EXHIBIT 10.1
SENIOR SECURED ADVANCING LINE OF CREDIT AGREEMENT
BY AND AMONG
MAINLAND RESOURCES, INC.,
AS BORROWER,
GUGGENHEIM CORPORATE FUNDING, LLC,
AS ADMINISTRATIVE AGENT,
AND
THE LENDERS SIGNATORY HERETO
DATED AS OF OCTOBER 16, 2009
TABLE OF CONTENTS
PAGE
ARTICLE 1 DEFINITIONS AND ACCOUNTING TERMS............................1
1.1 DEFINED TERMS...............................................1
1.2 ACCOUNTING TERMS...........................................13
1.3 NUMBER AND GENDER OF WORDS.................................13
ARTICLE 2 TERMS OF CREDIT............................................14
2.1 ADVANCING COMMITMENT.......................................14
2.2 BORROWING PROCEDURES.......................................14
2.3 REPAYMENT PROVISIONS.......................................15
2.4 BORROWING BASE DETERMINATIONS..............................16
2.5 INTEREST RATES.............................................16
2.6 RESERVED...................................................17
2.7 GENERAL PROVISIONS RELATING TO INTEREST....................17
2.8 FEES.......................................................17
2.9 VOLUNTARY PREPAYMENT.......................................18
2.10 MANDATORY PREPAYMENT OR ACTIONS IN LIEU THEREOF............18
2.11 METHOD OF PAYMENT; PRO RATA TREATMENT......................18
2.12 INCREASED COSTS............................................18
2.13 TAXES......................................................19
ARTICLE 3 CONDITIONS PRECEDENT.......................................20
3.1 CONDITIONS PRECEDENT TO EXECUTION AND MAKING OF INITIAL
ADVANCE....................................................20
3.2 FURTHER CONDITIONS TO EACH ADVANCE.........................22
3.2 CONDITION SUBSEQUENT TO EXECUTION..........................23
ARTICLE 4 REPRESENTATIONS AND WARRANTIES.............................23
4.1 EXISTENCE AND GOOD STANDING................................23
4.2 DUE AUTHORIZATION..........................................23
4.3 VALID AND BINDING OBLIGATIONS..............................24
4.4 SCOPE AND ACCURACY OF FINANCIAL STATEMENTS.................24
4.5 LIABILITIES AND LITIGATION.................................24
4.6 TITLE TO ASSETS............................................24
4.7 [RESERVED].................................................24
4.8 [RESERVED].................................................24
4.9 GAS IMBALANCES.............................................24
4.10 AUTHORIZATIONS AND CONSENTS................................24
4.11 COMPLIANCE WITH LAWS.......................................24
4.12 PROPER FILING OF TAX RETURNS AND PAYMENT OF TAXES DUE......25
4.13 ERISA COMPLIANCE...........................................25
4.14 INVESTMENT COMPANY ACT COMPLIANCE..........................25
4.15 LIEN PRIORITY..............................................25
4.16 USE OF PROCEEDS............................................25
4.17 FULL DISCLOSURE............................................25
4.18 PLACES OF BUSINESS.........................................25
4.19 IDENTIFICATION NUMBERS.....................................25
4.20 SUBSIDIARIES...............................................25
4.21 NO DEFAULT.................................................25
________________________________________________________________________________
i
ARTICLE 5 AFFIRMATIVE COVENANTS......................................26
5.1 MAINTENANCE AND ACCESS TO RECORDS..........................26
5.2 QUARTERLY FINANCIAL STATEMENTS.............................26
5.3 ANNUAL FINANCIAL STATEMENTS................................26
5.4 COMPLIANCE CERTIFICATES....................................26
5.5 [RESERVE REPORTS]..........................................26
5.6 PAYMENT STATEMENTS.........................................27
5.7 SALES, PRODUCTION AND OPERATIONS REPORTS...................27
5.8 LIENS ON NEWLY ACQUIRED OIL AND GAS PROPERTIES.............28
5.9 TITLE OPINIONS.............................................28
