain certificate in the form of
Exhibit E.
"Contingent Obligation" means, as to any Person without duplication, any
direct or indirect liability of that Person with or without recourse, (a) with
respect to any Indebtedness, dividend, letter of credit or other similar
obligation (the "primary obligations") of another Person (the "primary
obligor"), including any obligation of that Person (i) to purchase, repurchase
or otherwise acquire such primary obligations or any security therefor, (ii)
to advance or provide funds for the payment or discharge of any such primary
obligation, or to maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency or any balance
sheet item, level of income or financial condition of the primary obligor,
(iii) to purchase property, securities or services primarily for the purpose
of assuring the owner of any such primary obligation of the ability of the
primary obligor to make payment of such primary obligation, or (iv) otherwise
to assure or hold harmless the holder of any such primary obligation against
loss in respect thereof (each, a "Guaranty Obligation"); (b) with respect to
any Surety Instrument issued for the account of that Person or as to which
that Person is otherwise liable for reimbursement of drawings or payments; or
(c) to purchase any materials, supplies or other property from, or to obtain
the services of, another Person if the relevant contract or other related
document or obligation requires that payment for such materials. supplies or
other property, or for such services, shall be made regardless of whether
delivery of such materials, supplies or other property is ever made or
tendered, or such services are ever performed or tendered. The amount of any
Contingent Obligation shall, in the case of Guaranty Obligations, be deemed
equal to the maximum stated or determinable amount of the primary obligation
in respect of which such Guaranty Obligation is made or, if not stated or if
indeterminable, the maximum reasonably anticipated liability in respect
thereof, and in the case of other Contingent Obligations shall be equal to the
maximum reasonably anticipated liability in respect thereof..
"Contract Rate" has the meaning specified in Appendix I.
"Contractual Obligation" means, as to any Person, any provision of any
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument, document or agreement
to which such Person is a party or by which it or any of its property is
bound.
"Convertible Notes" means collectively, each convertible promissory note
specified in Section 2.01, substantially in the same form as Exhibit "A"
issued by Borrower hereunder to each Lender including any amendment,
modification, renewal or replacement of each such convertible promissory note.
"Current Management" means the current executive officers of Borrower as
specified in Appendix I.
"Default" means any event or circumstance which, with the giving of notice,
the lapse of time, or both, would (if not cured or otherwise remedied during
such time) constitute an Event of Default.
"Default Rate" is defined on Appendix I.
"Dollars", "dollars" and "$" each mean lawful money of the United States.
"EBITDA" means with respect to Borrower and its Subsidiaries on a
consolidated basis, for any fiscal period, without duplication (i) Net Income
plus (ii) depreciation, depletion, amortization and other non-cash items
reducing Net Income plus (iii) Interest Expense plus (iv) income tax expense.
"Effective Amount" means on any date, the aggregate outstanding principal
amount of Loans after giving effect to any prepayments or repayments of Loans
occurring on such date.
"Environmental Claims" means all material claims by any Governmental
Authority or other Person alleging potential liability or responsibility for
violation of any Environmental Law, or for release or injury to the
environment.
"Environmental Laws" means all material federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances and codes,
together with all material administrative orders, requests, licenses,
authorizations and permits of, and agreements with, any Governmental
Authorities, in each case relating to environmental, health, and safety
matters.
"Equity Offering" means the issuance for sale of any equity interests in
Borrower pursuant to a public or private offering.
"ERISA" means the Employee Retirement Income Security Act of 1974, and
regulations promulgated thereunder.
"ERISA Affiliate" means any trade or business (whether or not incorporated)
under common control with Borrower within the meaning of Section 414(b), (c),
(m) or (o) of the Code.
"ERISA Event" means (a) a Reportable Event with respect to a Plan; (b) a
withdrawal by Borrower or any ERISA Affiliate from a Plan subject to Section
4063 of ERISA during a plan year in which it was a substantial employer (as
defined in Section 4001(a)(2) of ERISA) or a cessation of operations which is
treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or
partial withdrawal by Borrower or any ERISA Affiliate from a Multiemployer
Plan or notification that a Multiemployer Plan is in reorganization; (d) the
filing of a notice of intent to terminate (other than pursuant to Section
4041(b) of ERISA), the treatment of a Plan amendment as a termination under
Section 4041(c) or 4041A of ERISA, or the commencement of proceedings by the
PBGC to terminate a Plan or Multiemployer Plan; (e) an event or condition
which might reasonably be expected to constitute grounds under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to administer,
any Plan or Multiemployer Plan; or (f) the imposition of any liability under
Title IV of ERISA, other than PBGC premiums due but not delinquent under
Section 4007 of ERISA, upon Borrower or any ERISA Affiliate.
"Event of Default" means any of the events or circumstances specified in
Section 8.01.
"Exchange Act" means the Securities and Exchange Act of 1934, and
regulations promulgated thereunder.
"FRB" means the Board of Governors of the Federal Reserve System, and any
Governmental Authority succeeding to any of its principal functions.
"Fixed Charges" means, with respect to Borrower and its Subsidiaries on a
consolidated basis, for each consecutive twelve month period, the aggregate of
(i) consolidated Interest Expense, (ii) scheduled principal payments of any
Indebtedness for borrowed money, (iii) actual maintenance Capital Expenditures
determined on a consolidated basis, and (iv) cash income taxes.
"Fixed Charge Coverage Ratio" means, as of the end of any fiscal quarter,
the ratio of (a) Borrower's EBITDA for the twelve month period then ended to
(b) Borrower's Fixed Charges for the twelve month period then ended.
"GAAP" means generally accepted accounting principles set forth from time to
time in the opinions and pronouncements of the Accounting Principles Board and
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board.
"Governmental Authority" means any nation or government, any state or other
political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to
government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
"Guarantor" means each of MPC and any other Subsidiary now or hereafter
acquired by Borrower.
"Guaranty" means a continuing guaranty of payment in the form of Exhibit D
hereto.
"Hedge Agreements" means all future contracts, forward contracts, swap, cap
or collar contracts, option contracts, hedging contracts or other derivative
contracts or similar agreements covering Oil and Gas commodities or prices or
financial, monetary or interest rate instruments.
"Highest Lawful Rate" means, for each Lender, as of a particular date, the
maximum nonusurious interest rate that under applicable federal and Texas law
may then be contracted for, charged or received by Lenders in connection with
the Obligations.
"Hydrocarbon Interests" means leasehold and other interests in or under oil,
gas and other liquid or gaseous hydrocarbon leases with respect to Oil and Gas
Properties wherever located, mineral fee interests, overriding royalty and
royalty interests, net profit interests, and production payment interests
relating to oil, gas or other liquid or gaseous hydrocarbons wherever located,
including any reserved or residual interest of whatever nature.
"Indebtedness" of any Person means, without duplication, (a) all
indebtedness for borrowed money; (b) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (other than
trade payables entered into in the ordinary course of business on ordinary
terms); (c) all non-contingent reimbursement or payment obligations with
respect to Surety Instruments; (d) all obligations evidenced by notes, bonds,
debentures or similar instruments, including obligations so evidenced incurred
in connection with the acquisition of property, assets or businesses; (e) all
indebtedness created or arising under any conditional sale or other title
retention agreement, or incurred as financing, in either case with respect to
property acquired by the Person (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property) including, without limitation,
production payments, net profit interests and other Hydrocarbon Interests
subject to repayment out of future Oil and Gas production; (f) all obligations
with respect to Capital Leases; (g) all net obligations with respect to
Operating Leases; (h) all indebtedness referred to in clauses (a) through (g)
above secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any Lien upon or in property
(including accounts and contracts rights) owned by such Person, even though
such Person has not assumed or become liable for the payment of such
Indebtedness; and (i) all Guaranty Obligations in respect of indebtedness or
obligations of others of the kinds referred to in clauses (a) through (g)
above.
"Indemnified Environmental Liabilities" has the meaning specified in Section
10.06.
"Indemnified Liabilities" has the meaning specified in Section 10.05.
"Indemnified Person" has the meaning specified in Section 10.05.
"Independent Auditor" has the meaning specified in Subsection 6.01(a).
"Initial Reserve Report" means the Reserve Report described in Section
4.01(c).
"Insolvency Proceeding" means (a) any case, action or proceeding relating to
bankruptcy, reorganization, insolvency, liquidation, receivership,
dissolution, winding up or relief of debtors, or (b) any general assignment
for the benefit of creditors, composition, marshalling of assets for
creditors, or other, similar arrangement in respect of its creditors generally
or any substantial portion of its creditors; undertaken under U.S. Federal,
state or foreign law, including the Bankruptcy Code.
"Interest Expense" means, with respect to Borrower and its Subsidiaries on a
consolidated basis, for any fiscal period, the aggregate amount of all costs,
fees and expenses paid by Borrower and its Subsidiaries in such fiscal period
which are classified as interest expense on the consolidated financial
statements of Borrower and its Subsidiaries.
"Interest Payment Date" means the first Business Day of each calendar month.
"Interest Reserve" means that certain account described in Section 6.17.
"IRS" means the Internal Revenue Service, and any Governmental Authority
succeeding to any of its principal functions under the Code.
"Lender's Payment Office" means the principal address for each Lender as set
forth on Appendix I hereof or such other address as Lenders may from time to
time specify.
"Lien" means any security interest, mortgage, deed of trust, pledge,
hypothecation, assignment, charge or deposit arrangement, encumbrance, Lien
(statutory or other) or preferential arrangement of any kind or nature
whatsoever in respect of any property (including those created by, arising
under or evidenced by any conditional sale or other title retention agreement
and the interest of a lessor under a Capital Lease), any financing lease
having substantially the same economic effect as any of the foregoing, or the
filing of any financing statement naming the owner of the asset to which such
Lien relates as debtor, under the Uniform Commercial Code or any comparable
law and any contingent or other agreement to provide any of the foregoing.
"Loans" means an extension of credit by Lenders to Borrower under Section
2.01.
"Loan Documents" means this Agreement, the Note, the Guarantees, if any, the
Warrant Agreement, the Registration Rights Agreement, the Security Documents
and all other documents delivered to Administrative Agent and Lenders in
connection herewith.
"Loan Parties" means collectively, Borrower and each Guarantor, "Loan Party"
means each of Borrower and each Guarantor, individually.
"Margin Stock" means "margin stock" as such term is defined in Regulation T,
U or X of the FRB.
"Material Adverse Effect" means (a) a material adverse change in, or a
material adverse effect upon, the operations, business, Properties or
financial condition of Borrower or any of its Subsidiaries; (b) a material
impairment of the ability of Borrower or any of its Subsidiaries to perform
under any Loan Document; or (c) a material adverse effect upon the legality,
validity, binding effect or enforceability against Borrower or any of its
Subsidiaries of any Loan Document.
"Maximum Loan Amount" means the amount set forth under Appendix I.
"Mortgages" means the Mortgages, Deeds of Trust, Assignments of Production,
Security Agreements and Financing Statements from the Loan Parties for the
benefit of Lenders and all supplements, assignments, amendments and
restatements thereto (or any agreement in substitution therefor) which are
executed and delivered to Administrative Agent pursuant to Article III of this
Agreement.
"Mortgaged Properties" means the Oil and Gas Properties, Pipelines, and
Pipeline Properties and such other properties upon which the Loan Parties have
purported to ▇▇▇▇▇ ▇ ▇▇▇▇ in favor of Administrative Agent for the benefit of
the Lenders pursuant to the Mortgages.
"Multiemployer Plan" means a "multiemployer plan," within the meaning of
Section 4001(a)(3) of ERISA, to which Borrower or any ERISA Affiliate makes,
is making, or is obligated to make contributions or, during the preceding
seven (7) calendar years, has made, or been obligated to make, contributions.
"Net Income" means, for any fiscal period, the net income (or net loss) of
Borrower and its Subsidiaries, on a consolidated basis, for such period.
"Obligations" means the aggregate amount of all advances, debts,
liabilities, obligations, covenants and duties arising under any Loan Document
or owing by the Loan Parties to any Lender, Administrative Agent or any
Indemnified Person, whether direct or indirect (including those acquired by
assignment), absolute or contingent, due or to become due, now existing or
hereafter arising.
"Oil and Gas" means petroleum, natural gas and other related hydrocarbons or
minerals or any of them and all other substances produced or extracted in
association therewith.
"Oil and Gas Properties" means Hydrocarbon Interests now owned or hereafter
acquired by Borrower and its Subsidiaries and contracts executed in connection
therewith and all tenements, hereditaments, appurtenances, and properties
belonging, affixed or incidental to such Hydrocarbon Interests, including,
without limitation, any and all property, real or personal, now owned or
hereafter acquired by Borrower and situated upon or to be situated upon, and
used, built for use, or useful in connection with the operating, working or
developing of such Hydrocarbon Interests, including, without limitation, any
and all petroleum and/or natural gas ▇▇▇▇▇, structures, field separators,
liquid extractors, plant compressors, pumps, pumping units, field gathering
systems, tank and tank batteries, fixtures, valves, fittings, machinery and
parts, engines, boilers, liters, apparatus, equipment, appliances, tools,
implements, cables, wires, towers, tubing and rods, surface leases,
rights-of-way, easements and servitudes, and all additions, substitutions,
replacements for, fixtures and attachments to any and all of the foregoing
owned directly or indirectly by Borrower and its Subsidiaries provided that
Collateral shall not include office buildings, garages, work and storage
buildings at the Borrower's principal office location, office equipment and
personalty related to the office, storage and garage locations, automotive
equipment, mobile drilling units, equipment inventory, tanks and drilling
equipment related to Borrower's contract drilling services, and the like.
"Operating Lease" means an operating lease determined in accordance with
GAAP.
"Organization Documents" means, for any corporation: the articles of
incorporation, the bylaws, any certificate of determination or instrument
relating to the rights of the shareholders of such corporation, any
shareholder rights agreement, and all applicable resolutions of the board of
directors (or any committee thereof) of such corporation; for any limited
liability company: the articles of organization, the regulations or operating
agreement, certificate of organization and all applicable resolutions of the
members of such company; and for any limited partnership: the certificate of
limited partnership, the limited partnership agreement and all Organization
Documents for its general partner as any of the foregoing have been amended or
supplemented from time to time.
"Other Taxes" means any present or future mortgage tax, stamp or documentary
taxes or any other excise or property taxes, charges or similar levies which
arise from any payment made hereunder or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement or any other
Loan Documents.
"PBGC" means the Pension Benefit Guaranty Corporation, or any Governmental
Authority succeeding to any of its principal functions under ERISA.
"Pension Plan" means a pension plan (as defined in Section 3(2) of ERISA)
subject to Title IV of ERISA, other than a Multiemployer Plan, which Borrower
sponsors, maintains, or to which it makes, is making, or is obligated to make
contributions, or in the case of a Multiemployer Plan (as described in Section
4064(a) of ERISA) has made contributions at any time during the immediately
preceding five (5) plan years.
"Permitted Liens" has the meaning set forth in Section 7.01.
"Person" means an individual, partnership, limited partnership, corporation,
limited liability company, business trust, joint stock company, trust,
unincorporated association, joint venture or Governmental Authority.
"Pipeline" shall mean the natural gas gathering system and related
processing facilities now owned and operated by MPC connected to the Oil and
Gas ▇▇▇▇▇ located on the Mortgaged Properties, and such other natural gas
gathering systems and related processing facilities owned and operated by
Borrower or MPC hereafter.
"Pipeline Properties" shall mean all Property now or hereafter acquired
related to the Pipelines and processing facilities including all structures,
fuel separators, processing plants, treatment, dehydration, and fractionation
facilities, storage and transportation equipment, liquid extraction plants,
compressors, compressor stations, pipeline interconnections, fee lands, pumps,
pumping units, field gathering systems, pipes and pipelines, tanks and tank
batteries, fixtures, valves, fittings, machinery and parts, engines, boilers,
meters, SCADA systems and software, apparatus, equipment, appliances, tools,
implements, surface leases, rights-of-way, permits, licenses, crossing
permits, easements and servitudes; all operating agreements, gathering
agreements, processing agreements, contracts and other agreements which relate
to any of the Pipelines or the gathering, transmission, exchange, processing,
hedging and sale of Hydrocarbons through the Pipeline; all Hydrocarbons used
as linefill or pad gas in the Pipeline, and all tariffs, rents, issues,
profits, proceeds, revenues and other incomes from or attributable to the
Pipeline and sale of Hydrocarbons; all Property, real or personal, now owned
or hereinafter acquired and situated upon, used, held for use or useful in
connection with the Pipeline (excluding automotive equipment or other personal
property which may be on such premises for the purpose of constructing the
Pipeline or for other similar temporary uses), together with all additions,
substitutions, replacements, accessions and attachments to any and all of the
foregoing.
"Plan" means an employee benefit plan (as defined in Section 3(3) of ERISA)
which is subject to ERISA, other than a Multiemployer Plan, and which Borrower
sponsors or maintains or to which Borrower makes, is making, or is obligated
to make contributions and includes any Pension Plan.
"Present Value" means, as of the date of determination, the present value of
the Loan Parties' Oil and Gas Properties evaluated in the most recently
delivered Reserve Report, discounted at a rate of 10%, and utilizing (a) the
monthly crude oil (WTI) and natural gas (▇▇▇▇▇ Hub) prices, in each case
quoted on the New York Mercantile Exchange (or its successor), in effect at
the time, adjusted for any ▇▇▇▇▇▇ that the Loan Parties have in place, for the
next 5 year period, such prices to remain flat after such time at the average
prices over the last twelve months of such five year period, and (b) an annual
escalation factor of 3% for operating expenses; provided that, the value of
the Oil and Gas Properties evaluated in such Reserve Report shall be subject
to adjustments for title deficiencies pursuant to Section 3.02 and shall be
reduced on a dollar for dollar present value basis for any Oil and Gas
Properties that have been disposed of since the date of the most recently
delivered Reserve Report.
"Principal Business" means the business of the exploration for, and
development, acquisition, production, gathering and upstream marketing of Oil
and Gas.
"Production Sales Contracts" mean those agreements now or hereafter executed
in connection with the sale by the Loan Parties of Oil and Gas attributable to
the Oil and Gas Properties as same may be amended from time to time.
"Pro-Rata Share" means, as to any Lender at any time, the percentage set
forth opposite its name as its Pro-Rata Share on Appendix I hereto, as amended
from time to time.
"Registration Rights Agreement" means that certain Registration Rights
Agreement of even date herewith between Borrower and Lenders.
"Regulation U" and "Regulation X" means Regulation U and Regulation X,
respectively, of the FRB.
"Requirement of Law" means, as to any Person, any law (statutory or common),
treaty, rule or regulation or determination of an arbitrator or of a
Governmental Authority, in each case applicable to or binding upon such Person
or any of its property or to which such Person or any of its property is
subject.