5.10 STATEMENT OF MATERIAL ADVERSE EFFECT.......................28
5.11 TITLE DEFECTS..............................................28
5.12 ADDITIONAL INFORMATION.....................................28
5.13 COMPLIANCE WITH LAWS AND PAYMENT OF TAXES..................28
5.14 MAINTENANCE OF EXISTENCE AND GOOD STANDING.................29
5.15 FURTHER ASSURANCES.........................................29
5.16 SUPPLEMENT OVERRIDING ROYALTY..............................29
5.17 MAINTENANCE OF TANGIBLE PROPERTY...........................29
5.18 MAINTENANCE OF INSURANCE...................................29
5.19 RIGHT OF INSPECTION........................................29
5.20 NOTICE.....................................................29
5.21 COLLATERAL PROTECTION......................................30
5.22 MAINTENANCE OF CONTROLLED ACCOUNT..........................30
5.23 USE OF PROCEEDS............................................30
5.24 RIGHT OF LAST OFFER........................................31
ARTICLE 6 NEGATIVE COVENANTS.........................................31
6.1 OTHER DEBT.................................................32
6.2 DERIVATIVE CONTRACTS.......................................32
6.3 GUARANTY OF PAYMENT OR PERFORMANCE.........................32
6.4 LOANS, ADVANCES OR INVESTMENTS.............................32
6.5 MORTGAGES OR PLEDGES OF ASSETS.............................32
6.6 CANCELLATION OF INSURANCE..................................32
6.7 SALES OF PROPERTY..........................................32
6.8 DIVIDENDS AND DISTRIBUTIONS................................33
6.9 CHANGES IN STRUCTURE.......................................33
6.10 PAYMENT OF ACCOUNTS PAYABLE................................33
6.11 TRANSACTIONS WITH AFFILIATES...............................33
6.12 NATURE OF BUSINESS.........................................33
6.13 NO SUBSIDIARIES............................................33
6.14 ERISA......................................................33
6.15 NEGATIVE PLEDGE AGREEMENTS.................................33
6.16 GAS IMBALANCES, TAKE-OR-PAY OR OTHER PREPAYMENTS...........33
6.17 DEPOSIT ACCOUNTS...........................................33
ARTICLE 7 EVENTS OF DEFAULT..........................................34
7.1 EVENTS OF DEFAULT..........................................34
7.2 RIGHTS UPON OCCURRENCE OF AN EVENT OF DEFAULT..............36
ARTICLE 8 THE ADMINISTRATIVE AGENT...................................36
8.1 APPOINTMENT; POWERS........................................36
8.2 DUTIES AND OBLIGATIONS OF ADMINISTRATIVE AGENT.............37
________________________________________________________________________________
ii
8.3 ACTIONS BY ADMINISTRATIVE AGENT............................37
8.4 RELIANCE BY ADMINISTRATIVE AGENT...........................38
8.5 SUBAGENTS..................................................38
8.6 RESIGNATION OR REMOVAL OF ADMINISTRATIVE AGENT.............38
8.7 ADMINISTRATIVE AGENT AS A LENDER...........................39
8.8 NO RELIANCE................................................39
8.9 AUTHORITY OF ADMINISTRATIVE AGENT TO RELEASE COLLATERAL
AND LIENS..................................................39
8.10 ADMINISTRATIVE AGENT MAY FILE PROOFS OF CLAIM..............39
8.11 DELIVERY BY ADMINISTRATIVE AGENT...........................40
ARTICLE 9 MISCELLANEOUS..............................................40
9.1 NOTICES....................................................40
9.2 AMENDMENTS AND WAIVERS.....................................41
9.3 EXPENSES, INDEMNITY; DAMAGE WAIVER.........................42
9.4 SURVIVAL OF AGREEMENTS.....................................44
9.5 SUCCESSORS AND ASSIGNS.....................................44
9.6 INVALIDITY.................................................47
9.7 [RESERVED].................................................47
9.8 WAIVERS....................................................47
9.9 CUMULATIVE RIGHTS..........................................47
9.10 EXHIBITS; CONFLICTS........................................47
9.11 TITLES OF ARTICLES, SECTIONS AND SUBSECTIONS...............47
9.12 JURISDICTION...............................................48
9.13 COUNTERPARTS...............................................48
9.14 EFFECTIVENESS..............................................48
9.15 DOCUMENTS..................................................48
9.16 RIGHTS OF THIRD PERSON.....................................48
9.17 ANNOUNCEMENTS..............................................48
9.18 SURVIVAL OF CERTAIN COVENANTS..............................48
9.19 JURY TRIAL WAIVED..........................................49
9.20 GOVERNING LAW..............................................49
9.21 ARBITRATION................................................49
9.22 AMENDMENT AND RESTATEMENT OF BRIDGE LOAN AGREEMENT.........50
9.23 ENTIRE AGREEMENT...........................................50
________________________________________________________________________________
iii
SCHEDULES
SCHEDULE I Area of Mutual Interest
SCHEDULE 2.1 Uses of Initial Advance
SCHEDULE 2.2 Lenders' Pro Rata Percentages
SCHEDULE 4.5 Litigation
SCHEDULE 4.6 Mortgaged Properties
EXHIBITS
EXHIBIT A Form of Note
EXHIBIT B Form of Borrowing Request
EXHIBIT C Form of Compliance Certificate
EXHIBIT D Form of Assignment and Acceptance Agreement
EXHIBIT E Form of Letter in Lieu
EXHIBIT F Form of Conveyance of Overriding Royalty Interest
A. Form of Conveyance of Permanent Overriding
Royalty Interest
B. Form of Conveyance of Reducing Overriding
Royalty Interest
________________________________________________________________________________
iv
This SENIOR SECURED ADVANCING LINE OF CREDIT AGREEMENT, dated as of
October 16, 2009 is by and among MAINLAND RESOURCES, INC., a Nevada corporation
(the "BORROWER"), each of the lenders which is or which may from time to time
become a signatory hereto (individually, a "LENDER" and collectively, the
"LENDERS") and GUGGENHEIM CORPORATE FUNDING, LLC, a Delaware limited liability
company, as administrative agent for the Lenders (in such capacity, together
with its successors in such capacity, the "ADMINISTRATIVE AGENT").
W I T N E S S E T H T H A T:
WHEREAS, Borrower, Administrative Agent, and the Lenders are parties to
that certain Senior Secured Bridge Loan Agreement dated as of August 7, 2009
(the "BRIDGE LOAN AGREEMENT"), pursuant to which upon the terms and conditions
stated therein, the Lenders agreed to make loans to and extend credit on behalf
of Borrower;
WHEREAS, Borrower has requested the Lenders extend credit to the
Borrower in an amount not to exceed either singularly or cumulatively the
Advance Limit from time to time on or before the Commitment Termination Date,
subject to the terms hereof, to be used, in part, to refinance the Bridge Loan
Agreement; to fund cash calls associated with Borrower's ▇▇▇▇▇▇▇▇▇-▇▇▇▇▇▇▇▇ 16-1
Well, to acquire and develop properties in the Buena Vista Prospect and to pay
fees and expenses attributable to this Facility (defined below);
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and of the loans and commitment hereinafter referred to, the
Borrower, the Lenders, and the Administrative Agent agree as follows:
ARTICLE 1
DEFINITIONS AND ACCOUNTING TERMS
1.1 DEFINED TERMS. As used in this Agreement, the following terms have
the following meanings:
"ACQUISITION REPORT DATE" has the meaning assigned such term
in SECTION 5.7(B).
"ADMINISTRATIVE AGENT" has the meaning indicated in the
opening paragraph hereof.
"ADMINISTRATIVE AGENT'S PAYMENT OFFICE" means the address for
payments as Administrative Agent may from time to time specify.
"ADVANCE" means an advance of immediately available funds by
the Administrative Agent on behalf of the Lenders to the Borrower
pursuant to SECTION 2.1 or, where the context requires, a Lender's Pro
Rata Percentage of such advance.