"Reserves" means those quantities of Oil and Gas which are anticipated to be
commercially recovered from known accumulations from a given date forward
including "Proved Reserves," "Probable Reserves" and "Possible Reserves" as
those reserves are denominated and determined in accordance with the methods
commonly accepted by the Society of Petroleum Engineers for evaluating Oil and
Gas reserves.
"Reserve Report" means a report, acceptable to Lenders, covering proved
developed, proved undeveloped and probable Oil and Gas reserves attributable
to the Loan Parties' Oil and Gas Properties and setting forth (i) the total
quantity of proved developed, proved undeveloped reserves (separately
classified as producing, shut-in, behind pipe, and undeveloped) probable
reserves and possible reserves, (ii) the estimated future net revenues and
future Net Income and cumulative estimated future net revenues and future Net
Income, (iii) the Present Value of future Net Income, and (iv) such other
information and data with respect to the Oil and Gas Properties as Lenders may
reasonably request.
"Responsible Officer" means the chief executive officer or president of
Borrower or such other Person designated as a Responsible Officer by Borrower.
"SEC" means the Securities and Exchange Commission.
"Security Documents" means the Mortgages, collateral assignments, security
agreements, pledges, assignments and related financing statements listed on
Schedule I as same may be amended, supplemented or modified from time to time
and any and all other instruments now or hereafter executed in connection with
or as security for the payment of the Obligations.
"Solvent" means, as to any Person at any time, that (a) the fair value of
all of the property of such Person is greater than the amount of such Person's
liabilities (including disputed, contingent and unliquidated liabilities) as
such value is established and liabilities evaluated for purposes of Section
101(32) of the Bankruptcy Code; (b) the present fair saleable value of all of
the property of such Person is not less than the amount that will be required
to pay the probable liability of such Person on its debts as they become
absolute and matured; (c) such Person does not intend to, and does not believe
that it will, incur debts or liabilities beyond such Person's ability to pay
as such debts and liabilities mature; and (d) such Person is not engaged in
business or a transaction, and is not about to engage in business or a
transaction, for which such Person's property would constitute unreasonably
small capital.
"Stated Maturity Date" means the date set forth on Appendix I stated to be
the maturity date for the Convertible Notes.
"Status Report" means a status report prepared periodically (as specified on
Appendix I) by Borrower in form, scope and content acceptable to Lenders,
setting forth as of such period then ended (i) detailed production data from
the Mortgaged Properties by property, including, the volumes of Oil and Gas
produced and saved, the volumes of Oil and Gas sold, gross revenue, Net
Income, related leasehold operating expenses, severance taxes, capital costs
and any production imbalances incurred during such period (ii) all new Oil and
Gas Properties acquired by the Loan Parties since the date of Borrower's last
Status Report, (iii) the current list of purchasers of production including
mailing address and the ▇▇▇▇▇ covered by such Production Sales Contracts, and
(iv) such additional information with respect to any of the Loan Parties' Oil
and Gas Properties as may be reasonably requested by Lenders.
"Subsidiary" of a Person means any corporation, association, partnership,
joint venture or other business entity of which more than 50% of the voting
stock or other equity interests (in the case of Persons other than
corporations), is owned or controlled directly or indirectly by the Person, or
one or more of the Subsidiaries of the Person, or a combination thereof.
Unless the context otherwise clearly requires, references herein to a
"Subsidiary" refer to a Subsidiary of Borrower.
"Surety Instruments" means all letters of credit (including standby),
banker's acceptances, bank guaranties, shipside bonds, surety bonds and
similar instruments.
"Tangible Net Worth" means, at any date, the consolidated net worth of
Borrower and its Subsidiaries on a consolidated basis after subtracting
therefrom the aggregate amount of treasury stock, goodwill, deferred
development costs, franchises, licenses, patents, trademarks, trade names,
copyrights, service marks and brand names and all other intangible assets
(other than oil and gas leases to the extent classified as intangible assets)
of Borrower and its Subsidiaries classified as such under GAAP.
"Taxes" means any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding such taxes (including income taxes or franchise taxes) as are
imposed on or measured by such Lender's Net Income by the jurisdiction (or any
political subdivision thereof) under the laws of which Lenders is organized or
maintains a lending office.
"Termination Date" means the earlier of (a) the Stated Maturity Date, or (b)
the date on which the Loans are due and payable in accordance with the
provisions of this Agreement.
"United States" and "U.S." each means the United States of America.
"Warrant Agreement" means that certain agreement in the form of Exhibit C.
1.02 Other Interpretive Provisions. The meanings of defined terms are
equally applicable to the singular and plural forms of the defined terms.
Unless otherwise specified or the context clearly requires otherwise, the
words "hereof", "herein", "hereunder" and similar words refer to this
Agreement as a whole and not to any particular provision of this Agreement;
and Subsection, Section, Schedule and Exhibit references are to this
Agreement. The term "documents" includes any and all instruments, documents,
agreements, certificates, indentures, notices and other writings, however
evidenced. The term "including" is not limiting and means "including without
limitation." In the computation of periods of time from a specified date to a
later specified date, the word "from" means "from and including"; the words
"to" and "until" each mean "to but excluding", and the word "through" means
"to and including." Unless otherwise expressly provided herein, (i) references
to agreements (including this Agreement) and other contractual instruments
shall be deemed to include all subsequent amendments and other modifications
thereto, but only to the extent such amendments and other modifications are
not prohibited by the terms of any Loan Document, and (ii) references to any
statute or regulation are to be construed as including all statutory and
regulatory provisions consolidating, amending, replacing, supplementing or
interpreting the statute or regulation. The captions and headings of this
Agreement are for convenience of reference only and shall not affect the
interpretation of this Agreement. This Agreement and the other Loan Documents
are the result of negotiations among and have been reviewed by counsel to
Lenders and Borrower, and are the products of all parties. Accordingly, they
shall not be construed against Borrower, or Lenders merely because of Lenders'
involvement in the preparation thereof.
1.03 Accounting Principles.
(a) Unless the context otherwise clearly requires, all accounting
terms not expressly defined herein shall be construed, and all financial
computations required under this Agreement shall be made in accordance with
GAAP, consistently applied.
(b) References herein to "fiscal year" and "fiscal quarter" refer to
such fiscal periods of Borrower.
(c) References herein to Borrower's financial statements or balance
sheets shall mean, respectively, the consolidated financial statements or
consolidated balance sheets of Borrower and its Subsidiaries, if any.
ARTICLE II.
THE CREDIT
2.01 Amounts and Terms of the Commitment. Each Lender agrees, on the
terms and conditions set forth herein, to lend to Borrower its Pro-Rata Share
of $4,150,000 (the "Maximum Loan Amount") which shall be funded at Closing,
except for $160,000 which shall be funded into the Debt Service Account within
5 days of Closing. The obligation of Borrower to repay the aggregate amount
of the Loans made by Lenders, together with interest accruing thereon, shall
be evidenced by the Convertible Notes. If Borrower pays or prepays any
portion of the Loans under this Agreement, then such portion may not be
reborrowed.
2.02 Prepayment.
Borrower may, at any time prepay the Loans in full, or in minimum amounts of
$100,000 or integral multiples thereof, upon irrevocable notice to Lenders of
not less than five (5) Business Days.
2.03 Repayment.
(a) Principal. Borrower shall repay all outstanding principal
Obligations under the Convertible Notes on the Termination Date on which date
Borrower shall also pay all accrued but unpaid interest and outstanding
expenses hereunder or under the Loan Documents.
(b) Interest.
(i) Principal outstanding under the Convertible Notes shall bear
interest from the applicable Borrowing Date at a rate per annum equal to the
lesser of (a) the Contract Rate, or (b) the Highest Lawful Rate.
(ii) Interest shall accrue at the Contract Rate on principal
outstanding under both Convertible Notes and shall be paid in arrears on each
Interest Payment Date and any accrued but unpaid interest shall be due and
payable in full on the Termination Date.
(iii) Notwithstanding Subsection 2.03(b)(i), (A) immediately
while any Event of Default under Sections 7.06 or 8.01(a) exists and (B)
following thirty (30) days written notice from Lenders while any other Event
of Default exists; Borrower shall pay interest (after as well as before entry
of judgment thereon to the extent permitted by law) on the principal amount of
all outstanding Loans, at a rate per annum equal to the Default Rate until
paid, regardless whether payment is made before or after entry of a judgment.
(c) Conversion. Upon any Equity Offering, each Lender shall have
the option, exercisable in its sole discretion, to convert all or part of the
unpaid principal balance of and accrued unpaid interest on the Obligations
owing to such Lender into fully paid and non-assessable shares of stock in
connection with such Equity Offering. Such voluntary conversion option may be
exercised by any Lender at any time during or following the Equity Offering
and on or before the Termination Date by such Lender providing written notice
thereof to Borrower, and shall be exercised at the conversion price (the
"Conversion Price") and on the terms set forth in the Convertible Notes, with
the same rights and preferences, if any, as other shares of stock, and the
Obligations owing to such Lender shall be cancelled as to the number of shares
received by Lender times the Conversion Price. The Borrower shall give effect
promptly to the conversion requested in such notice from the Lender. If there
is an insufficient number of authorized shares of stock to permit conversion
of the Obligations in full, Borrower will take all corporate action within its
control necessary to authorize a sufficient number of such shares to permit
conversion in full. The Lenders shall be entitled to the benefit of such
registration rights in respect of the shares as are set forth in Section 2 of
the Registration Rights Agreement. If the Equity Offering does not occur prior
to the Termination Date, Lenders will be entitled to cash only.
2.04 Fees.
(a) Commitment Fee. Borrower shall pay at Closing to Lenders the
fees in the amounts set forth on Appendix I hereto.
(b) Warrants. Borrower shall deliver at Closing to Lenders a
warrant to acquire unregistered shares of common stock of Borrower under terms
and conditions more particularly set forth in the Warrant Agreement.
(c) Other Fees. Borrower shall pay such other fees at Closing as
required under Section 4.01.
(d) Fees Fully Earned. Borrower agrees that as of Closing all such
fees and warrants as provided under this Section 2.04 shall be fully earned.
2.05 Computation of Fees and Interest. All computations of interest for
Loans and all other computations of fees shall be made on the basis of actual
days elapsed (including the first day but excluding the last day) but computed
as if each month consisted of 30 days and each calendar year consisted of 360
days.
2.06 Payments by Borrower.
(a) All payments to be made by Borrower shall be made to each Lender
in an amount equal to such Lender's Pro-Rata Share of the total amount of any
such payment, without set-off, recoupment or counterclaim. Except as
otherwise expressly provided herein, all payments by Borrower shall be made to
Lenders at each Lender's Principal Address set forth in Appendix I, and shall
be made in dollars and in immediately available funds, no later than 11:00
a.m. (Central time) on the date due. Any payment received by Lenders later
than 11:00 a.m. (Central time) shall be deemed to have been received on the
following Business Day and any applicable interest or fee shall continue to
accrue.
(b) Whenever any payment is due on a day other than a Business Day,
such payment shall be made on the following Business Day, and such extension
of time shall in such case be included in the computation of interest or fees,
as the case may be.
2.07 Interest Recapture. If the Contract Rate exceeds the Highest Lawful
Rate, then the Contract Rate shall be limited to the Highest Lawful Rate, but
any subsequent reductions in the Contract Rate shall not reduce the interest
rate thereon below the Highest Lawful Rate until the total amount of accrued
interest equals the amount of interest that would have accrued if Contract
Rate had always been in effect. If at the Termination Date the total interest
paid or accrued is less than the interest that would have accrued if the
Contract Rate had always been in effect, then, at that time and to the extent
permitted by law, Borrower shall pay an amount equal to the difference
between: (a) the lesser of the amount of interest that would have accrued if
the Contract Rates had always been in effect and the amount of interest that
would have accrued if the Highest Lawful Rate had always been in effect; and
(b) the amount of interest actually paid or accrued on the Note.
2.08 Taxes.
(a) Any and all payments by Borrower hereunder or under the
Convertible Notes shall be made free and clear of and without deduction for
any and all present or future taxes, levies, imposts, deductions, charges, or
withholdings, and all Liabilities with respect thereto (hereinafter referred
to as "Taxes"), provided Taxes shall expressly exclude: taxes imposed on
Lenders' income, and franchise taxes imposed on Lenders, by the jurisdiction
under the laws of which such Lender is organized or is or should be qualified
to do business or any political subdivision thereof and, taxes imposed on such
Lender's income, and franchise taxes imposed on Lenders by the jurisdiction of
its principal lending office or any political subdivision thereof. If
Borrower shall be required by law to deduct any Taxes from or in respect of
any sum payable hereunder or under the Convertible Notes to Lenders, then (i)
the sum payable shall be increased as may be necessary so that after making
all required deductions (including deductions applicable to additional sums
payable under this Section 2.08) Lenders receive an amount equal to the sum
they would have received had no such deductions been made, (ii) Borrower
shall make such deductions, and (iii) Borrower shall pay the full amount
deducted to the relevant taxation authority or other authority in accordance
with applicable law.
(b) In addition, Borrower agrees to pay any Other Taxes which arise
from any payment made hereunder or under the Loan Documents or from the
execution, delivery, or registration of, or otherwise with respect to, this
Agreement or the other Loan Documents (hereinafter referred to as "Other
Taxes").
(c) Borrower will indemnify Lenders for the full amount of Taxes or
Other Taxes (including, without limitation, any Taxes or Other Taxes imposed
by any jurisdiction on amounts payable under this Section 2.08) paid by
Lenders or any liability (including penalties and interest) arising therefrom
or with respect thereto, whether or not such Taxes or Other Taxes were
correctly or legally asserted. This indemnification shall be made within five
(5) days from the date Lenders make written demand therefor.
(d) Within 30 days after the date of any payment of Taxes, Borrower
will furnish to each Lender, at its principal address set forth in Appendix
I, the original or a certified copy of a receipt evidencing payment thereof.
(e) Without prejudice to the survival of any other agreement of
Borrower hereunder, the agreements and obligations of Borrower contained in
this Section 2.08 shall survive the termination of the commitments under this
Agreement and the payment in full of the Obligation.
2.09 Sharing of Payments, Etc. If any Lender shall obtain on account
of the Obligations made by it, any payment (whether voluntary, involuntary,
through the exercise of any right of set-off, or otherwise) or receive any
Collateral in respected thereof in excess of the amount such Lender was
entitled to receive pursuant to the terms hereof, such Lender shall
immediately (a) notify Administrative Agent of such fact, and (b) purchase
from the other Lenders such participations in the Loans made by them as shall
be necessary to cause such purchasing Lender to share the excess payment
according to the terms hereof; provided, however, that if all or an portion
of such excess payment is thereafter recovered from the purchasing Lender,
such purchase shall, to that extent, be rescinded and each other Lender shall
repay to the purchasing Lender the purchase price paid therefor, together with
an amount equal to such paying Lender's ratable share (according to the
proportion of (i) the amount of such paying Lender's required repayment to
(ii) the total amount so recovered from the purchasing Lender) of any interest
or other amount paid or payable by the purchasing Lender in respect of the
total amount so recovered. Borrower agrees that any Lender so purchasing a
participation from another Lender may, to the fullest extent permitted by law,
exercise all its rights of payment (including the right of set-off) with
respect to such participation as fully as if such Lender were the direct
creditor of Borrower in the amount of such participation. Administrative
Agent will keep records (which shall be conclusive and binding in the absence
of manifest error) of participations purchased under this Section 2.09 and
will in each case notify the Lenders following any such purchases or
repayments.
ARTICLE III.
SECURITY
3.01 The Security. The Obligations will be secured by a Lien on all of
the Loan Parties Oil and Gas Properties, Pipelines and Pipeline Properties now
or hereafter acquired and such other Collateral described in Schedule I under
the Security Documents.
3.02 Agreement to Deliver Security Documents. The Loan Parties agree to
notify Administrative Agent of any additional interests acquired by the Loan
Parties in Oil and Gas Properties or Pipeline Properties and to deliver to
Administrative Agent to further secure the Obligations, deeds of trust,
mortgages, chattel mortgages, security agreements, financing statements,
letters in lieu of production, and other Security Documents in form and
substance satisfactory to Lenders covering all of the Loan Parties' interests
in all Oil and Gas Properties, Pipelines and Pipeline Properties, and Books
and Records owned or acquired in the future, for the purpose of granting,
confirming, and perfecting first and prior Liens or security interests.
Borrower also agrees to deliver, whenever requested by Lenders, favorable
title opinions from legal counsel acceptable to Lenders or such other evidence
of title satisfactory to Lenders with respect to Borrower's Oil and Gas
Properties designated by Lenders, based upon abstract or record examinations
to dates acceptable to Lenders, (a) evidencing that Borrower has good and
defensible title to such Oil and Gas Properties, free and clear of all Liens
except Permitted Liens, (b) confirming that such Oil and Gas Properties are
subject to Liens granted under Security Documents securing the Obligations and
such Security Documents constitute and create legal, valid and duly perfected
first deed of trust or mortgage Liens in such Oil and Gas Properties and first
priority assignments of and security interests in the Oil and Gas attributable
to such Oil and Gas Properties and the proceeds thereof, and (c) covering such
other matters as Lenders may reasonably request. In the event that any
material adverse claims or Liens are asserted against Borrower's interests in
the Oil and Gas Properties and Borrower fails to deliver satisfactory title
curative information or evidence to its title to any of its Oil and Gas
Properties, the amount by which such claim or lien impairs the collateral
value of such Oil and Gas Properties as determined by Lenders in their
reasonable discretion, may be excluded from the Present Value of Borrower's
Reserves.
3.03 Perfection and Protection of Security Interests and Liens. The Loan
Parties will from time to time deliver to Administrative Agent any financing
statements, amendments, assignments and continuation statements, extension
agreements and other documents, properly completed and executed (and
acknowledged when required) by the Loan Parties in form and substance
satisfactory to Administrative Agent, which Administrative Agent requests for
the purpose of perfecting, confirming, or protecting any Liens or other rights
in Collateral securing any Obligations. Each Loan Party hereby authorizes
Administrative Agent to file, in any applicable jurisdiction where
Administrative Agent deems it necessary, a financing statement or statements,
and at the request of Administrative Agent, each Loan Party will join
Administrative Agent in executing one or more financing statements pursuant to
the applicable Uniform Commercial Code in form satisfactory to Administrative
Agent, and will pay the cost of filing or recording such instrument, as a
financing statement, in all public offices at any time and from time to time
whenever filing or recording of any financing statement is deemed by
Administrative Agent to be necessary or desirable.
3.04 Offset. To secure the repayment of the Obligations, each Loan Party
hereby grants Lenders a security interest, Lien, and right of offset, each of
which shall be in addition to all other interests, Liens, and rights of
Lenders at common law, under the Loan Documents or otherwise, and each of
which shall be upon and against (a) any and all moneys, securities or other
property (and the proceeds therefrom) of such Loan Party now or hereafter held
or received by or in transit to Lenders from or for the account of such Loan
Party, whether for safekeeping, custody, pledge, transmission, collection or
otherwise, and (b) any other credits and claims of the Loan Parties at any
time existing against Lenders. Upon the occurrence of any Event of Default,
each Lender is hereby authorized to foreclose upon, offset, appropriate, and
apply, at any time and from time to time, without notice to the Loan Parties,
any and all items hereinabove referred to against the Obligations then due and
payable.
3.05 Production Proceeds.
(a) The Loan Parties shall provide to Administrative Agent, undated
letters, in the form of Exhibit "B" to each purchaser of production and
disburser of proceeds of production from or attributable to the Loan Parties'
Mortgaged Properties, with the addressees to make future payments attributable
to production from the Mortgaged Properties directly to Administrative Agent.
(b) Each Loan Party hereby designates Administrative Agent as its
agent and attorney-in-fact, to act in its name, place, and stead for the
purpose of completing and delivering any and all of the letters in lieu of
transfer orders delivered by such Loan Party, as applicable, to Administrative
Agent, including, without limitation, completing any blanks contained in such
letters and attaching exhibits thereto describing the relevant Collateral.
Each Loan Party hereby ratifies and confirms all that Administrative Agent
shall lawfully do or cause to be done by virtue of this power of attorney and
the rights granted with respect to such power of attorney. This power of
attorney is coupled with the interest of Administrative Agent in the
Collateral, shall commence and be in full force and effect as of Closing and
shall remain in full force and effect and shall be irrevocable so long as any
Obligation remains outstanding or unpaid or any Commitment exists. The powers
conferred on Administrative Agent by this appointment are solely to protect
the interests of the Lenders under the Loan Documents and shall not impose any
duty upon Administrative Agent to exercise any such powers. ADMINISTRATIVE
AGENT AND LENDERS SHALL BE ACCOUNTABLE ONLY FOR AMOUNTS THAT SUCH PARTY
ACTUALLY RECEIVES AS A RESULT OF THE EXERCISE OF SUCH POWERS AND SHALL NOT BE
RESPONSIBLE TO BORROWER OR ANY OTHER PERSON FOR ANY ACT OR FAILURE TO ACT WITH
RESPECT TO SUCH POWERS, EXCEPT FOR ADMINISTRATIVE AGENT'S OR SUCH LENDER'S
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
(c) Notwithstanding that, under the Security Documents, Borrower has
assigned to Lender all of the proceeds of production accruing to Borrower's
share of production from the Mortgaged Properties covered thereby, until such
time as an Event of Default shall have occurred and be continuing, Borrower
shall be entitled to receive from the purchasers or disbursers of its
production all such proceeds of production, subject however to the Liens
created under the Mortgages. Immediately upon the occurrence and during the
continuance of an Event of Default under Section 8.01(a), and thirty (30) days
following the occurrence and during the continuance of any other Event of
Default, Administrative Agent may deliver to the addressees the letters in
lieu described in Section 3.05 above and may exercise all rights and remedies
granted under the Mortgages, including the right to obtain possession of all
proceeds of runs then held by Borrower or to receive directly from the
purchaser or disburser of production such proceeds of production.
(d) In no case shall any failure, whether intentional or
inadvertent, by Administrative Agent to collect directly any such proceeds of
runs constitute in any way a waiver, rescission or release of any of its
rights under the Mortgages, nor shall any release of any other proceeds of
runs or of any rights of Administrative Agent to collect other proceeds of
runs thereafter.
ARTICLE IV.
CONDITIONS PRECEDENT
4.01 Conditions of Initial Loan. The obligation of Lenders to make their
Loans is subject to the condition that Lenders shall have received on or
before Closing all of the following, in form and substance satisfactory to
Lenders:
(a) Credit Agreement and Other Loan Documents. This Agreement, the
Convertible Notes, the Warrant Agreement, the Registration Rights Agreement,
each Guaranty, the Security Documents, and such other Loan Documents made a
part hereof to be executed and delivered at Closing executed by each party
thereto, and where appropriate, properly acknowledged and notarized;
(b) Secretary's Certificate. A certificate of the Secretary or
Assistant Secretary of each Loan Party, certifying as of the date on which
Closing occurs: (i) resolutions of the board of directors of such Loan Party,
authorizing the transactions contemplated hereby; (ii) the names and genuine
signatures of the Responsible Officers of such Loan Party, authorized to
execute, deliver and perform, as applicable, this Agreement, the Security
Documents, and all other Loan Documents to be delivered hereunder; (iii) the
Organization Documents of such Loan Party, as in effect on the date on which
Closing occurs; (iv) the good standing certificate for each Loan Party from
its state of incorporation, formation or organization, as applicable,
evidencing its qualification to do business in such state as of a date no more
than thirty (30) days prior to Closing; and (v) as applicable, certificate(s)
of authority for such Loan Party from foreign states wherein the Loan Party
conducts business, evidencing such Loan Party's qualification to do business
in such state as of a date no more than thirty (30) days prior to Closing;
(c) Reserve Report. Receipt and satisfactory review of the current
Reserve Report prepared by Netherland, ▇▇▇▇▇▇ & Associates dated as of
December 31, 2004, covering Borrower's Oil and Gas Properties (the "Initial
Reserve Report");
(d) Payment of Lenders' Fees. Payment by Borrower of all accrued and
unpaid fees, costs and expenses owed pursuant to this Agreement to the extent
then due and payable at Closing including such fees set forth on Appendix I,
together with attorney costs of each Lenders to the extent invoiced prior to
or at Closing, plus such additional amounts of attorney costs and filing fees
as shall constitute each Lenders' estimate of same incurred or to be incurred
by it through Closing (provided that such estimate shall not thereafter
preclude final settling of accounts between Borrower and each Lender);
including any such costs, fees and expenses arising under or referenced in
Sections 2.05 and 10.04;
(e) Other Documents. Each additional document, instrument, or item
of information requested by Lenders, including without limitation:
(i) satisfactory title information from title examiners
acceptable to Lenders in their discretion, verifying Borrower's good and
defensible title to the Mortgaged Properties free and clear of all Liens other
than Permitted Liens;
(ii) copies of all environmental assessments, reports and other
information with contents and findings satisfactory to Lenders with respect to
the Mortgaged Properties;
(iii) copies of existing Hedge Agreements, on terms and with
counter parties satisfactory to Lenders;
(iv) copies of all current Authority for Expenditures, Joint
Interest ▇▇▇▇▇▇▇▇ and division orders affecting Borrower's Oil and Gas
Properties on terms satisfactory to Lenders;
(v) Borrower's Organization Documents, as amended, shall be in
form satisfactory to Lenders and Lenders shall be provided with copies of all
Material Contracts including all Management Agreements, Employment Contracts,
Joint Operating Agreements, Farmout Agreements, long term marketing or
Production Sales Contracts into by Borrower to the extent requested by
Lenders;
(vi) certificates of insurance for Borrower as required under
Section 6.06 of this Agreement; and
(vii) opinion of Borrower's counsel in form satisfactory to
Lenders including, among other matters, the due formation, standing and
authorization of each Person and as to the enforceability of the Loan
Documents, issuance of the Warrants and perfection of the Security Documents;
and
(f) Additional Conditions Precedent. Borrower shall deliver or
cause to be delivered such additional documentation and such other conditions
shall be satisfied as set forth on Appendix I hereto.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Administrative Agent and each Lender that:
5.01 Corporate Existence and Power. Borrower and each of its
Subsidiaries: (a) is validly existing and in good standing under the laws of
the jurisdiction of its incorporation, formation or organization, as
applicable; (b) has the power and authority and all material governmental
licenses, authorizations, consents and approvals to own its assets, carry on
its business as currently conducted and to execute, deliver, and perform its
obligations under the Loan Documents, (c) is duly qualified as a foreign
company and is licensed and in good standing under the laws of each
jurisdiction where its ownership, lease or operation of property or the
conduct of its business requires such qualification or license; and (d) to
Borrower's knowledge, is in compliance in all material respects with all
Requirements of Law.
5.02 Corporate Authorization; No Contravention. The execution, delivery
and performance by each of the Loan Parties of this Agreement and each other
Loan Document to which it is a party, have been duly authorized by all
necessary corporate, partnership or limited liability company action, as
applicable, and do not and will not: (a) contravene the terms of any of its
Organization Documents; (b) conflict with or result in any breach or
contravention of, or the creation of any Lien under, any document evidencing
any Contractual Obligation to which it is a party or any order, injunction,
writ or decree of any Governmental Authority to which it or its property is
subject; or (c) violate any Requirement of Law.
5.03 Governmental Authorization. To Borrower's knowledge, no approval,
consent, exemption, authorization, or other action by, or notice to, or filing
with, any Governmental Authority is necessary or required in connection with
the execution, delivery or performance by, or enforcement against, any Loan
Party of this Agreement or any other Loan Document to which it is a party.
5.04 Binding Effect. This Agreement and each other Loan Document to
which the Loan Party is a party constitute the legal, valid and binding
obligations of Borrower, enforceable against Borrower in accordance with their
respective terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, or similar laws affecting the enforcement of
creditors' rights generally or by equitable principles relating to
enforceability.
5.05 Financial Condition. Borrower has delivered to each Lender copies
of its consolidated financial statements as of January 31, 2005, such
financial statements are true and correct, fairly represent the consolidated
financial condition of Borrower as of such date and were prepared in
accordance with GAAP; as of the date hereof, there are no obligations,
Liabilities, or Indebtedness (including contingent and indirect Liabilities)
of the Loan Parties which are material and are not reflected in such financial
statements. No Material Adverse Effect has occurred since the date of such
financial statements.
5.06 Litigation. There are no actions, suits, proceedings, claims or
disputes pending, or to the knowledge of Borrower, threatened or contemplated,
at law, in equity, in arbitration or before any Governmental Authority,
against any Loan Party, or any of its Properties. No injunction, writ,
temporary restraining order or any order of any nature has been issued by any
court or other Governmental Authority purporting to enjoin or restrain the
execution, delivery or performance of this Agreement or any other Loan
Document, or directing that the transactions provided for herein or therein
not be consummated as herein or therein provided.
5.07 No Default. No Default or Event of Default exists or would be
reasonably expected to result from the incurring of any Obligations by
Borrower. As of the date on which Closing occurs, to Borrower's knowledge, it
is not in default under or with respect to any Contractual Obligation in any
respect which, individually or together with all such defaults, would
reasonably be expected to have a Material Adverse Effect.
5.08 ERISA.
(a) Borrower has not had and currently does not have or maintain a
Plan.
(b) Borrower does not sponsor, maintain or contribute to, or has at
any time in the preceding six calendar years, sponsored, maintained or
contributed to, any Multiemployer Plan.
5.09 Margin Regulations. The proceeds of the Loans shall be used solely
for the purposes set forth in and permitted by Section 6.11. Borrower is not
generally engaged in the business of purchasing or selling Margin Stock or
extending credit for the purpose of purchasing or carrying Margin Stock.
5.10 Title to Properties. Each Loan Party has good and defensible title
to its Mortgaged Properties and all other real property necessary or used in
the ordinary conduct of its business. As of Closing, the property of each Loan
Party is subject to no Liens, other than Permitted Liens.
5.11 Oil and Gas Reserves. Borrower is and will hereafter be the owner
of the Oil and Gas that it purports to own from time to time in and under its
Oil and Gas Properties, together with the right to produce the same. Such Oil
and Gas Properties are not subject to any Lien other than Permitted Liens. To
Borrower's knowledge, all Oil and Gas has been and will hereafter be produced,
sold and delivered in accordance with all applicable laws and regulations of
governmental authority; Borrower has complied and will comply with all
material terms of each oil, gas and mineral lease comprising its Oil and Gas
Properties and all other Contractual Obligations related thereto; and all such
oil, gas and mineral leases have been and will hereafter be maintained in full
force and effect. Provided, however that nothing in this Section 5.11 shall
prevent Borrower from abandoning any well or forfeiting, surrendering,
releasing or defaulting under any lease in the ordinary course of business
which is not disadvantageous in any way to Administrative Agent or Lenders and
which, in the opinion of Borrower, is in the best interest of Borrower, and
Borrower is and will hereafter be in compliance with all obligations
hereunder.
5.12 Initial Reserve Report. To the knowledge of Borrower (i) the
assumptions stated or used in the preparation of the Initial Reserve Report
are reasonable, (ii) all information furnished in the preparation of the
Initial Reserve Report was accurate in all material respects, (iii) there has
been no material adverse change in the amount of the estimated Oil and Gas
shown in the Initial Reserve Report since the date thereof, except for changes
which have occurred as a result of production from and after the effective
date thereof in the ordinary course of business, and (iv) the Initial Reserve
Report does not omit any statement or information necessary to cause the same
not to be misleading to Lenders.
5.13 Gas Imbalances. Except as disclosed to Lenders in writing prior to
the date of this Agreement, there are no gas imbalances in excess of two
percent (2%) of monthly projected deliveries from Borrower's Oil and Gas
Properties in the aggregate, and no take or pay or other prepayments with
respect to any such Oil and Gas Properties which would require Borrower to
deliver Oil and Gas produced from any of its Oil and Gas Properties at some
future time without receiving full payment therefor within sixty (60) days of
such production.
5.14 Taxes. Borrower has filed all Federal tax returns and reports
required to be filed, or if not filed, for which an extension has been granted
therefor, and has paid all Federal taxes, assessments, fees and other
governmental charges levied or imposed upon its or its properties, income or
assets otherwise due and payable, except those which are being contested in
good faith by appropriate proceedings and for which adequate reserves have
been provided in accordance with GAAP. Borrower has filed all state and other
non-Federal tax returns and reports required to be filed, and has paid all
state and other non-Federal taxes, assessments, fees and other governmental
charges levied or imposed upon it or its properties, income or assets
otherwise due and payable. To the knowledge of Borrower, there is no proposed
tax assessment against it that would, if made, reasonably be expected to have
a Material Adverse Effect.
5.15 Environmental Matters. To Borrower's knowledge, each Loan Party
conducts in the ordinary course of business a review of the effect of existing
Environmental Laws and Environmental Claims, if any, on its business,
operations and Properties, and such Properties which it is acquiring or
planning to acquire. To Borrower's knowledge, each Loan Party is in
compliance in all material respects with all Environmental Laws and does not
have any liability for any Environmental Claim.
5.16 Regulated Entities. None of Borrower or any Person controlling
Borrower, is an "Investment Company" within the meaning of the Investment
Company Act of 1940. Borrower is not subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act, the Interstate
Commerce Act, any state public utilities code, or any other Federal or state
statute or regulation limiting its ability to incur Indebtedness.
5.17 No Burdensome Restrictions. To Borrower's knowledge, it is not a
party to or bound by any Contractual Obligation, or subject to any restriction
in any Organization Document, or any Requirement of Law, which would
reasonably be expected to have a Material Adverse Effect.
5.18 Solvency. As of the date on which Closing occurs, each Loan Party
is Solvent.
5.19 Subsidiaries/Investments/Ownership. As of the date on which Closing
occurs, Borrower has no Subsidiaries other than MPC and has no material equity
investments in any other corporation or entity.
5.20 Insurance. The Oil and Gas Properties and all other property of
Borrower are insured with financially sound and reputable insurance companies
not Affiliates of Borrower, in such amounts, with such deductibles and
covering such risks as are customarily carried by companies engaged in similar
businesses and owning similar properties in localities where Borrower's Oil
and Gas Properties are located.
5.21 Full Disclosure. To Borrower's knowledge, none of the
representations or warranties made by Borrower in the Loan Documents as of the
date such representations and warranties are made or deemed made, and none of
the statements contained in any exhibit, report, written statement or
certificate furnished by or on behalf of Borrower in connection with the Loan
Documents contains any untrue statement of a material fact or omits any
material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they are
made, not misleading as of the time when made or delivered.
ARTICLE VI.
AFFIRMATIVE COVENANTS
So long as Lenders shall have any Commitment hereunder, or any Loan or
other Obligation shall remain unpaid or unsatisfied, unless Administrative
Agent and Lenders waive compliance in writing:
6.01 Financial Statements. Borrower shall maintain a system of
accounting established and administered in accordance with GAAP and deliver to
Lenders:
(a) as soon as available, but not later than ninety (90) days after
the last day of each fiscal year of Borrower prepared by an Independent
Auditor, commencing with the 2004 fiscal year, a copy of the annual audited
consolidated financial statements of Borrower and its Subsidiaries as of the
end of such year including the related balance sheet and statements of income,
owner's equity and cash flows for such year, setting forth in each case in
comparative form the figures for the previous fiscal year and certified by a
Responsible Officer as presenting fairly the financial position of Borrower
and its Subsidiaries, if any, for the periods indicated in conformity with
GAAP;
(b) as soon as available, but not later than forty-five (45) days
after the last day of each quarterly fiscal period (except the last) of each
fiscal year of Borrower, a copy of the unaudited consolidated balance sheets
of Borrower and its Subsidiaries as of the end of such quarter including the
related statements of income, owner's equity and cash flows for the period
commencing on the first day and ending on the last day of such quarter, in
comparative form the figures for the same period of the previous fiscal year,
and certified by a Responsible Officer as fairly presenting the financial
position of Borrower and its Subsidiaries for the period indicated, in
accordance with GAAP; and
(c) SEC Filings, Etc. Promptly upon its becoming available, each
financial statement, report, notice or proxy statement sent by Borrower to its
shareholders generally and each regular or periodic report and any
registration statement, prospectus or written communication (other than
transmittal letters) in respect thereof filed by Borrower with or received by
Borrower in connection therewith from any securities exchange or the SEC or
any successor agency.