"ADVANCE LIMIT" means at any time the lesser of (a)
$40,000,000.00 or (b) the then existing Borrowing Base.
"AFE" means an authorization for expenditures representing an
estimate of work to be performed. AFE's shall not include ▇▇▇▇▇
overhead or other similar expenses related to Borrower's direct
overhead expense.
________________________________________________________________________________
1
"AFFILIATE" means any Person controlling, controlled by, or
under common control with, any other Person. For purposes of this
definition, "control" (including "controlled by" and "under common
control with") means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies
of such Person, whether through the ownership of voting securities or
otherwise.
"AGREEMENT" means this Senior Secured Advancing Line of Credit
Agreement and all exhibits and schedules hereto, as the same may be
amended from time to time according to the terms hereof.
"AREA OF MUTUAL INTEREST" or "AMI" means the area of mutual
interest more particularly described on SCHEDULE I hereto.
"ASSIGNMENT AND ACCEPTANCE" means an Assignment and
Acceptance, in substantially the form attached hereto as EXHIBIT D with
appropriate completions.
"BANKRUPTCY CODE" means the Federal Bankruptcy Reform Act of
1978 (11 U.S.C. ss. 101, et seq.), as amended, and regulations
promulgated thereunder.
"BASE RATE" means, for any day, the fluctuating rate of
interest in effect for such day which rate per annum shall be equal to
the greater of the Prime Rate in effect for such day or five percent
(5.0%).
"BORROWER" has the meaning indicated in the opening paragraph
hereof.
"BORROWING BASE" means the maximum value, for loan purposes,
of the Mortgaged Properties, as determined, at the sole discretion of
Administrative Agent in accordance with its customary lending
practices, from time to time in accordance with SECTION 2.4 of this
Agreement.
"BORROWING BASE PERIOD" means the period commencing on the day
that the conditions to the initial Advance under SECTION 3.1 are
satisfied and ending on March 31, 2010, and each six month period
thereafter commencing on March 31 and September 30 of each year during
the term hereof.
"BORROWING REQUEST" means the request by the Borrower for an
Advance in accordance with SECTION 2.2 duly executed by an authorized
officer of a Borrower substantially in the form attached hereto as
EXHIBIT B.
"BUENA VISTA PROSPECT" means the Oil and Gas Properties to be
acquired by Borrower in the properties known as the Buena Vista
Prospect, located in Jefferson County, Mississippi, more particularly
described in SCHEDULE I hereto.
"BUSINESS DAY" means a day other than a Saturday, Sunday or
legal holiday for commercial banks in the State of Texas.
________________________________________________________________________________
2
"CASH COLLATERAL ACCOUNT AGREEMENT" means that certain Cash
Collateral Account Agreement between the Borrower and Administrative
Agent.
"CHANGE IN LAW" means (a) the adoption of any Law after the
date of this Agreement, (b) any change in any Law or in the
interpretation or application thereof by any Tribunal after the date of
this Agreement or (c) compliance by any Lender, by any lending office
of such Lender or by such Lender's holding company with any request,
guideline or directive (whether or not having the force of law) of any
Tribunal made or issued after the date of this Agreement.
"CLO" means any entity (whether a corporation, partnership,
trust or otherwise) that is engaged in making, purchasing, holding or
otherwise investing in bank loans and similar extensions of credit in
the ordinary course of its business and is administered or managed by a
Lender or an Affiliate of such Lender.
"CLOSING DATE" means the date when all the conditions
precedent set forth in SECTION 3.1 of this Agreement have been
satisfied or waived by the Lenders.
"CODE" means the Internal Revenue Code of 1986, as amended,
and regulations promulgated thereunder.
"COLLATERAL" means all assets and property of Borrower now
owned or hereafter acquired, including, without limitation, the
Mortgaged Properties and the Gross Proceeds Account.