6.02 Certificates Other Production and Reserve Information. Borrower
shall furnish to Lenders:
(a) as soon as available on a monthly basis, but not later than the
dates provided in Appendix I, Status Reports executed by a Responsible Officer
in form reasonably acceptable to Lenders, as of the last day of the reported
periods;
(b) concurrently with the delivery of each of the statements and
reports referred to in Subsections 6.01(a) - (b) and 6.02(a), a Compliance
Certificate executed by a Responsible Officer;
(c) a Reserve Report prepared by Borrower's in-house petroleum
engineer(s) covering Borrower' Oil and Gas Properties on or before September
30, 2005, (the "In-house Reserve Report Due Date") and a Reserve Report
prepared by an independent petroleum engineer retained by Borrower and
acceptable to Lenders covering Borrower' Oil and Gas Properties (all foregoing
Reserve Reports being acceptable to Lenders) on or before March 31, 2006 (the
"Third Party Reserve Report Due Date");
(d) Concurrently with the delivery of each Reserve Report provided
under Subsection 6.02(c) above, Borrower shall provide updated information to
Administrative Agent's counsel for the Mortgage Matching Schedule identifying
(i) any additional ▇▇▇▇▇ covered by the new Reserve Report which were not
covered by the most recent prior Reserve Report and (ii) any ▇▇▇▇▇ covered by
the most recent prior Reserve Report which are not covered by the new Reserve
Report;
(e) promptly upon the request of Lenders, such copies of all
geological, engineering and related data contained in Borrower' files or
readily accessible to Borrower relating to its Oil and Gas Properties;
(f) in the event that any adverse claims or Liens are asserted
against Borrower's interests in the Oil and Gas Properties, promptly upon the
request by Lenders, title and mortgage Lien evidence satisfactory to Lenders
covering such Oil and Gas Properties as may be designated by Lenders, covering
Borrower' title thereto and certifying that the Obligations are secured by
Liens and security interests as provided in this Agreement and the Security
Documents; and
(g) promptly upon the request of Administrative Agent or Lenders,
such additional information regarding the business, operations, financial or
corporate affairs of Borrower as Administrative Agent or Lenders may from time
to time reasonably request.
6.03 Notices. Borrower shall promptly notify Lenders:
(a) of the occurrence of any Default or Event of Default, and of the
occurrence or existence of any event or circumstance that would reasonably be
expected to become a Default or Event of Default;
(b) of any matter that has resulted or may reasonably be expected to
result in a Material Adverse Effect, including (i) breach or non-performance
of, or any default under, any Contractual Obligation of Borrower; (ii) any
dispute, litigation, investigation, proceeding or suspension between Borrower
and any Governmental Authority; or (iii) the commencement of, or any material
development in, any litigation or proceeding affecting Borrower (including
pursuant to any applicable Environmental Laws);
(c) of any material change in accounting policies or financial
reporting practices by Borrower; and
(d) of the formation or acquisition by Borrower of any Subsidiary.
Each notice under this Section shall be accompanied by a written statement by
a Responsible Officer setting forth details of the occurrence referred to
therein, and stating what action Borrower propose to take with respect thereto
and at what time.
6.04 Preservation of Corporate Existence, Etc. Borrower shall:
(a) preserve and maintain in full force and effect its separate,
legal existence, and maintain its good standing under the laws of its state or
jurisdiction of incorporation or organization, as applicable; and
(b) preserve and maintain in full force and effect all governmental
rights, privileges, qualifications, permits, licenses and franchises necessary
for the normal conduct of its business.
6.05 Maintenance of Property. Each Loan Party shall maintain and
preserve all its property which is used or useful in its business in good
working order and condition, ordinary wear and tear excepted and shall use the
reasonably prudent standard of care typical in the industry in the operation
and maintenance of its Oil and Gas and Pipeline Properties.
6.06 Insurance. Borrower shall maintain, with financially sound and
reputable independent insurers, insurance with respect to its operations and
its Oil and Gas and Pipeline Properties and other properties and business
against loss or damage of the kinds customarily insured against by Persons
engaged in the same or similar business, of such types and in such amounts as
are customarily carried under similar circumstances which insurance shall name
the Lenders as "additional insured" and as a "loss payee," as applicable.
6.07 Payment of Obligations. Each Loan Party shall pay and discharge as
the same shall become due and payable, all of its obligations and liabilities,
including: (a) all tax liabilities, assessments and governmental charges or
levies upon it or its Properties or assets, unless the same are being
contested in good faith by appropriate proceedings and adequate reserves in
accordance with GAAP are being maintained; (b) all lawful claims which, if
unpaid, would by law become a Lien upon its Property; and (c) all
Indebtedness, as and when due and payable, but subject to any subordination
provisions contained in any instrument or agreement evidencing such
indebtedness.
6.08 Compliance with Laws. Each Loan Party shall comply in all material
respects with all Requirements of Law of any Governmental Authority having
jurisdiction over it or its business except such as may be contested in good
faith or as to which a bona fide dispute may exist.
6.09 Maintenance of Books and Records. Borrower shall maintain proper
books of record and account, in which full, true and correct entries in
conformity with GAAP consistently applied shall be made of all of its
financial transactions and matters involving its assets and business.
6.10 Environmental Laws. Each Loan Party shall conduct its operations
and keep and maintain and use commercially reasonable efforts to cause third
Persons conducting operations on its Property to keep and maintain such
Property in compliance with all Environmental Laws.
6.11 Use of Proceeds. Borrower shall use the Loan proceeds as provided
on Appendix I.
6.12 Further Assurances. Each Loan Party shall promptly cure any defects
in the creation and issuance of the Convertible Notes and the execution and
delivery of this Agreement, the Warrant Agreement, the Security Documents, or
any other instruments referred to or mentioned herein or therein to which each
is a party. Borrower at its expense will promptly do all acts and things, and
will execute and file or record, all instruments reasonably requested by
Lenders, to establish, perfect, maintain and continue the perfected security
interests of Administrative Agent in or the Lien of Administrative Agent on
the Collateral. Borrower will pay the reasonable costs and expenses of all
filings and recordings and all searches deemed necessary by Administrative
Agent to establish and determine the validity and the priority of the Liens
created or intended to be created by the Security Documents; and Borrower
shall satisfy all other claims and charges which in the reasonable opinion of
Administrative Agent might prejudice, impair or otherwise affect any of the
Collateral or any Lien thereon in favor of Administrative Agent.
6.13 Guarantees. MPC shall guarantee, and at any time after the date of
this Agreement, Borrower shall create or acquire any other Subsidiary,
Borrower shall cause each such Subsidiary to execute and deliver a Guaranty to
Lenders and such Subsidiary shall become a Loan Party under this Agreement.
6.14 Security Documents. Each Loan Party shall promptly execute and
deliver to Administrative Agent such Security Documents as may be required
pursuant to Section 3.02 to ensure that all of the Loan Parties' Oil and Gas
and Pipeline Properties are covered by a Lien and security interest in favor
of Administrative Agent for the benefit of Lenders at all times.
6.15 Commodity Risk Program. Borrower shall maintain and follow a policy
of managing risk of Oil and Gas commodity price volatility with the objective
of minimizing potential adverse impacts on earnings under a formal program
mutually acceptable to Lenders and Borrower, including without limitation,
within 120 days following Closing, Borrower shall enter into Hedging
Agreements with counter-parties acceptable to Lenders and for periods not less
than 12 months and not more than 24 months, the notional volumes for which
(when aggregated with other commodity Hedge Agreements then in effect) cover
at least 50% of Borrower's reasonably anticipated projected production from
proved, developed, producing Oil and Gas Properties for each month during the
period during with such Hedge Agreement is in effect.
6.16 Equity Offering. On or before Closing Borrower shall have engaged
investment bankers, satisfactory to Lenders, to with the ability to assist
Borrower with investors to effect an Equity Offering to fund further
development drilling operations on the Mortgaged Properties.
6.17 Interest Reserve. Until the Effective Amount is less than
$1,000,000.00, Borrower shall maintain a reserve for debt service on the Loans
(the "Debt Service Account"). The initial amount required to be funded from
loan proceeds into the Debt Service Account shall be $160,000.00. To the
extent that the Borrower reasonably determines that its cash position is
insufficient to enable it pay the amount due to the Lenders on any Interest
Payment Date, so long as no Default or Event of Default is then in existence,
the Borrower may request that the Lenders release, and the Lenders agree to so
release, a portion of the monies held in the Debt Service Account so that such
monies can be applied on such Interest Payment Date against interest accrued
on the Notes through such date. In the event that monies have been released
from the Debt Service Account and Borrower's EBITDA for any month after July
31, 2005 is less than $40,000 for such month, the Borrower shall promptly
deposit sufficient monies into the Debt Service Account to restore it to a
balance of $160,000. Notwithstanding anything contained herein to the
contrary, Borrower shall remain fully liable for payment of interest under the
Notes regardless of whether or not sufficient funds are maintained in the Debt
Service Account. Borrower's Debt Service Account shall be maintained as
provided on Schedule I and pledged to Lenders under the Security Documents.
ARTICLE VII.
NEGATIVE COVENANTS
So long as any Loan or other Obligation shall remain unpaid or
unsatisfied, unless Lenders waive compliance in writing:
7.01 Limitation on Liens. Each Loan Party agrees that it shall not
directly or indirectly, make, create, incur, assume or suffer to exist any
Lien upon or with respect to any part of its property, whether now owned or
hereafter acquired, other than the following ("Permitted Liens"):
(a) any Lien created under any Loan Document;
(b) Liens scheduled on Schedule 7.01;
(c) Liens for taxes, fees, assessments or other governmental charges
which are not delinquent or remain payable without penalty, or to the extent
that nonpayment thereof is permitted by Section 6.07;
(d) carriers', warehousemen's, mechanics', landlords',
materialmen's, repairmen's or other similar Liens arising in the ordinary
course of business securing obligations which are not delinquent or remain
payable without penalty or which are being contested in good faith and by
appropriate proceedings, which proceedings have the effect of preventing the
forfeiture or sale of the property subject thereto;
(e) Liens consisting of pledges or deposits required in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other social security legislation;
(f) Liens securing (i) the non-delinquent performance of bids, trade
contracts (other than for borrowed money), statutory obligations, (ii)
contingent obligations, Surety Instruments (other than those providing credit
support for borrowed money), and (iii) other non-delinquent obligations of a
like nature; in each case, incurred in the ordinary course of business;
(g) easements, rights-of-way, restrictions, defects or other
exceptions to title and other similar encumbrances incurred in the ordinary
course of business which, in the aggregate, are not substantial in amount, are
not incurred to secure Indebtedness, and which do not in any case materially
detract from the value of the property subject thereto or interfere with the
ordinary conduct of Borrower's business; and
(h) Liens arising solely by virtue of any statutory or common law
provision relating to banker's liens, rights of set-off or similar rights and
remedies as to deposit accounts or other funds maintained with a creditor
depository institution; provided that (i) such deposit account is not a
dedicated cash collateral account and is not subject to restrictions against
access by Borrower, and (ii) Borrower maintains (subject to such right of set
off) dominion and control over such account(s).
7.02 Disposition of Assets. Borrower shall not directly or indirectly,
sell, assign, lease, convey, transfer or otherwise dispose of (whether in one
or a series of transactions) (collectively, "Dispositions") any property
(including accounts and notes receivable, with or without recourse) or enter
into any agreement to do any of the foregoing, except, so long as no Default
or Event of Default results therefrom:
(a) Dispositions of inventory including produced Oil and Gas in the
ordinary course of business for cash on a current basis;
(b) Dispositions of surplus, unused, obsolete or worn-out equipment
in the ordinary course of business, provided Borrower shall give Lenders
notice prior to any sale thereof; and
(c) Dispositions of Oil and Gas Properties to the extent permitted
on Appendix I.
7.03 Consolidations and Mergers. Borrower shall not merge, consolidate
with or into, or convey, transfer, lease or otherwise dispose of (whether in
one transaction or in a series of transactions) all or substantially all of
its assets (whether now owned or hereafter acquired) to or in favor of any
Person. Notwithstanding the foregoing, nothing in this Section 7.03 shall
prohibit Borrower from merging or consolidating with one or more other Person,
provided that Borrower shall be the surviving entity; and further, provided,
that no such merger or consolidation shall affect the Liens or security
interests of Administrative Agent in and to the Collateral.
7.04 Loans and Investments. Borrower shall not purchase or acquire or
make any commitment therefor, any capital stock, equity interest, or any
obligations or other securities of, or any interest in, any Person, or make or
commit to make any Acquisitions, or make or commit to make any advance, loan,
extension of credit or capital contribution to or any other investment in, any
Person including any Affiliate of Borrower, except for: (a) investments in
Cash Equivalents; (b) extensions of credit in the nature of accounts
receivable or notes receivable arising from the sale or lease of goods or
services in the ordinary course of business; and (c) extensions of credit or
other advances in an amount not to exceed $10,000 in the aggregate in the
estimation of anticipated travel or other reimbursable expenses to any
employees, officers, directors or Lenders.
7.05 Limitation on Indebtedness. The Loan Parties shall not create,
incur, assume, suffer to exist, or otherwise become or remain directly or
indirectly liable with respect to any Indebtedness, except:
(a) Indebtedness incurred pursuant to the Loan Documents,
(b) Indebtedness scheduled on Schedule 7.05;
(c) Indebtedness consisting of Contingent Obligations permitted
pursuant to Section 7.10;
(d) current liabilities, taxes and assessments incurred in the
ordinary course of business;
(e) Indebtedness in favor of third parties (i) on terms and
conditions first offered to Lenders which Lenders have declined to provide to
Borrower, (ii) Lenders have consented to such Indebtedness from such third
party lender, which consent shall not be unreasonably withheld, (iii) at the
time of incurring such Indebtedness, no Default shall exist or would result
from the incurrence of such Indebtedness after giving effect to the incurrence
of such Indebtedness when included with Borrower's existing Indebtedness, (iv)
such Indebtedness does not have any scheduled amortization prior to two years
after the Termination Date and (v) such Indebtedness shall be subject to an
intercreditor agreement between Lenders and any such third party lender on
terms and conditions reasonably satisfactory to Lenders ("Alternative
Financings"); and
(f) Indebtedness other than as described under the preceding clauses
(a), (b), (c), (d) and (e) in the aggregate amount not to exceed $50,000.
7.06 Financial Covenants.
(a) Minimum Collateral Coverage. Borrower shall not permit the
Present Value of its Reserves to be less than $6,000,000 nor the Present Value
of its Proved Reserves to be less than $2,000,000.
(b) Minimum Tangible Net Worth. Borrower will not permit its
Tangible Net Worth at any time to be less than the sum of $2,000,000 plus
50% of Borrower's Net Income (but not loss) for each fiscal quarter occurring
after March 31, 2005, taken as a single accounting period plus 85% of the net
cash proceeds from the sale of any Equity Interests of Borrower after March
31, 2005.
(c) Fixed Charge Coverage Ratio. Borrower shall not permit the
Fixed Charge Coverage Ratio at the end of any fiscal quarter ending on or
after June 30, 2005, to be less than 1.50 to 1.00.
7.07 Transactions with Affiliates. None of the Loan Parties shall enter
into any transaction with or make any payment or transfer to any Affiliate of
Borrower, except in the ordinary course of business and upon fair and
reasonable terms no less favorable than such Loan Party would obtain in a
comparable arm's-length transaction with a Person not an Affiliate of
Borrower.
7.08 Margin Stock. Borrower shall not use any portion of the Loan
proceeds, directly or indirectly, (a) to purchase or carry Margin Stock, (b)
to repay or otherwise refinance indebtedness of Borrower or others incurred to
purchase or carry Margin Stock, (c) to extend credit for the purpose of
purchasing or carrying any Margin Stock, or (d) to acquire any security in any
transaction that is subject to Section 13 or 14 of the Exchange Act.
7.09 Contingent Obligations. The Loan Parties shall not create, incur,
assume or suffer to exist any Contingent Obligations except: (a) endorsements
for collection or deposit in the ordinary course of business; (b) obligations
under plugging bonds, performance bonds and fidelity bonds issued for the
account of a Loan Party's obligations to indemnify or make whole any surety
and similar agreements incurred in the ordinary course of business; and (c)
pursuant to this Agreement.
7.10 Restricted Payments. Borrower agrees that it shall not purchase,
redeem or otherwise acquire for value any membership interests, partnership
interests, capital accounts, shares of its capital stock or any warrants,
rights or options to acquire such membership interests, partnership interests
or shares, now or hereafter outstanding from its members, partners or
stockholders and will not declare or pay any distribution, dividend, return
capital to its members, partners or stockholders, or make any distribution of
assets to its stockholders, members or partners (collectively
"Distributions").
7.11 Change in Business, Organization Documents, Name and Address. The
Loan Parties shall not engage in any business or activity other than the
Principal Business. No Loan Party shall amend, supplement or modify its
Organization Documents without the prior written consent of Lenders nor change
its name or principal business address without thirty days prior advance
notice to Lenders.
7.12 Accounting Changes. Borrower shall not make any significant change
in its accounting treatment or reporting practices, except as required by
GAAP, or change its fiscal year.
7.13 Restrictions of Pledges. Borrower shall not enter into any contract
or agreement which restricts Borrower's ability to (i) pledge any or all of
its assets or, (ii) in the case of any Subsidiary of Borrower, distribute any
or all of its funds or assets to Borrower; provided, however, nothing
contained in this Section 7.14 shall prohibit Borrower from entering into any
of the Loan Documents.
ARTICLE VIII.
EVENTS OF DEFAULT
8.01 Event of Default. Any of the following shall constitute an "Event
of Default":
(a) Non-Payment. Borrower fails to pay, when and as required to be
paid herein, any amount of principal or interest of any Loan, or fails to pay
within five (5) Business Days of when due any fee or other amount payable
hereunder or under any other Loan Document; or
(b) Representation or Warranty. Any representation or warranty by
any Loan Party made or deemed made herein, in any other Loan Document, or
which is contained in any certificate, document or financial or other
statement by any Loan Party or any Responsible Officer, furnished at any time
under this Agreement, or in or under any other Loan Document, is incorrect in
any material respect on or as of the date made or deemed made; or
(c) Specific Defaults. Any Loan Party fails to perform, observe or
comply with any term, covenant or agreement applicable to such Loan Party
contained in any of Subsection 6.03(a) or Article VII; or
(d) Other Defaults. Any Loan Party fails to perform, observe or
comply with any other term or covenant applicable to such Loan Party contained
in this Agreement other than as identified under Subsections 8.01(a), (b) or
(c) or any other Loan Document to the extent not covered under
Subsections 8.01(a), (b) or (c) of this Agreement, and such failure shall
continue unremedied for a period of ten (10) days after the earlier of (i) the
date upon which a Responsible Officer knew or reasonably should have known of
such failure or (ii) the date upon which written notice thereof is given to
Borrower by any Lender; or
(e) Cross-Default. Any Loan Party (i) fails to make any payment when
due (whether by scheduled maturity, required prepayment, acceleration, demand,
or otherwise) in respect of any Indebtedness or Contingent Obligation having
an aggregate principal amount (including undrawn committed or available
amounts and including amounts owing to all creditors under any combined or
syndicated credit arrangement) of more $60,000 and such failure continues
after the applicable grace or notice period, if any, specified in the relevant
document on the date of such failure; or (ii) fails to perform, observe or
comply with any other condition or covenant, or any other event shall occur or
condition exist, under any agreement or instrument relating to any such
Indebtedness or Contingent Obligation, if the effect of such failure, event or
condition is to cause, or to permit the holder or holders of such Indebtedness
or beneficiary or beneficiaries of such Indebtedness (or a trustee or agent on
behalf of such holder or holders or beneficiary or beneficiaries) to cause
such Indebtedness to be declared to be due and payable prior to its stated
maturity, or such Contingent Obligation to become payable or cash collateral
in respect thereof to be demanded; or (iii) any Indebtedness or Contingent
Obligations of any Loan Party on an aggregate basis in excess of $60,000 shall
be declared due and payable prior to its stated maturity or cash collateral is
demanded in respect of such Contingent Obligations; or
(f) Insolvency; Voluntary Proceedings. Any Loan Party (i) generally
fails to pay, or admits in writing its inability to pay, its debts as they
become due, subject to applicable grace periods, if any, whether at stated
maturity or otherwise; (ii) commences any Insolvency Proceeding with respect
to itself; or (iii) takes any action to effectuate or authorize any of the
foregoing; or
(g) Involuntary Proceedings. (i) Any involuntary Insolvency
Proceeding is commenced or filed against any Loan Party or any writ, judgment,
warrant of attachment, execution or similar process, is issued or levied
against all or a substantial part of such Loan Party's Properties, and any
such proceeding or petition shall not be dismissed, or such writ, judgment,
warrant of attachment, execution or similar process shall not be released,
vacated or fully bonded within 60 days after commencement, filing or levy;
(ii) any Loan Party admits the material allegations of a petition against it
or any of its Subsidiaries in any Insolvency Proceeding, or an order for
relief is ordered in any Insolvency Proceeding; or (iii) any Loan Party
acquiesces in the appointment of a receiver, trustee, custodian, conservator,
liquidator, mortgagee in possession (or agent therefor), or other similar
Person for itself or a substantial portion of its property or business; or
(h) Monetary Judgments. One or more judgments, orders, decrees or
arbitration awards is entered against Borrower involving in the aggregate a
liability (to the extent not covered by independent third-party insurance as
to which the insurer does not dispute coverage) as to any single or related
series of transactions, incidents or conditions in excess of $25,000, and the
same shall remain unsatisfied, unvacated and unstayed pending appeal for a
period of thirty (30) days after the entry thereof; or
(i) Loss of Permit. Any Governmental Authority revokes or fails to
renew any material license, permit or franchise of Borrower or any of its
Subsidiaries, or any such Person for any reason loses any material license,
permit or franchise, or suffers the imposition of any restraining order,
escrow, suspension or impound of funds in connection with any proceeding
(judicial or administrative) with respect to any material license, permit or
franchise; or
(j) Adverse Change. There occurs any event or circumstance which has
a Material Adverse Effect; or
(k) Change of Control or Management. There occurs any Change of
Control or a change of management such that any of the Current Management
shall cease or fail for any reason to serve and function in their current
capacity as an executive officer of Borrower and shall not be succeeded in
such position by a Person acceptable to Lenders; or
(l) Invalidity of Loan Documents. The Loan Documents, or any of
them, after delivery thereof, shall for any reason, except to the extent
permitted by the terms thereof, cease to be in full force and effect and
valid, binding and enforceable in accordance with their terms, or, with
respect to the Security Documents, cease to create a valid and perfected Lien
or security interest, as the case may be, of the priority required thereby on
any of the Collateral purported to be covered thereby, except to the extent
permitted by the terms of this Agreement, or Borrower or any Guarantor shall
so state in writing.
8.02 Remedies. If any Event of Default occurs and is continuing, Lenders
shall:
(a) exercise all rights and remedies available to them under the
Loan Documents or applicable law without presentment, demand, protest, notice
of intention to accelerate, notice of acceleration or any other notice of any
kind, all of which are hereby expressly waived by the Loan Parties, and
(b) Notwithstanding the foregoing, upon the occurrence of any event
specified in Subsection 8.01(f), or (g), the unpaid principal amount of all
outstanding Loans and all interest and other amounts as aforesaid shall
automatically become due and payable without further act of Lenders.
8.03 Set-off. In addition to any rights and remedies of Lenders provided
by law, if an Event of Default exists, Lenders are authorized at any time and
from time to time, without prior notice to Borrower, any such notice being
waived by Borrower to the fullest extent permitted by law, set off and apply
any and all deposits (general or special, time or demand, provisional or
final) at any time held by, and other indebtedness at any time owing by
Lenders to or for the credit or the account of Borrower against any and all
Obligations owing to Lenders, now or hereafter existing, irrespective of
whether Lenders shall have made demand under this Agreement or any Loan
Document and although such Obligations may be contingent or unmatured.
8.04 Payments Set Aside. To the extent that Borrower makes a payment to
Lenders, or a Lenders exercises its right of set-off, and such payment or the
proceeds of such set-off or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside or required (including
pursuant to any settlement entered into by such Lenders in its discretion) to
be repaid to a trustee, receiver or any other party, in connection with any
Insolvency Proceeding or otherwise, then to the extent of such recovery the
obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such set-off had not occurred.
8.05 Subordination of the Loan Party Liens.
(a) Each Subsidiary hereby subordinates and assigns in favor of
Administrative Agent any and all Liens, statutory or otherwise and any rights
of offset it has or may have in the future against Borrower's interests in the
Collateral including the Mortgaged Properties and the Contracts and Records
(defined below).
(b) Following the occurrence and during the continuance of any Event
of Default, Lenders are expressly granted the right at their option, to visit
and inspect (i) each Subsidiary's offices wherein contracts and records
regarding any of the Collateral are located, including all books and records,
farmout agreements, area of mutual interest agreements, development
agreements, geologic and geophysical survey agreements, operating agreements,
contracts and other agreements that relate to any of the Mortgaged Properties,
proprietary seismic, geological and geophysical, drilling and production data
and records, all accounting records, joint interest billing records, division
order records, land files, and contracts and records referring to the
production, sale, purchase, exchange or processing of Oil and Gas whether such
data, information or agreements are in written form or electronic format
(collectively "Contracts and Records"), and to examine, take copies and
extracts therefrom, at Borrower's expense and (ii) any of the Mortgaged
Properties.
(c) Following the occurrence and during the continuance of an Event
of Default, each Subsidiary acknowledges that Lenders is expressly granted the
right to exercise any and all Liens, statutory or otherwise, rights of offset
or recoupment it has and to receive the monies, income, proceeds, or benefits
attributable to the sale of Oil and Gas from or attributable to the Mortgaged
Properties, to hold the same as security for the Obligations and to apply it
on the principal and interest or other amounts owning on any of the
Obligations, whether or not then due, in such order or manner as Lenders may
elect.
(d) In the event of a foreclosure, deed in lieu of foreclosure,
appointment of a receiver, custodian or keeper or other transfer of record or
beneficial ownership or operations of the Collateral, each Subsidiary, as
bailee, agrees to cooperate and assist Administrative Agent, its officers,
Administrative Agents and counsel in the peaceful transfer and delivery of
such Contracts and Records to such party or parties as Administrative Agent
may in writing direct.
8.06 Rights Not Exclusive. The rights provided for in this Agreement and
the other Loan Documents are cumulative and are not exclusive of any other
rights, powers, privileges or remedies provided by law or in equity, or under
any other instrument, document or agreement now existing or hereafter arising.
ARTICLE IX.
ADMINISTRATIVE AGENT
9.01 Appointment and Authorization. Each Lender hereby irrevocably
(subject to Section 9.09) appoints, designates and authorizes Administrative
Agent to take such action on its behalf under the provisions of this Agreement
and each other Loan Document and to exercise such powers and perform such
duties as are expressly delegated to it by the terms of this Agreement or any
other Loan Document, together with such powers as are reasonably incidental
thereto. Notwithstanding any provision to the contrary contained elsewhere in
this Agreement or in any other Loan Document, Administrative Agent shall have
only such duties or responsibilities, as expressly set forth herein,
Administrative Agent shall not have or be deemed to have any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against Administrative
Agent.
9.02 Delegation of Duties. Administrative Agent may execute any of its
duties under this Agreement or any other Loan Document by or through agents,
employees or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. Administrative Agent shall
not be responsible for the negligence or misconduct of any agent or
attorney-in-fact that it selects with reasonable care.
9.03 Liability of Administrative Agent. None of the Agent-Related
Persons shall (i) be liable for any action taken or omitted to be taken by any
of them under or in connection with this Agreement or any other Loan Document
or the transactions contemplated hereby or thereby (except for its own gross
negligence or willful misconduct), or (ii) be responsible in any manner to any
of the Lenders or any Affiliate of any Lender for any recital, statement,
representation or warranty made by any Loan Party or any Affiliate of a Loan
Party, or any officer thereof, contained in this Agreement or in any other
Loan Document, or in any certificate, report, statement or other document
referred to or provided for in, or received by Administrative Agent under or
in connection with, this Agreement or any other Loan Document, or the
validity, effectiveness (other than such Agent-Related Person's own due
execution and delivery), genuineness, enforceability or sufficiency of this
Agreement or any other Loan Document, or for any failure of any Loan Party or
any other party to any Loan Document to perform its obligations hereunder or
thereunder. No Agent-Related Person shall be under any obligation to any
Lender to ascertain or to inquire as to the observance or performance of any
of the agreements contained in, or conditions of, this Agreement or any other
Loan Document, or to inspect the properties, books or records of any Loan
Party or any Affiliate of any Loan.
9.04 Reliance by Administrative Agent.
(a) Administrative Agent shall be entitled to rely, and shall be
fully protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, electronic mail, facsimile, telex or
telephone message, statement or other document or conversation believed by it
to be genuine and correct and to have been signed, sent or made by the proper
Person or Persons, and upon advice and statements of legal counsel,
independent accountants and other experts selected by Administrative Agent.
Administrative Agent shall be fully justified in failing or refusing to take
any action under this Agreement or any other Loan Document unless it shall
first receive such advice or concurrence of the Lenders as it deems
appropriate and, if it so requests, it shall first be indemnified to its
satisfaction by the Lenders and their Affiliates against any and all liability
and expense which may be incurred by it by reason of taking or continuing to
take any such action. Administrative Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement or any
other Loan Document in accordance with a request or consent of the Lenders
and such request and any action taken or failure to act pursuant thereto shall
be binding upon all of the Lenders.
(b) For purposes of determining compliance with the conditions
specified in Section 4.01, each Lender that has made available to
Administrative Agent its Pro Rata Share of the initial Loan or subsequent
Loan, as the case may be, shall be deemed to have consented to, approved or
accepted or to be satisfied with, each document or other matter either sent by
Administrative Agent to such Lender for consent, approval, acceptance or
satisfaction, or required thereunder to be consented to or approved by or
acceptable or satisfactory to the Lender as a condition precedent to such
initial Loan or subsequent Loan, as applicable.
9.05 Notice of Default. Administrative Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default,
unless Administrative Agent shall have received written notice from a Lender
or Borrower referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default". Administrative
Agent will notify the Lenders of its receipt of any such notice. Subject to
Subsection 9.04(a), Administrative Agent shall take such action with respect
to such Default or Event of Default as may be requested unanimously by the
Lenders in accordance with Article VIII; provided, however, that unless and
until Administrative Agent has received any such request, Administrative Agent
may (but shall not be obligated to) take such action, or refrain from taking
such action, with respect to such Default or Event of Default as it shall deem
advisable or in the best interest of the Lenders.
9.06 Credit Decisions. Each Lender acknowledges that none of the
Agent-Related Persons has made any representation or warranty to it, and that
no act by any Agent-Related Person hereafter taken, including any review of
the affairs of Borrower, shall be deemed to constitute any representation or
warranty by any Agent-Related Person to any Lender. Each Lender represents to
Administrative Agent that it has, independently and without reliance upon any
Agent-Related Person and based on such documents and information as it has
deemed appropriate, made its own appraisal of and investigation into the
business, prospects, operations, property, financial and other condition and
creditworthiness of Borrower, and all applicable bank regulatory laws relating
to the transactions contemplated hereby, and made its own decision to enter
into this Agreement and to extend credit to Borrower hereunder. Each Lender
also represents that it will, independently and without reliance upon any
Agent-Related Person and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement
and the other Loan Documents and Hedge Agreements, and to make such
investigations as it deems necessary to inform itself as to the business,
prospects, operations, property, financial and other condition and
creditworthiness of Borrower. Except for notices, reports and other documents
expressly herein required to be furnished to the Lenders by Administrative
Agent, Administrative Agent shall not have any duty or responsibility to
provide any Lender with any credit or other information concerning the
business, prospects, operations, property, financial and other condition or
creditworthiness of Borrower which may come into the possession of any of the
Agent-Related Persons.
9.07 INDEMNIFICATION. Whether or not the transactions contemplated
hereby are consummated, the Lenders and any Affiliates of the Lenders shall
indemnify upon demand the Agent-Related Persons (to the extent not reimbursed
by or on behalf of Borrower and without limiting the obligation of Borrower to
do so), pro rata according to each respective Lender's Pro Rata Share, each
Agent-Related Person from and against any and all Indemnified Liabilities
INCLUDING SUCH INDEMNIFIED LIABILITIES AS MAY ARISE OR BE CAUSED BY THE
NEGLIGENCE, SOLE, JOINT, CONCURRENT, COMPARATIVE OR OTHERWISE OF SUCH
AGENT-RELATED PERSONS; provided, however, that no Lender shall be liable for
the payment to any Agent-Related Persons of any portion of such Indemnified
Liabilities to the extent the same arise from (i) the gross negligence or
willful misconduct of any Agent-Related Person or (ii) a claim or action
asserted by one or more other Agent-Related Persons. Without limitation of
the foregoing, each Lender shall reimburse Administrative Agent upon demand
for its ratable share of any costs or out-of-pocket expenses (including
Attorney Costs) incurred by Administrative Agent in connection with the
preparation, execution, delivery, administration, modification, amendment or
enforcement (whether through negotiations, legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities under, this
Agreement, any other Loan Document , or any document contemplated by or
referred to herein, to the extent that Administrative Agent is not reimbursed
for such expenses by or on behalf of Borrower. The undertaking in this
Section shall survive the payment of all Obligations hereunder and the
resignation or replacement of Administrative Agent.
9.08 Administrative Agent in Individual Capacity. Administrative Agent,
in its individual capacity, may make loans to, issue letters of credit for the
account of, accept deposits from, acquire equity interests in and generally
engage in any kind of banking, trust, financial advisory, underwriting or
other business with Borrower of any Affiliate thereof as though Administrative
Agent were not Administrative Agent hereunder and without notice to or consent
of the Lenders. The Lenders acknowledge that, pursuant to such activities,
Administrative Agent or its Affiliates may receive information regarding
Borrower (including information that may be subject to confidentiality
obligations in favor of Borrower) and acknowledge that the Agent-Related
Persons shall be under no obligation to provide such information to them.
With respect to its Loans, Administrative Agent, in its individual capacity as
a Lender, shall have the same rights and powers under this Agreement as any
other Lender and may exercise the same as though it were not Administrative
Agent or the Issuing Lender.
9.09 Successor Administrative Agent. Administrative Agent may resign as
Administrative Agent upon 30 days' notice to the Lenders. If Administrative
Agent resigns under this Agreement, the Lenders shall appoint from among the
Lenders a successor administrative agent in the same capacity as the retiring
Administrative Agent for the Lenders. If no successor administrative agent is
appointed prior to the effective date of the resignation of such retiring
Administrative Agent, such retiring Administrative Agent may appoint, after
consulting with the Lenders, a successor administrative agent from among the
Lenders. Upon the acceptance of its appointment as successor administrative
agent hereunder, such successor administrative agent shall succeed to all the
rights, powers and duties of the retiring Administrative Agent and the term
"Administrative Agent" shall mean such successor administrative agent and the
retiring Administrative Agent's appointment, powers and duties as
Administrative Agent shall be terminated. After any retiring Administrative
Agent's resignation hereunder as Administrative Agent, the provisions of this
Article IX and Sections 10.04, 10.05 and 10.06 shall inure to its benefit as
to any actions taken or omitted to be taken by it while it was Administrative
Agent under this Agreement. If no successor administrative agent has accepted
appointment as Administrative Agent in the same capacity as the retiring
Administrative Agent by the date which is 30 days following a retiring
Administrative Agent's notice of resignation, the retiring Administrative
Agent shall either withdraw its resignation or may appoint as a successor
administrative agent a commercial bank organized under the laws of the United
States of America or of any State thereof.
9.10 Administrative Agent's Limited Liability. The parties hereto
acknowledge and agree that Prospect Energy Corporation, in its capacity as
Administrative Agent, has received the title of administrative agent under
this Agreement, however such designation is solely for convenience purposes
and Prospect Energy Corporation has no duties, responsibilities, functions,
obligations or liabilities implied or otherwise under the Loan Documents as a
result of being so designated as the Administrative Agent, except as and
solely to the extent expressly set forth in Articles III, VIII, and IX of this
Agreement and other than as a Lender and solely to the extent expressly set
forth in the other Loan Documents.
ARTICLE X.
MISCELLANEOUS
10.01 Amendments and Waivers. No amendment or waiver of any provision of
this Agreement or any other Loan Document, and no consent with respect to any
departure by any Loan Party therefrom, shall be effective unless the same
shall be in writing and signed by Administrative Agent, Lenders and the Loan
Parties and then any such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
10.02 Notices.
(a) Subject to the limitations set forth in Subsection 10.02(d)
below, Borrower is authorized to receive on behalf of itself and each
Subsidiary all notices from Lenders at the address, facsimile number and
electronic mail address for Borrower set out on Appendix I; and all notices to
Lenders shall be sent to Lenders at each Lenders' address, facsimile number
and electronic mail address set forth on Appendix I.
(b) All notices, requests, consents and other communications
required or permitted hereunder or under any other Loan Document shall be in
writing and mailed, faxed, delivered, or (subject to Subsection 10.02(d)
below) transmitted by electronic mail, to the address, facsimile number, or
electronic mail address specified for notices; or, as directed to Borrower,
Lenders to such other address as shall be designated by such Person in a
written notice to the other parties, and as directed to any other party, at
such other address as shall be designated by such party in a written notice to
Borrower, Administrative Agent and Lenders.
(c) All such notices, requests, consents and communications shall be
deemed to be given or made, and shall be effective, upon the earlier to occur
of (i) actual receipt by the intended recipient or (ii) (A) if delivered by
hand or by courier, when signed for by the intended recipient or an authorized
representative of such recipient; (B) if delivered by mail, the third Business
Day after the date on which such mail, postage prepaid was deposited in the
U.S. mail; (C) if delivered by facsimile, when transmitted in legible form by
facsimile machine; and (D) if delivered by electronic mail or via internet or
intranet websites (which form of delivery is subject to the provisions of
Subsection 10.02(d) below), when delivered; provided, however, that notice and
other communications to Administrative Agent or Lenders pursuant to Article II
or Article VI shall not be effective until actually received by Administrative
Agent or the Lender to which such notice was addressed.