"COMMITMENT" means the obligation of each Lender to extend
credit to the Borrower by means of one or more Advances as set forth in
SECTION 2.1; provided, however, each Lender shall have no obligation to
make an Advance pursuant to SECTION 2.1 which will cause the sum of all
Advances made by such Lender pursuant to SECTION 2.1 to exceed such
Lender's Commitment.
"COMMITMENT TERMINATION DATE" means the earlier of (i) the
Maturity Date or (ii) the date on which the Lenders' Commitments
otherwise terminate in accordance with the provisions of this
Agreement.
"COMPLIANCE CERTIFICATES" means the certificates of a
Responsible Officer submitted to the Administrative Agent and the
Lenders from time to time pursuant to this Agreement, which
certificates shall be substantially in the form attached hereto as
EXHIBIT C.
"CONTESTED IN GOOD FAITH" means contested in good faith by
appropriate and lawful proceedings diligently conducted, reasonably
satisfactory to the Administrative Agent (a) in which foreclosure,
distraint, sale, forfeiture, levy, execution or other similar
proceedings have not been initiated or have been stayed and continue to
be stayed, (b) in which a good faith contest will not reasonably be
expected to have a Material Adverse Effect, and (c) for which matter a
reserve or other appropriate provision has been established in
accordance with the requirements of GAAP.
________________________________________________________________________________
3
"CONVEYANCE OF OVERRIDING ROYALTY INTEREST" means collectively
(A) the conveyance of a permanent two and a half percent (2.5%)
overriding royalty and (B) the conveyance of an initial five and a half
percent (5.5%) overriding royalty interest subject to reduction upon
payment of the Make Whole Amount as set forth in the Equity Kicker
Letter, each such overriding royalty conveyance in form of EXHIBIT F(I)
and (II); and covering (A) any acreage now owned or hereafter acquired
within the AMI excluding Section 15, T13N, R14W, DeSoto Parish,
Louisiana in which an overriding royalty interest was conveyed in
connection with the Bridge Loan Agreement and (B) any acreage acquired
with proceeds from the Facility, in each case proportionately reduced
to Borrower's interest therein.
"DEBT" of any Person means, to the extent of such Person's
liability, (a) all items of indebtedness for borrowed money,
obligations, and liabilities (whether matured or unmatured, liquidated
or unliquidated, direct or indirect, joint or several, contingent or
otherwise), which in accordance with GAAP should be classified upon
such Person's balance sheet as liabilities, but in any event including
liabilities secured by any Lien existing on Property of such Person or
a Subsidiary of such Person, (b) the deferred purchase price of
Property or services and direct and contingent obligations incurred in
connection with letters of credit and similar agreements, (c) all
obligations as a lessee under leases which have been, or which in
accordance with GAAP should be, capitalized for financial reporting
purposes, (d) all obligations under operating leases which require such
Person or its Affiliate to make payments over the term of such lease,
including payments at termination, based on the purchase price or
appraisal value of the Property subject to such lease plus a marginal
interest rate, and used primarily as a financing vehicle for, or to
monetize, such Property; (e) all guaranties, endorsements (other than
for collection or deposit in the ordinary course of business), and
other contingent obligations of such Person with respect to obligations
of other Persons of the types described in clauses (a), (b) and/or (c)
preceding, (f) liabilities of unfunded vested benefits under any Plan,
(g) all net obligations with respect to Derivative Contracts, (h) all
obligations to supply funds to, invest in or maintain working capital
or equity capital of any other Person, or otherwise to maintain the net
worth or solvency or any balance sheet condition of any other Person,
(i) the undischarged balance of any production payment created by such
Person or for the creation of which such Person directly or indirectly
received payment.
"DEBTOR RELIEF LAWS" means the Bankruptcy Code and all other
applicable liquidation, conservatorship, bankruptcy, moratorium,
rearrangement, receivership, insolvency, reorganization, or similar
debtor relief Laws or general equitable principles from time to time in
effect affecting the Rights of creditors generally.
"DEFAULT RATE" shall mean the lesser of fourteen percent
(14.0%) or the Highest Lawful Rate.