(d) Electronic mail and internet and intranet websites may be used
only to distribute routine communications, such as financial statements and
other information, and to distribute Loan Documents for execution by the
parties hereto, and shall not be recognized for any other purpose.
(e) Any agreement of any Administrative Agent or Lenders herein to
receive certain notices by telephone or facsimile is solely for the
convenience and at the request of Borrower. Administrative Agent and Lenders
shall be entitled to rely on the authority of any Person purporting to be a
Person authorized by Borrower to give such notice and neither Administrative
Agent nor Lenders shall not have any liability to Borrower on account of any
action taken or not taken by Administrative Agent or Lenders in reliance upon
such telephonic or facsimile notice. The obligation of Borrower to repay the
Loans shall not be affected in any way or to any extent by any failure by
Administrative Agent or Lenders to receive written confirmation of any
telephonic or facsimile notice or the receipt by Administrative Agent or
Lenders of a confirmation which is at variance with the terms understood by
Lenders to be contained in the telephonic or facsimile notice.
10.03 No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of Administrative Agent or Lenders, any
right, remedy, power or privilege hereunder, shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, remedy, power
or privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege.
10.04 Costs and Expenses. Borrower shall, whether or not the
transactions contemplated hereby are consummated, pay or reimburse
Administrative Agent and Lenders within five (5) Business Days after demand
(or the date of Closing if sooner) for all reasonable costs and expenses
incurred by Administrative Agent and Lenders in connection with the
development, preparation, delivery, administration and execution of, and any
amendment, supplement, waiver or modification to (in each case, whether or not
consummated), this Agreement, any Loan Document and any other documents
prepared in connection herewith or therewith, and the consummation of the
transactions contemplated hereby and thereby, including attorney costs
incurred by Administrative Agent and Lenders with respect thereto.
10.05 Indemnity. Whether or not the transactions contemplated hereby are
consummated, each of the Loan Parties shall jointly and severally indemnify
and hold Administrative Agent and each Lender, and each of its Affiliates,
officers, directors, employees, counsel, Administrative Agents and
attorneys-in-fact (each, an "Indemnified Person") harmless from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, charges, expenses and disbursements (including
attorneys' fees and expenses) of any kind or nature whatsoever which may at
any time (including at any time following repayment of the Loans) be imposed
on, incurred by or asserted against any Indemnified Person in any way relating
to or arising out of this Agreement or any document contemplated by or
referred to herein, or the transactions contemplated hereby, or any action
taken or omitted by any Indemnified Person under or in connection with any of
the foregoing, including with respect to any investigation, litigation or
proceeding (including any Insolvency Proceeding or appellate proceeding)
related to or arising out of this Agreement or the Loans or the use of the
proceeds thereof, whether or not any Indemnified Person is a party thereto
(all the foregoing, collectively, the "Indemnified Liabilities") WHETHER OR
NOT SUCH INDEMNIFIED LIABILITIES ARISE OUT OF OR AS A RESULT OF ANY
INDEMNIFIED PERSON'S NEGLIGENCE IN WHOLE OR IN PART, INCLUDING, WITHOUT
LIMITATION, THOSE CLAIMS WHICH RESULT FROM THE SOLE, JOINT, CONCURRENT OR
COMPARATIVE NEGLIGENCE OF THE INDEMNIFIED PERSON, OR ANY ONE OR MORE OF THEM,
provided, that the Loan Parties shall not have any obligation hereunder to any
Indemnified Person with respect to Indemnified Liabilities to the extent same
arise from the gross negligence or willful misconduct of such Indemnified
Person as determined by a final judgment rendered by a court of competent
jurisdiction, or that arise solely by reason of claims among Indemnified
Persons. The agreements in this Section shall survive payment of all other
Obligations.
10.06 Environmental Indemnification. In addition to the indemnifications
hereunder and under any other Loan Documents, each Loan Party, jointly and
severally, shall indemnify, protect and hold each Indemnified Person harmless
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, proceedings, costs, expenses
(including, without limitation, all attorneys' fees and legal expenses whether
or not suit is brought) and disbursements of any kind or nature whatsoever
which may at any time be imposed on, incurred by, or asserted against such
Indemnified Person, with respect to or as a direct or indirect result of the
violation by Borrower or each Subsidiary of any Environmental Law; or with
respect to or as a direct or indirect result of Borrower's or each
Subsidiary's use, generation, manufacture, production, storage, release,
threatened release, discharge, disposal or presence in connection with the
Mortgaged Properties of a hazardous substance including, without limitation,
(a) all damages of any such use, generation, manufacture,
production, storage, release, threatened release, discharge, disposal or
presence, or (b) the costs of any reasonably required or necessary
environmental investigation, monitoring, repair, cleanup or detoxification and
the preparation and implementation of any closure, remedial or other plans
(all the foregoing, collectively, the "Indemnified Environmental
Liabilities"). Each Loan Party agrees to indemnify and hold each Indemnified
Person harmless as provided in this Section 10.06, WHETHER OF NOT THE
INDEMNIFIED ENVIRONMENTAL LIABILITIES ARISE OUT OF OR AS A RESULT OF ANY
INDEMNIFIED PERSON'S NEGLIGENCE IN WHOLE OR IN PART, INCLUDING, WITHOUT
LIMITATION, THOSE INDEMNIFIED ENVIRONMENTAL LIABILITIES WHICH RESULT FROM THE
SOLE, JOINT, CONCURRENT OR COMPARATIVE NEGLIGENCE OF THE INDEMNIFIED PERSON,
OR ANY ONE OR MORE OF THEM provided, that Borrower and each Subsidiary shall
not have any obligation hereunder to any Indemnified Person with respect to
Indemnified Environmental Liabilities to the extent same arise from the gross
negligence or willful misconduct of such Indemnified Person as determined by a
final judgment rendered by a court of competent jurisdiction. The provisions
of and undertakings and indemnification set forth in this Section 10.06 shall
survive (x) the satisfaction and payment of the Obligations and termination of
this Agreement, and (y) the release of any Liens securing the Obligations or
the extinguishment of such Liens by foreclosure or action in lieu thereof.
10.07 Assignment of Notes & Liens. A portion of the Loan proceeds will
be used to refinance in full all amounts, including but not limited to
principal, interest, fees, and other charges, owing by Borrower under that
certain promissory note dated August 13, 2003, in the original principal
amount of $1,100,000.00 from Borrower payable to the order of ▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇ ▇▇▇ and that certain promissory note dated August 13, 2003, in the
original principal amount of $250,000.00 from Borrower payable to the order of
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ (the "▇▇▇ Notes"). The obligations of Borrower under the
▇▇▇ Notes are hereby deemed to be current as of the date of Closing.
10.08 Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that Borrower may not assign or
transfer any of its rights or obligations under this Agreement without the
prior written consent of Lenders. Either Lender may at any time assign and
delegate to one or more Persons (each an "Assignee") all, or any ratable part
of all, of its Loans and the other rights and obligations of Lenders
hereunder.
10.09 Interest.
(a) It is the intention of the parties hereto to comply with
applicable usury laws; accordingly, notwithstanding any provision to the
contrary in this Agreement, the Convertible Notes or in any of the other Loan
Documents securing the payment hereof or otherwise relating hereto, in no
event shall this Agreement, the Convertible Notes or such other Loan Documents
require the payment or permit the payment, taking, reserving, receiving,
collection, or charging of any sums constituting interest under applicable
laws, if any, which exceed the maximum amount permitted by such laws. If any
such excess interest is called for, contracted for, charged, taken, reserved,
or received in connection with the Loans evidenced by the Convertible Notes or
in any of the Loan Documents securing the payment thereof or otherwise
relating thereto, or in any communication by Lenders or any other person to
Borrower or any other person, or in the event all or part of the principal or
interest thereof shall be prepaid or accelerated, so that under any of such
circumstances or under any other circumstance whatsoever the amount of
interest contracted for, charged, taken, reserved, or received on the amount
of principal actually outstanding from time to time under the Convertible
Notes shall exceed the maximum amount of interest permitted by applicable
usury laws, then in any such event it is agreed as follows: (i) the provisions
of this paragraph shall govern and control, (ii) neither Borrower nor any
other person or entity now or hereafter liable for the payment and performance
of the Obligations shall be obligated to pay the amount of such interest to
the extent such interest is in excess of the maximum amount of interest
permitted by applicable usury laws, (iii) any such excess which is or has been
received notwithstanding this paragraph shall be credited against the then
unpaid principal balance of the Convertible Notes or, if the Convertible Notes
have been or would be paid in full, refunded to Borrower, and (iv) the
provisions of this Agreement, the Convertible Notes and the other Loan
Documents securing the payment hereof and otherwise relating hereto, and any
communication to Borrower, shall immediately be deemed reformed and such
excess interest reduced, without the necessity of executing any other
document, to the Highest Lawful Rate allowed under applicable laws as now or
hereafter construed by courts having jurisdiction hereof or thereof. Without
limiting the foregoing, all calculations of the rate of the interest
contracted for, charged, taken, reserved, or received in connection with the
Convertible Notes or this Agreement which are made for the purpose of
determining whether such rate exceeds the Highest Lawful Rate shall be made to
the extent permitted by applicable laws by amortizing, prorating, allocating
and spreading during the period of the full term of the Loans, including all
prior and subsequent renewals and extensions, all interest at any time
contracted for, charged, taken, reserved, or received. The terms of this
paragraph shall be deemed to be incorporated in every document and
communication relating to the Note, the Loans or any other Loan Document.
(b) To the extent that the interest rate laws of the State of Texas
are applicable to the Loans, the applicable interest rate ceiling is the
indicated (weekly) ceiling from time to time in affect under Texas Finance
Code Section 303.001, as limited by Texas Finance Code Section 303.009, and to
the extent that this Agreement is deemed an "open end account" as such term is
defined in Texas Finance Code Section 301.002(a)(14), Lenders retain the right
to modify the interest rate in accordance with applicable law.
10.10 Counterparts and Facsimile Signatures. This Agreement may be
executed in any number of separate counterparts, each of which, when so
executed, shall be deemed an original, and all of said counterparts taken
together shall be deemed to constitute but one and the same instrument. The
Loan Documents may be transmitted and/or signed by facsimile. The
effectiveness of any such documents and signatures shall, subject to
applicable law, have the same force and effect as manually-signed originals
and shall be binding on the Loan Parties, Administrative Agent and Lenders may
also require that any such documents and signatures be confirmed by a
manually-signed original thereof; provided, however, that the failure to
request or deliver the same shall not limit the effectiveness of any facsimile
document or signature.
10.11 Severability. The illegality or unenforceability of any provision
of this Agreement or any instrument or agreement required hereunder shall not
in any way affect or impair the legality or enforceability of the remaining
provisions of this Agreement or any instrument or agreement required
hereunder.
10.12 No Third Parties Benefited. This Agreement and the other Loan
Documents are made and entered into for the sole protection and legal benefit
of the Loan Parties, Administrative Agent and Lenders, and their permitted
successors and assigns, and no other Person shall be a direct or indirect
legal beneficiary of, or have any direct or indirect cause of action or claim
in connection with, this Agreement or any of the other Loan Documents.
10.13 USA PATRIOT Act Notice. Each Lender hereby notifies each Loan
Party that pursuant to the requirements of the USA Patriot Act (Title III of
Pub. L. 107-56 (signed into law October 26, 2001)) (the "Act"), it is required
to obtain, verify and record information that identifies Borrower and each of
its Subsidiaries, which information includes the name and address of Borrower
and each of its Subsidiaries and other information that will allow Lenders to
identify Borrower and each of its Subsidiaries in accordance with the Act.
10.14 Governing Law. This Agreement, the Note, the Guarantees, if any,
the Warrant Agreement, the Security Documents, and the other Loan Documents
shall be governed by, construed and interpreted in accordance with, the laws
of the State of Texas, except to the extent that federal laws of the United
States of America apply.
10.15 Submission To Jurisdiction. With respect to any and all disputes
arising hereunder, or under the Note, the Warranty, the Guarantees, the
Security Documents, the other Loan Documents, or any of the other instruments
and documents executed in connection herewith or therewith not settled, each
of Borrower, each Guarantor, Administrative Agent and Lenders hereby
irrevocably and unconditionally:
(a) submits for itself and its Property in any legal action or
proceeding relating to this Agreement, the Convertible Notes and any document
to which it is a party, or for recognition and enforcement of any judgment in
respect of any thereof, to the non-exclusive general jurisdiction of the
courts of the State of Texas, the courts of the United States of America for
the Northern District of Texas New York, and appellate courts from any
thereof;
(b) consents that any such action or proceeding may be brought in
such courts, and waives any objection that it may now or hereafter have to the
venue of any such action or proceeding in any such court or that such action
or proceeding was brought in an inconvenient court and agrees not to plead or
claim the same;
(c) each Loan Party irrevocably designates, appoints and empowers
and hereby confers an irrevocable special power, ample and sufficient, to CT
Corporation System, with offices on the date hereof at ▇▇▇ ▇▇▇▇▇ ▇▇. ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ as its designee, appointee and agent
with respect to any such proceeding in Texas to receive, accept and
acknowledge for and on its behalf, and in respect of its property, service of
any and all legal process, summons, notices and documents which may be served
in any such proceeding and agrees that the failure of such agent to give any
advice of any such service of process to such Loan Party shall not impair or
affect the validity of such service or of any claim based thereon. If for any
reason such designee, appointee and agent shall cease to be available to act
as such, each Loan Party agrees to designate a new designee, appointee and
agent in Dallas, Texas reasonably satisfactory to the Lenders on the terms and
for the purposes of this provision. To the extent permitted by applicable
law, each Loan Party hereby irrevocably consents to the service of process
with respect to any proceeding (whether or not in Dallas, Texas), by the
mailing of copies thereof by registered or certified mail, postage prepaid, to
it at its address set forth on Appendix I, such service to become effective 30
days after such mailing.
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to ▇▇▇ in any other jurisdiction;
(e) agrees that service upon it or its authorized agent shall, to
the fullest extent permitted by law, constitutes valid and effective personal
service upon it, as the case may be, and that the failure of any such
authorized agent to give any notice of such service to it shall not impair or
affect in any way the validity of such service or any judgment rendered in any
action or proceeding based thereon; and
(f) waives, to the fullest extent permitted by applicable law, any
objection, including any objection to the laying of venue or based on the
grounds of forum non conveniens, which it may now or hereafter have to the
bringing of any action or proceeding in such jurisdiction in respect of this
agreement or any document related hereto.
10.16 Waiver Of Jury Trial. Each Loan Party waives, to the fullest
extent permitted by applicable law, its rights to a trial by jury of any claim
or cause of action based upon or arising out of or related to this Agreement,
the Convertible Notes, the Security Documents, the Warrant Agreement, the
other Loan Documents, or the transactions contemplated hereby or thereby, in
any action, proceeding or other litigation of any type brought by any of the
parties against any other party or any Indemnified Person, or assignee
thereof, whether with respect to contract claims, tort claims, or otherwise.
Each Loan Party, to the fullest extent permitted by applicable law, agrees
that any such claim or cause of action shall be tried by a court trial without
a jury. Without limiting the foregoing, to the fullest extent permitted by
applicable law, each Loan Party further agrees that its respective right to a
trial by jury is waived by operation of this section as to any action,
counterclaim or other proceeding which seeks, in whole or in part, to
challenge the validity or enforceability of this Agreement or the other Loan
Documents or any provision hereof or thereof. This waiver shall apply to any
subsequent amendments, renewals, supplements or modifications to this
Agreement and the other Loan Documents.
10.17 Entire Agreement. This Agreement, together with the other Loan
Documents, embodies the entire agreement and understanding among the Loan
Parties, Administrative Agent and Lenders and supersedes all prior or
contemporaneous agreements and understandings of such Persons, verbal or
written, relating to the subject matter hereof and thereof.
10.18 NO ORAL AGREEMENTS. THIS WRITTEN LOAN AGREEMENT, TOGETHER WITH THE
OTHER WRITTEN LOAN DOCUMENTS EXECUTED IN CONNECTION HEREWITH, 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.
[The Remainder of this Page Intentionally Left Blank.
Signature Pages to Follow.]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed and delivered by their proper and duly authorized officers as of the
day and year first above written.
BORROWER:
▇▇▇▇▇▇ PETROLEUM, INC.
By:____________________________
▇▇▇▇▇ ▇▇▇▇▇▇
Chief Executive Officer
GUARANTOR:
MPC, INC.
By:_____________________________
▇▇▇▇▇ ▇▇▇▇▇▇
Chief Executive Officer
Credit agreement
Page 1 of 3 Signature Pages
ADMINISTRATIVE AGENT AND LENDER
PROSPECT ENERGY CORPORATION,
a Maryland corporation
By: ____________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Principal
Credit Agreement
Page 2 of 3 Signature pages
LENDER:
PETRO CAPITAL III, L.P., a Texas limited partnership
By: Petro/▇▇▇▇▇▇ Management, LLC, a Texas limited
liability company, its General Partner
By:________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇
Manager
Credit Agreement
Page 3 of 3 Signature Pages
APPENDIX I
CREDIT AGREEMENT
dated as of May 4, 2005
between Petro Capital III, L.P. and Prospect Energy Corporation ("Lenders")
and ▇▇▇▇▇▇ Petroleum, Inc. ("Borrower")
This Appendix I is attached to and made a part of the Credit Agreement.
All capitalized terms not otherwise defined in this Appendix I are defined in
the Credit Agreement.
Lenders: Principal Address:
Petro Capital III, L.P.
Attn: ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇.
Phone: (▇▇▇) ▇▇▇-▇▇▇▇ Suite 1775
Fax: (▇▇▇) ▇▇▇-▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Email: ▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
Prospect Energy Corporation ▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇: ▇▇▇▇▇ ▇▇▇▇▇▇▇ Suite 4400
Phone: (▇▇▇) ▇▇▇-▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
Borrower: Principal Address:
▇▇▇▇▇▇ Petroleum, Inc.
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇▇@▇▇▇.▇▇▇.▇▇▇
Current Management:
▇▇▇▇▇ ▇▇▇▇▇▇, Chairman and CEO
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, President
▇▇▇▇ Bible, Vice President - Geology
Current Directors:
▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇
1. LOAN TERMS
A. Maximum Loan Amount - (Section 1.01): $4,150,000,000.00
B. Lenders' Pro Rata Share:
(i) Petro Capital III, L.P. 24.10% ($1,000,000.00)
(ii) Prospect Energy 75.90% ($3,150,000.00)
C. Pricing - (Section 2.03 )
(i) Contract Rate: 12.5%
(ii) Default Rate: lesser of:
(i) Contract Rate plus 5% or
(ii) Highest Lawful Rate.