"DEPOSIT ACCOUNT CONTROL AGREEMENT" means that certain Deposit
Account Control Agreement between the Borrower, Administrative Agent
and the Depositary.
"DEPOSITARY" means Fifth Third Bank or other financial
institution that is acceptable to the Administrative Agent.
________________________________________________________________________________
4
"DERIVATIVE CONTRACT" 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.
"DOLLARS" or "$" refers to lawful money of the United States
of America.
"DRILLING AND COMPLETION COSTS" means amounts owed to third
Persons that are not an Affiliate of the Borrower incurred by the
Borrower, or to the extent such contracts are with Affiliates of
Borrower, amounts owed under such contracts to the extent on an
arm's-length basis with terms and costs approved by Administrative
Agent, in its sole discretion, in drilling, completing and equipping
for production a Well.
"EQUITY INTERESTS" means shares of capital stock, partnership
interests, membership interests in a limited liability company,
beneficial interests in a trust or other equity ownership interests in
a Person, and any warrants, options or other rights entitling the
holder thereof to purchase or acquire any such Equity Interest.
"EQUITY KICKER LETTER" means that certain letter agreement
dated of even date herewith between Guggenheim Corporate Funding, LLC
and the Borrower relating to additional charges to be paid by the
Borrower to Guggenheim Corporate Funding, LLC in consideration for its
Commitment.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and regulations promulgated thereunder.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) under common control with the Borrower within the meaning
of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of
the Code for purposes of provisions relating to Section 412 of the
Code).
"EVENT OF DEFAULT" means any of the events specified in
SECTION 7.1, provided that the requirements, if any, for the giving of
notice, the lapse of time, or both, or any other condition specified in
SECTION 7.1 have been satisfied.
"EXCLUDED TAXES" means, with respect to the Administrative
Agent, any Lender, or any other recipient of any payment to be made by
or on account of any obligation of the Borrower hereunder or under any
other Loan Document, (a) income or franchise taxes imposed on (or
measured by) its net income by the United States of America or such
other jurisdiction under the laws of which such recipient is organized
or in which its principal office is located or, in the case of any
Lender, in which its applicable lending office is located, (b) windfall
profit or other excess profits taxes that are imposed on Administrative
Agent or any Lender, and (c) any branch profits taxes imposed by the
United States of America or any similar tax imposed by any other
jurisdiction in which the Borrower is located.
________________________________________________________________________________
5
"FACILITY" means the $40,000,000 Senior Secured Advancing Line
of Credit evidenced by this Agreement whose availability shall be
subject to a Borrowing Base determined in Administrative Agent's sole
discretion.
"FACILITY RATE" means on any day a varying rate of interest
per annum equal to the Base Rate, from time to time in effect, plus
seven percent (7.00%), but in no event to exceed the Highest Lawful
Rate.
"FINANCIAL STATEMENTS" means statements of financial
condition, as at the point in time and for the period indicated, and
consisting of at least a balance sheet and related statements of
operations, changes in shareholder's equity and cash flow.
"GAAP" means, generally accepted accounting principles
established by the Financial Accounting Standards Board and in effect
in the United States from time to time during the term of this
Agreement and applied on a basis consistent with that adopted in the
Financial Statements of the Borrower to be delivered to the
Administrative Agent and to the Lenders.
"GROSS PROCEEDS ACCOUNT" means the account established by the
Borrower with the Depositary pursuant to SECTION 5.22(A).
"GROSS PROCEEDS OF PRODUCTION" means the monthly sum of (a)
gross proceeds from the sale of hydrocarbon production attributable to
the Mortgaged Properties and actually received by the Borrower during
such calendar month less Third Party Proceeds for the same calendar
month associated with the Mortgaged Properties, and (b) cash proceeds
attributable to the Derivative Contracts entered into by the Borrower
pursuant to SECTION 5.21 and actually received by the Borrower during
such calendar month.