D. Stated Maturity Date (Section 1.02): June 30, 2006.
E. Fees (Section 2.04)
(i) Origination Fee 2% of Maximum Loan Amount,
to be paid to each Lender
equal to their Pro-Rata
Share.
(ii) Warrants 1,000,000 shares of
Borrower's common stock
(830,000 shares issued to
each Lender equal to their
Pro-Rata Share and 170,000
shares issued to Petro
Capital Advisors, LLC).
F. Reporting (Sections 6.01 and 6.02)
(i) Annual Audited 90 days, or sooner to the
extent required by SEC.
(ii) Quarterly Unaudited 45 days, or sooner to the
extent required by SEC.
(iii) Status Report 45 days following the last
day of each month.
(iv) Reserve Report September 30, 2005
(in-house) and March 31,
2006 (third party).
G. Use of Proceeds (Section 6.12) Borrower shall use the Loan
proceeds to (i) refinance a
portion of $2,000,000 of
debt owed to ▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇ ▇▇▇ and ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇;
(ii) fund a portion
$1,580,000 Drilling Program
(drill and complete 12 ▇▇▇▇▇
at $300,000 per well gross
AFE and recomplete 3 ▇▇▇▇▇
for $66,700 gross AFE);
(iii) Interest Reserve
$160,000;
(iv) finance Borrower's
expenses associated with the
Agreement.
H. Disposition of Oil and Gas Properties (Section 7.02)
Borrower may sell such
portion of its Mortgaged
Properties in excess of 25%
Working Interest, provided,
Borrower may sell such
portion of its undivided
interest in the ▇▇▇▇▇▇▇
Prospect , Brazoria County,
Texas and Harriman Prospect,
▇▇▇▇▇ County, Tennessee in
excess of 12.5% Working
Interest.
2. ADDITIONAL CLOSING CONDITIONS (Subsection 4.01(f)):
A. Borrower shall have good and defensible title to at least (i) an
undivided twelve and one-half percent (12.5%) working interest in the ▇▇▇▇▇▇▇
Prospect, Brazoria County, Texas and the Harriman Prospect, ▇▇▇▇▇ County,
Tennessee; and (ii) an undivided twenty-five percent (25%) working in the
remainder of the Mortgaged Properties and
B. Borrower shall have delivered to Lenders, fully executed and
completed Letters in Lieu in the form of Exhibit B hereto and as described in
Subsection 3.05(a), addressed to each of Borrowers purchasers of production in
such number as Lenders may require.
C. Borrower shall have delivered to Petro Capital Advisors, LLC
pursuant to the Arrangement Fee Letter of even date herewith a Stock Purchase
Warrant Agreement for 170,000 shares of Borrower's common stock.
2. POST CLOSING CONDITIONS (Subsection 4.02):
A. Borrower shall have, within 5 days of Closing, (i) established
the
Debt Service Account with a bank mutually acceptable to Borrower and Lenders,
(ii) entered into a Deposit Account Control Agreement with such bank in form
satisfactory to Lenders which names Administrative Agent as the secured party,
and (iii) entered into a Commercial Security Agreement with Administrative
Agent as the secured party.
SCHEDULE I
SECURITY DOCUMENTS
I. Security Documents:
1. Oil and Gas Properties
A. Mortgage, Deed of Trust, Security Agreement, Assignment of
Production and Financing Statement covering Borrower's Oil and Gas and
Pipeline Properties located in:
County State
(i) ▇▇▇▇▇▇▇▇ Tennessee
(ii) ▇▇▇▇▇ Tennessee
(iii) Brazoria Texas
2. Control Deposit Account
A. Debt Service Account to be established within 5 days of
Closing at a bank mutually acceptable to Borrower and Lenders ("Depository
Bank") for the account of "▇▇▇▇▇▇ Petroleum, Inc. Debt Service Account" in the
original amount of $160,000.00, secured by Deposit Account Control Agreement
from Borrower in favor of Administrative Agent and Depository Bank and
Commercial Security Agreement in favor of Administrative Agent.
2. Financing Statements
A. Financing Statement - Borrower
Jurisdiction: Secretary of State of Tennessee
EXHIBIT "A"
FORM OF CONVERTIBLE PROMISSORY NOTE
THIS CONVERTIBLE PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE.
NEITHER THIS CONVERTIBLE PROMISSORY NOTE NOR ANY INTEREST HEREIN MAY BE
OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION AND QUALIFICATION UNLESS THE PROSPECTIVE TRANSFEREE PROVIDES
MAKER WITH AN OPINION OF COUNSEL (WHICH SHALL NOT BE AT THE EXPENSE OF MAKER)
REASONABLY SATISFACTORY TO MAKER THAT SUCH TRANSFER IS BEING MADE PURSUANT TO
AN EXEMPTION FROM REGISTRATION UNDER THE ACT, AND DOES NOT REQUIRE
REGISTRATION OR QUALIFICATION UNDER ANY STATE SECURITIES LAWS. THE OPINION
SHALL ALSO STATE THAT AS A RESULT OF SUCH TRANSFER, MAKER IS UNDER NO
OBLIGATION TO REGISTER UNDER THE SECURITIES ACT OF 1934, AS AMENDED, THE
INVESTMENT COMPANY ACT OF 1940 OR ANY OTHER FEDERAL OR STATE SECURITIES LAW.
CONVERTIBLE PROMISSORY NOTE
April ____, 2005
$__,000,000
FOR VALUE RECEIVED, the undersigned, ▇▇▇▇▇▇ PETROLEUM, INC., a Tennessee
corporation ("Maker"), promises to pay to the order of_______________________
(herein called "Payee", which term shall herein in every instance refer to any
owner or holder of this Note) the sum of ________ MILLION DOLLARS
($__,000,000.00) or so much thereof as may be advanced to Maker by Payee from
time to time, together with interest on the principal hereof outstanding until
maturity, said principal and interest being payable in lawful money of the
United States of America as more particularly provided in that certain Credit
Agreement of even date herewith, between Maker and Payee, as such may be
amended or restated from time to time (the "Credit Agreement"). Capitalized
terms used, but not otherwise defined, herein shall have the meaning given
such terms in the Credit Agreement.
At the closing of each Equity Offering by Maker Holder shall have the
option, exercisable in its sole discretion, to convert part or all of the
unpaid principal balance of and accrued unpaid interest on this Convertible
Note into fully paid and non-assessable shares of stock in connection with
such Equity Offering, with the same rights and preferences, if any, as other
shares of stock. Such voluntary conversion shall be exercised at any time
during or following the Equity Offering and on or before the Maturity Date by
giving written notice thereof to Maker. The number of shares of stock to be
issued upon such conversion shall be equal to the quotient obtained by
dividing (a) the unpaid principal of and accrued unpaid interest on this
Convertible Note on the date of conversion, by (b) the price per share equal
to the lesser of (i) the price of the stock issued to the investors in the
Equity Offering and (ii) $1.50 per share (the "Conversion Price"), and this
Convertible Note shall be cancelled as to the number of shares received by
Holder times the Non-Qualified Conversion Price. If the Equity Offering does
not occur prior to the Maturity Date, Holder will be entitled to cash only.
Upon conversion of this Convertible Note into stock, Holder shall
surrender this Convertible Note at the offices of Maker at ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and Maker shall, at its expense, deliver to
Holder as soon as practicable a certificate representing the number of shares
of stock provided in the immediately preceding paragraph. Irrespective of the
date of issuance and delivery of any certificates with respect thereto, shares
of stock purchased by conversion as provided herein shall be, and be deemed to
be, issued to Holder as the record owner of such shares as of the close of
business on the date on which this Convertible Note shall have been
surrendered as aforesaid.
Maker covenants that all shares of stock that may be issued upon
conversion of this Convertible Promissory Note will, upon issuance thereof, be
validly issued, fully paid and nonassessable and free from all preemptive
rights, taxes, liens and charges in respect of the issue thereof. No
fractional shares or scrip representing fractional shares shall be issued upon
the exercise of the conversion rights provided herein. In lieu thereof, Maker
shall pay cash equal to any such fractional shares, based upon the Conversion
Price. Issuance of certificates for stock upon the conversion provided herein
shall be made without charge to Holder for any issue or transfer tax or other
incidental expense in respect of the issuance of such certificate, all of
which taxes and expenses shall be paid by Maker, and such certificates shall
be issued in the name of Holder.
This Convertible Note does not entitle Holder, by virtue solely of the
ownership of this Convertible Note, to any voting rights or other rights as a
shareholder of Maker prior to the conversion provided herein.
No adjustment on account of cash dividends or interest on any capital
stock of Maker will be made to the Conversion Price.
Maker covenants that its issuance of this Convertible Note shall
constitute full authority to its officers who are charged with the duty of
executing stock certificates to execute and issue the necessary certificates
for shares of stock upon the conversion of this Convertible Note.
Maker may prepay this Convertible Note in whole or in part as provided in
the Credit Agreement without being required to pay any penalty or premium for
such privilege. All prepayments hereunder, whether designated as payments of
principal or interest, shall be applied in Payee's discretion to the principal
or interest of this Convertible Note or to expenses provided for herein, or
any combination of the foregoing.
Maker and any and all sureties, guarantors and endorsers of this
Convertible Note and all other parties now or hereafter liable hereon,
severally waive grace, demand, presentment for payment, protest, notice of any
kind (including, but not limited to, notice of dishonor, notice of protest,
notice of intention to accelerate and notice of acceleration) and diligence in
collecting and bringing suit against any party hereto and agree (i) to all
extensions and partial payments, with or without notice, before or after
maturity, (ii) to any substitution, exchange or release of any security now or
hereafter given for this Convertible Note, (iii) to the release of any party
primarily or secondarily liable hereon, and (iv) that it will not be necessary
for Payee, in order to enforce payment of this Convertible Note, to first
institute or exhaust Payee's remedies against Maker or any other party liable
therefor or against any security for this Convertible Note.
If any sum payable under this Convertible Note or under the Credit
Agreement is not paid when due (whether the same becomes due by acceleration
or otherwise) and this Convertible Note is placed in the hands of an attorney
for collection or enforcement of this Convertible Note or the Credit
Agreement, or if this Convertible Note is collected through any legal
proceedings, including, but not limited to suit, probate, insolvency or
bankruptcy proceedings, Maker agrees to pay all reasonable attorneys' fees and
all reasonable expenses of collection and costs of court.
Regardless of any provision contained in this Convertible Note or any
other Loan Document executed or delivered in connection therewith, Payee shall
never be deemed to have contracted for or be entitled to receive, collect or
apply as interest on this Convertible Note (whether termed interest herein or
deemed to be interest by judicial determination or operation of law), any
amount in excess of the Highest Lawful Rate (hereafter defined), and, in the
event that Payee ever receives, collects or applies as interest any such
excess, such amount which would be excessive interest shall be applied to the
reduction of the unpaid principal balance of this Convertible Note; and, if
the principal balance of this Convertible Note is paid in full, any remaining
excess shall forthwith be paid to Maker. In determining whether or not the
interest paid or payable under any specific contingency exceeds the Highest
Lawful Rate, Maker and Payee shall, to the maximum extent permitted under
applicable law, (a) characterize any non principal payment (other than
payments which are expressly designated as interest payments hereunder) as an
expense or fee rather than as interest, (b) exclude voluntary pre payments and
the effect thereof, and (c) spread the total amount of interest throughout the
entire contemplated term of this Convertible Note so that the interest rate is
uniform throughout such term; provided that if this Convertible Note is paid
and performed in full prior to the end of the full contemplated term hereof,
and if the interest received for the actual period of existence thereof
exceeds the Highest Lawful Rate, if any, then Payee or any holder hereof shall
refund to Maker the amount of such excess, or credit the amount of such excess
against the aggregate unpaid principal balance of all advances made by Payee
or any holder hereof under this Convertible Note at the time in question.
Texas Finance Code, Chapter 346, which regulates certain revolving loan
accounts and revolving tri-party accounts, shall not apply to any revolving
loan accounts created under this Convertible Note or the other Loan Documents
or maintained in connection therewith.
Maker warrants that this Convertible Note is executed solely for business
or commercial purposes, other than agricultural purposes and warrants that it
is specifically exempted under Section 226.3(a) of Regulation Z issued by the
Board of Governors of the Federal Reserve System and under Title I (Truth in
Lending Act) and Title V (General Provisions) of the Consumer Credit
Protection Act, and that no disclosures are required to be given under such
regulations and federal laws in connection with the above transaction.
Any check, draft, money order or other instrument given in payment of all
or any portion hereof may be accepted by Payee and handled in collection in
the customary manner, but the same shall not constitute payment hereunder or
diminish any rights of Payee except to the extent that actual cash proceeds of
such instrument are unconditionally received by Payee.
Except to the extent required by federal law, this Convertible Note shall
be governed by and construed under the laws of the State of Texas.
▇▇▇▇▇▇ PETROLEUM, INC., a Tennessee
corporation.
By: _______________________________
▇▇▇▇▇ ▇▇▇▇▇▇
Chief Executive Officer
- MAKER -
EXHIBIT "B"
FORM OF LETTER IN LIEU
_____________________________
_____________________________
_____________________________
Attn: Division Order Department
Re: Letter in Lieu of Transfer Order
Gentlemen:
▇▇▇▇▇▇ PETROLEUM, INC., as Mortgagor, has executed the mortgages and
financing statements described on Exhibit A attached hereto (collectively, the
"Mortgage") for the benefit of PROSPECT ENERGY CORPORATION ("Administrative
Agent"), granting a mortgage on and pledging those certain properties (the
"Pledged Properties") described in the Mortgage to secure certain obligations
also described in the Mortgage. Enclosed is a copy of the Mortgage covering
the Pledged Properties.
Exhibit B attached hereto lists the properties which are subject to the
Mortgage for which you are accounting to Mortgagor and the decimal interest in
production heretofore paid to Mortgagor with respect to its interest in each
given property.
Pursuant to the assignment of production provision in the Mortgage, and
subject to the terms of that certain Credit Agreement of even date with the
Mortgage, Mortgagor transferred and assigned all of its interests in the
Pledged Properties to Administrative Agent. Therefore, Mortgagor hereby
authorizes and instructs you that all future payments attributable to the
Pledged Properties, which would otherwise be paid to Mortgagor, should be made
by check payable to:
Prospect Energy Corporation, Administrative Agent ▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇: ▇▇▇▇▇ ▇▇▇▇▇▇▇ Suite 4400
Phone: (▇▇▇) ▇▇▇-▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
until notified in writing by Administrative Agent to discontinue such
payments. Also, Mortgagor hereby requests that you change your records to
reflect that Administrative Agent is entitled to the proceeds of production
attributable to the Pledged Properties.
In consideration of your acceptance of this Letter-in-Lieu of Transfer
Order, Administrative Agent and Mortgagor agree as follows:
1. Mortgagor has heretofore executed Transfer or Division Orders to you
covering each of the properties referred to in Exhibit B attached to this
letter. This letter is being executed by the undersigned in lieu of execution
of separate Transfer or Division Orders. With respect to proceeds from the
sale of oil, gas and other hydrocarbons as to which you account hereunder,
Administrative Agent agrees that it will be bound by the terms, conditions,
warranties and covenants of all such Transfer or Division Orders heretofore
executed by Mortgagor now in force, with the same effect as though it had
executed the originals thereof; provided, however, the aggregate liability of
Administrative Agent with respect to any warranty, representation, covenant or
indemnification contained therein or in this letter shall be limited to an
amount equal to the amounts disbursed by you to Administrative Agent
hereunder.
2. Mortgagor hereby agrees that you are relieved of any responsibility in
connection with the application of the proceeds paid by you to Administrative
Agent as hereinabove specified and payment made by you to Lenders shall be
binding and conclusive as between you and Mortgagor.
In the absence of a question about the enclosed schedule, you are
respectfully requested to make disbursement to Administrative Agent as
instructed herein and NOT TO SUSPEND OR DELAY any payments by virtue of the
assignment of production from Mortgagor to Administrative Agent. Should you
require additional documentation prior to implementing the manner of
disbursement requested herein, notwithstanding the warranties and
indemnifications contained hereinabove, please suspend disbursements to
Mortgagor, pending execution of such additional documentation as you may
reasonably require.
In order that we may have a record evidencing your acceptance of this
Letter-in-Lieu of Transfer Order, we request that you execute one copy of this
letter in the space provided below and return the same to Administrative Agent
in the enclosed self-addressed envelope.
Very truly yours,
▇▇▇▇▇▇ PETROLEUM, INC.,
a Tennessee corporation,
By: _____________________________
▇▇▇▇▇ ▇▇▇▇▇▇
Chief Financial Officer
PROSPECT ENERGY CORPORATION,
a Maryland corporation, as Administrative Agent
By: __________________________
Name: ________________________
Title: _______________________
ACCEPTED this _____ day of __________________ 20____.
_____________________________, Purchaser of Production
By: _______________________
Name: _____________________
Title: ____________________
EXHIBIT A
THE MORTGAGE
EXHIBIT B
PLEDGED PROPERTIES
EXHIBIT C
FORM OF WARRANT AGREEMENT
[Attached]
EXHIBIT D
FORM OF GUARANTY
THIS GUARANTY (this "Guaranty") is dated as of the_____day of_____, 2005,
by _______________, a ________________ ("Guarantor"), in favor of PROSPECT
ENERGY CORPORATION, a Maryland corporation, as administrative agent for the
benefit of the Lenders ("Administrative Agent"), the Lenders (herein defined)
and each of their respective successors and assigns as permitted pursuant to
the Credit Agreement (hereinafter defined).
W I T N E S S E T H:
WHEREAS, ▇▇▇▇▇▇ Petroleum, Inc., a Tennessee corporation (the
"Borrower"), Guarantor, among others as guarantors, Administrative Agent and
the financial institutions party thereto (the "Lenders") have entered into
that certain Credit Agreement of even date herewith (such agreement, as may
from time to time be amended, supplemented, restated or otherwise modified,
the "Credit Agreement"). (Unless otherwise defined herein, all terms used
herein with their initial letter capitalized shall have the meaning given such
terms in the Credit Agreement); and
WHEREAS, Administrative Agent and the Lenders have required, as a
condition to the continued extension of credit under the Credit Agreement,
that Guarantor execute and deliver this Guaranty; and
WHEREAS, Guarantor has determined that valuable benefits will be derived
by it as a result of the Credit Agreement and the extension of credit made
(and to be made) by the Lenders thereunder; and
WHEREAS, Guarantor has further determined that the benefits accruing to
it from the Credit Agreement exceed Guarantor's anticipated liability under
this Guaranty.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged and confessed, Guarantor hereby covenants and
agrees as follows:
1. Guarantor hereby absolutely and unconditionally guarantees the
prompt, complete and full payment when due, no matter how such shall become
due, of the Obligations, and further guarantees that Borrower will properly
and timely perform the Obligations. Notwithstanding any contrary provision in
this Guaranty, however, Guarantor's maximum liability under this Guaranty is
limited, to the extent, if any, required so that its liability is not subject
to avoidance under applicable Debtor Relief Laws (as such term is defined in
Paragraph 8 hereof).
2. If Guarantor is or becomes liable for any indebtedness owing by
Borrower to Administrative Agent or any Lender by endorsement or otherwise
than under this Guaranty, such liability shall not be in any manner impaired
or affected hereby, and the rights of Administrative Agent and the Lenders
hereunder shall be cumulative of any and all other rights that Administrative
Agent and the Lenders may ever have against Guarantor. The exercise by
Administrative Agent or any Lender of any right or remedy hereunder or under
any other instrument, at law or in equity, shall not preclude the concurrent
or subsequent exercise of any other right or remedy.
3. In the event of default by Borrower in payment of the Obligations,
or any part thereof, when such Obligations become due, either by their terms
or as the result of the exercise of any power to accelerate, Guarantor shall,
on demand, and without further notice of dishonor and without any notice
having been given to Guarantor previous to such demand of the acceptance by
Administrative Agent or the Lenders of this Guaranty, and without any notice
having been given to such Guarantor previous to such demand of the creating or
incurring of such Obligations, pay the amount due thereon to Administrative
Agent for the ratable account of the Lenders at Administrative Agent's office
as set forth in the Credit Agreement, and it shall not be necessary for
Administrative Agent or any Lender, in order to enforce such payment by
Guarantor, first, to institute suit or exhaust its remedies against Borrower
or others liable on such Obligations, to have Borrower joined with Guarantor
in any suit brought under this Guaranty or to enforce their rights against any
security which shall ever have been given to secure such indebtedness;
provided, however, that in the event Administrative Agent and the Lenders
elect to enforce and/or exercise any remedies they may possess with respect to
any security for the Obligations prior to demanding payment from Guarantor,
Guarantor shall nevertheless be obligated hereunder for any and all sums still
owing to the Lenders on the Obligations and not repaid or recovered incident
to the exercise of such remedies.
4. Each payment on the Obligations shall be deemed to have been made
by Borrower unless express written notice is given to Administrative Agent at
the time of such payment that such payment is made by Guarantor as specified
in such notice.
5. If all or any part of the Obligations at any time are secured,
Guarantor agrees that Administrative Agent and the Lenders may at any time and
from time to time, at their discretion and for reasonably equivalent valuable
consideration, allow substitution or withdrawal of collateral or other
security and release collateral or other security or compromise or settle any
amount due or owing under the Credit Agreement or amend or modify in whole or
in part the Credit Agreement or any Loan Document executed in connection with
same without impairing or diminishing the obligations of Guarantor hereunder
except to the value of any such collateral released. Guarantor further agrees
that if Borrower executes in favor of Administrative Agent or the Lenders any
collateral agreement, mortgage or other security instrument, the exercise by
Administrative Agent and the Lenders of any right or remedy thereby conferred
on Administrative Agent and the Lenders shall be wholly discretionary with
Administrative Agent and the Lenders, and that the exercise or failure to
exercise any such right or remedy shall in no way impair or diminish the
obligation of Guarantor hereunder. Guarantor further agrees that the
Administrative Agent shall not be liable for any failure to use diligence in
the collection of the Obligations or in preserving the liability of any person
liable for the Obligations, and Guarantor hereby waives presentment for
payment, notice of nonpayment, protest and notice thereof (including, notice
of acceleration), and diligence in bringing suits against any Person liable on
the Obligations, or any part thereof except to the extent of the gross
negligence or willful misconduct of the Administrative Agent as determined by
a final judgment rendered by a court of competent jurisdiction.
6. Guarantor agrees that Administrative Agent and the Lenders, in
their sole discretion, may (i) bring suit against all guarantors (including,
without limitation, Guarantor hereunder) of the Obligations jointly and
severally or against any one or more of them, (ii) compound or settle with any
one or more of such guarantors for such consideration as Administrative Agent
and the Lenders may deem proper, and (iii) release one or more of such
guarantors from liability hereunder, and that no such action shall impair the
rights of Administrative Agent and the Lenders to collect the Obligations (or
the unpaid balance thereof) from other such guarantors of the Obligations, or
any of them, not so sued, settled with or released. Guarantor agrees,
however, that nothing contained in this paragraph, and no action by
Administrative Agent and the Lenders permitted under this paragraph, shall in
any way affect or impair the rights or obligations of such guarantors among
themselves.
7. Guarantor represents and warrants to Administrative Agent and the
Lenders that, to the extent Guarantor is not an individual, Guarantor is (i) a
corporation, limited liability company or partnership duly organized and
validly existing under the laws of the jurisdiction of its incorporation or
formation; and (ii) Guarantor possesses all requisite authority and power to
authorize, execute, deliver and comply with the terms of this Guaranty; this
Guaranty has been duly authorized and approved by all necessary action on the
part of Guarantor and constitutes a valid and binding obligation of Guarantor
enforceable in accordance with its terms, except as the enforcement thereof
may be limited by applicable Debtor Relief Laws; and no approval or consent of
any court or governmental entity is required for the authorization, execution,
delivery or compliance with this Guaranty which has not been obtained (and
copies thereof delivered to Lender). As used in this Guaranty, the term,
"Debtor Relief Laws" means the Bankruptcy Code of the United States of America
and all other applicable liquidation, conservatorship, bankruptcy, moratorium,
rearrangement, receivership, insolvency, reorganization, suspension of
payments or similar debtor relief laws from time to time in effect affecting
the rights of creditors generally.
8. Guarantor covenants and agrees that until the Obligations are paid
and performed in full, except as otherwise provided in the Credit Agreement or
unless Administrative Agent and each of the Lenders gives their prior written
consent to any deviation therefrom, it will (i) at all times maintain its
existence and authority to transact business in any State or jurisdiction
where Guarantor has assets and operations, (ii) promptly deliver to
Administrative Agent such information respecting its business affairs, assets
and liabilities as Administrative Agent may reasonably request, and (iii) duly
and punctually observe and perform all covenants applicable to Guarantor under
the Credit Agreement and the other Loan Documents. The failure of Guarantor
to comply with the terms of this paragraph and to the extent such failure
shall continue unremedied for a period of ten (10) days after the earlier of
(i) the date upon which Guarantor knew or reasonably should have known of such
failure or (ii) the date upon which written notice thereof is given to
Guarantor by any Lender, shall be an Event of Default under the Credit
Agreement.
9. This Guaranty is for the benefit of Administrative Agent and the
Lenders, their successors and assigns, and in the event of an assignment by
any of the Lenders (or its successors or assigns) of the Obligations, or any
part thereof, the rights and benefits hereunder, to the extent applicable to
the Obligations so assigned, may be transferred with such Obligations. This
Guaranty is binding upon Guarantor and its successors and assigns.
10. No modification, consent, amendment or waiver of any provision of
this Guaranty, nor consent to any departure by Guarantor therefrom, shall be
effective unless the same shall be in writing and signed by Administrative
Agent, each Lender and Guarantor, and then shall be effective only in the
specific instance and for the purpose for which given. No delay or omission
by Administrative Agent and the Lenders in exercising any power or right
hereunder shall impair any such right or power or be construed as a waiver
thereof or any acquiescence therein, nor shall any single or partial exercise
of any such power preclude other or further exercise thereof, or the exercise
of any other right or power hereunder. All rights and remedies of
Administrative Agent and the Lenders hereunder are cumulative of each other
and of every other right or remedy which Administrative Agent and the Lenders
may otherwise have at law or in equity or under any other contract or
document, and the exercise of one or more rights or remedies shall not
prejudice or impair the concurrent or subsequent exercise of other rights or
remedies.
11. No provision herein or in any promissory note, instrument or any
other Loan Document executed by Borrower or Guarantor evidencing the
Obligations shall require the payment or permit the collection of interest in
excess of the Maximum Lawful Rate. If any excess of interest in such respect
is provided for herein or in any such promissory note, instrument, or any
other Loan Document, the provisions of this paragraph shall govern, and
neither Borrower nor Guarantor shall be obligated to pay the amount of such
interest to the extent that it is in excess of the amount permitted by law.
The intention of the parties being to conform strictly to any applicable
federal or state usury laws now in force, all promissory notes, instruments
and other Loan Documents executed by Borrower or Guarantor evidencing the
Obligations shall be held subject to reduction to the amount allowed under
said usury laws as now or hereafter construed by the courts having
jurisdiction.
12. If Guarantor should breach or fail to perform any provision of
this Guaranty, Guarantor agrees to pay Administrative Agent and the Lenders
all costs and expenses (including court costs and reasonable attorneys fees)
incurred by Administrative Agent and the Lenders in the enforcement hereof.
13. (a) The liability of Guarantor under this Guaranty shall in no
manner be impaired, affected or released by the insolvency, bankruptcy, making
of an assignment for the benefit of creditors, arrangement, compensation,
composition or readjustment of Borrower, or any proceedings affecting the
status, existence or assets of Borrower or other similar proceedings
instituted by or against Borrower and affecting the assets of Borrower.
(b) Guarantor acknowledges and agrees that any interest on any
portion of the Obligations which accrues after the commencement of any
proceeding referred to in clause (a) above (or, if interest on any portion of
the Obligations ceases to accrue by operation of law by reason of the
commencement of said proceeding, such interest as would have accrued on such
portion of the Obligations if said proceedings had not been commenced) shall
be included in the Obligations because it is the intention of Guarantor,
Administrative Agent and the Lenders that the Obligations which are guaranteed
by Guarantor pursuant to this Guaranty should be determined without regard to
any rule of law or order which may relieve Borrower of any portion of such
Obligations. Guarantor will permit any trustee in bankruptcy, receiver,
debtor in possession, assignee for the benefit of creditors or similar person
to pay Administrative Agent and the Lenders, or allow the claim of
Administrative Agent and the Lenders in respect of, any such interest accruing
after the date on which such proceeding is commenced.
(c) In the event that all or any portion of the Obligations are
paid by Borrower, the obligations of Guarantor hereunder shall continue and
remain in full force and effect or be reinstated, as the case may be, in the
event that all or any part of such payment(s) are rescinded or recovered
directly or indirectly from Administrative Agent or the Lenders as a
preference, fraudulent transfer or otherwise, and any such payments which are
so rescinded or recovered shall constitute Obligations for all purposes under
this Guaranty.
14. Guarantor understands and agrees that any amounts of Guarantor on
account with Administrative Agent or any Lender may be offset to satisfy the
obligations of Guarantor hereunder.
15. Guarantor hereby subordinates and makes inferior any and all
indebtedness now or at any time hereafter owed by Borrower to Guarantor to the
Obligations evidenced by the Credit Agreement and agrees after the occurrence
of a Default under the Credit Agreement, or any event which with notice, lapse
of time, or both, would constitute a Default under the Credit Agreement, not
to permit Borrower to repay, or to accept payment from Borrower of, such
indebtedness or any part thereof without the prior written consent of
Administrative Agent and the Lenders.
16. During the period that any Lender has any commitment to lend
under the Loan Documents, or any amount payable under any Note remains unpaid,
and throughout any additional preferential period subsequent thereto,
Guarantor hereby waives any and all rights of subrogation to which Guarantor
may otherwise be entitled against Borrower, or any other guarantor of the
Obligations, as a result of any payment made by Guarantor pursuant to this
Guaranty.
17. As of the date hereof, Guarantor is solvent and able to pay all
of its liabilities as such liabilities mature.
18. If any provision of this Guaranty is held to be illegal, invalid,
or unenforceable, such provision shall be fully severable; this Guaranty shall
be construed and enforced as if such illegal, invalid, or unenforceable
provision had never comprised a part hereof; and the remaining provisions
hereof shall remain in full force and effect and shall not be affected by the
illegal, invalid, or unenforceable provision or by its severance herefrom.
19. (a) Except to the extent required for the exercise of the
remedies provided in the other security instruments, Guarantor hereby
irrevocably waives, to the fullest extent permitted by Law, any objection
which it may now or hereafter have to the laying of venue of any Litigation
arising out of or in connection with this Guaranty or any of the Loan
Documents brought in district courts of ▇▇▇▇▇▇ County, Texas, or in the United
States District Court for the Southern District of Texas, Houston Division.
Guarantor hereby irrevocably consents to the service of process out of any of
the aforementioned courts in any such Litigation by the mailing of copies
thereof by certified mail, return receipt requested, postage prepaid, to
Guarantor's office. Nothing herein shall affect the rights of Administrative
Agent or the Lenders to commence legal proceedings or otherwise proceed
against Guarantor in any jurisdiction or to serve process in any manner
permitted by applicable law. As used herein, the term "Litigation" means any
proceeding, claim, lawsuit or investigation (i) conducted or threatened by or
before any court or governmental department, commission, board, bureau, agency
or instrumentality of the United States or of any state, commonwealth, nation,
territory, possession, county, parish, or municipality, whether now or
hereafter constituted or existing, or (ii) pending before any public or
private arbitration board or panel.
(b) To the extent that Guarantor has or hereafter may acquire
any immunity from jurisdiction of any court or from any legal process (whether
through service or notice, attachment prior to judgment, attachment in aid of
execution, execution or otherwise) with respect to itself or its property,
Guarantor hereby irrevocably waives such immunity in respect of its
obligations under this Guaranty and the other Loan Documents.
20. THIS GUARANTY AND THE OTHER LOAN DOCUMENTS COLLECTIVELY REPRESENT
THE FINAL AGREEMENT BY AND AMONG ADMINISTRATIVE AGENT, THE LENDERS AND
GUARANTOR AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS,
OR SUBSEQUENT ORAL AGREEMENTS OF ADMINISTRATIVE AGENT, THE LENDERS AND
GUARANTOR. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG ADMINISTRATIVE AGENT,
THE LENDERS AND GUARANTOR.
21. GUARANTOR, FOR ITSELF, ITS SUCCESSORS AND ASSIGNS, HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ITS RIGHT TO A
JURY TRIAL, IN ANY LITIGATION ARISING OUT OF OR IN CONNECTION WITH THIS
GUARANTY OR ANY OF THE OTHER LOAN DOCUMENTS. ANY DISPUTES HEREUNDER SHALL BE
RESOLVED THROUGH BINDING ARBITRATION AS MORE PARTICULARLY DESCRIBED IN THE
CREDIT AGREEMENT.
22. THIS GUARANTY AND THE OTHER LOAN DOCUMENTS SHALL BE CONSTRUED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS.
EXECUTED and effective as of the date first above written.
GUARANTOR:
[NAME OF GUARANTOR]
By: _______________________________
Name:______________________________
Title:_____________________________
EXHIBIT E
FORM OF COMPLIANCE CERTIFICATE
This Certificate is delivered pursuant to Subsection 6.02(b) of that
certain Credit Agreement dated as of April __, 2005 (as same may be amended,
modified, renewed or restated from time to time the "Credit Agreement"),
between ▇▇▇▇▇▇ PETROLEUM, INC., a Tennessee corporation (the "Borrower"), and
PROSPECT ENERGY CORPORATION, as administrative agent for the Lenders (the
"Administrative Agent") and the financial institutions from time to time party
thereto (the "Lenders"), which Credit Agreement is in full force and effect on
the date hereof. Terms which are defined in the Credit Agreement are used
herein with the meanings given them in the Credit Agreement. Together
herewith, Borrower is furnishing to Administrative Agent (i) Borrower's
financial statements (the "Financial Statements") and (ii) the Status Report
attached hereto as Schedule B as at _____________, 200__ (the "Reporting
Date").
Borrower hereby represents, warrants, and acknowledges to Administrative
Agent and each of the Lenders that the officer of Borrower signing this
instrument is the duly elected, qualified and acting officer as indicated
below such officer's signature.
1. Financial Statements. Borrower hereby further represents,
warrants and acknowledges to Administrative Agent and each of the Lenders
that:
(a) attached hereto as Schedule A are the calculations showing
Borrower's compliance as of the Reporting Date with the requirements of
Section 7.07 of the Credit Agreement [and/or Borrower's non compliance as of
such date with the requirements of Section 7.07 of the Credit Agreement]; and
(b) on the Reporting Date, Borrower was, and on the date hereof
Borrower is, in full compliance with the disclosure requirements of Section
6.03 of the Credit Agreement, and no Default otherwise existed on the
Reporting Date or otherwise exists on the date of this Certificate [except for
Default(s) under Section(s) ___ of the Credit Agreement, which [is/are] more
fully described on a schedule attached hereto].
2. Environmental Compliance. Borrower hereby further represents,
warrants and acknowledges to Administrative Agent and each of the Lenders
that:
(a) For the Fiscal Year ending immediately prior to the date
hereof, Borrower has complied and continues to comply with Section 6.10 of the
Credit Agreement; and
(b) To the knowledge of the undersigned, Borrower is, on the
date hereof, in substantial compliance with all applicable Environmental Laws,
noncompliance with which could result in a Material Adverse Effect.
The officer of Borrower signing this instrument hereby certifies that he
or she has reviewed the Loan Documents and the Financial Statements and has
otherwise consulted with the financial and operating officers of Borrower as
is in his or her opinion necessary to enable him or her to express an informed
opinion with respect to the above representations, warranties and
acknowledgments of Borrower, and, to the best of their knowledge, such
representations, warranties, and acknowledgments are true, correct and
complete.
IN WITNESS WHEREOF, this instrument is executed as of ____________ __, 200_.
________________________, a ___________
[corporation/limited liability
company/limited partnership]
By: ____________________________________
Name: __________________________________
Title: _________________________________
SCHEDULE A
Financial Covenant Calculations
as of__________________________
(Section 7.07 of the Credit Agreement)
1. Minimum Collateral Coverage
a. Actual: (i) Present Value of Reserves $_________
(ii) Present Value of Proved Reserves $_________
b. Required: (I) At least $6,000,000.00
(ii) At least $2,000,000.00
2. Minimum Tangible Net Worth
a. Actual: $______
b. Required: At least
(i) 50% Borrower's Net Income $______
(ii) 2,000,000.00
(iii) (2.b(i) + 2.b(ii)) $_____
3. Minimum Fixed Charge Coverage Ratio
a. Actual: (i) EBITDA $______
(ii) Fixed Charges $______to 1.00
(iii) (3.a(i) / 3.a(ii))
b. Required: At least 1.50 to 1.00
Certificate Prepared by:______________________________
Name:______________________________
Title:______________________________
SCHEDULE B
FINANCIAL STATEMENTS