"HAZARDOUS SUBSTANCES" means any flammables, explosives,
radioactive materials, hazardous wastes, asbestos or any material
containing asbestos, polychlorinated biphenyls (PCB's), toxic
substances or related materials, and associated oil or natural gas
exploration, production and development wastes or any substances
defined as "hazardous substances," "hazardous materials," "hazardous
wastes" or "toxic substance" under the Oil Pollution Act, as amended;
Comprehensive Environmental Response, Compensation and Liability Act,
as amended; the Superfund Amendments and Reauthorization Act, as
amended; the Hazardous Materials Transportation Act, as amended; the
Resource Conservation and Recovery Act, as amended; the Toxic
Substances Control Act, as amended; or any other law, statute,
ordinance, rule, regulation or order now or hereafter enacted or
promulgated by any governmental authority with jurisdiction and
relating to the protection of the environment.
"HIGHEST LAWFUL RATE" means the maximum rate (or, if the
context so permits or requires, an amount calculated at such rate) of
interest (if any) that, at the time in question, would not cause the
interest charged on the Obligations owed to the Lenders to exceed the
maximum amount that the Lenders would be allowed to contract for,
charge, take, reserve or receive under applicable Law after taking into
account, to the extent required by applicable Law, all relevant
payments and charges under the Loan Documents.
________________________________________________________________________________
6
"INDEMNIFIED TAXES" means Taxes other than Excluded Taxes.
"INVESTMENT" means, for any Person: (a) the acquisition
(whether for cash, Property, services or securities or otherwise) of
Equity Interests of any other Person or any agreement to make any such
acquisition (including, without limitation, any "short sale" or any
sale of any securities at a time when such securities are not owned by
the Person entering into such short sale) or any capital contribution
to any other Person; (b) the making of any deposit with, or advance,
loan or other extension of credit to, any other Person (including the
purchase of Property from another Person) subject to an understanding
or agreement, contingent or otherwise, to resell such Property to such
Person; or (c) the entering into of any guarantee of, or other
contingent obligation (including the deposit of any Equity Interests to
be sold) with respect to, Debt or other liability of any other Person
and (without duplication) any amount committed to be advanced, lent or
extended to such Person.
"LAWS" means all applicable statutes, laws, ordinances, rules,
rulings, interpretations, regulations, judgments, requirements,
governmental authorizations (including licenses, permits, franchises
and other governmental consents necessary for the ownership or
operation of Property), orders, writs, injunctions or decrees of any
Tribunal (or interpretations of any of the foregoing by any Tribunal).
"LENDER" and "LENDERS" have the respective meanings indicated
in the opening paragraph hereof.
"LETTERS IN LIEU" means the letters in lieu of transfer orders
described in SECTION 3.1(A)(4)(IV).
"LIEN" means any lien, charge, claim, restriction, mortgage,
mechanic's lien, materialmen's lien, pledge, hypothecation, inchoate
lien, assignment, deposit arrangement, conditional sale or other title
retention agreement, financing lease, security interest, security
agreement or other encumbrance, whether arising by contract or under
Law, and includes conditions, leases and other title exceptions and the
filing of any financing statement under the Uniform Commercial Code of
the State of New York or comparable Law of any jurisdiction perfecting
any such Lien.
"LITIGATION" means any proceeding, claim, lawsuit, and/or
investigation conducted, or threatened and known to the Person in
question, by or before any Tribunal.
"LOAN DOCUMENTS" means this Agreement, the Notes, the Security
Documents, the Deposit Account Control Agreement, the Cash Collateral
Account Agreement, the Equity Kicker Letter, all assignments,
conveyances and other documents related to the Equity Kicker Letter all
agreements, documents and instruments governing or related to
Derivative Contracts entered into between the Borrower and any Lender
or the Administrative Agent or any Affiliate of any Lender or the
Administrative Agent and all other notes, mortgages, deeds of trust,
________________________________________________________________________________
7
restatements, ratifications and amendments of mortgages, deeds of
trust, financing statements, guarantees, security agreements, pledge
agreements, documents, instruments and other agreements now or
hereafter delivered pursuant to the terms of, or in connection with,
this Agreement, the Obligations and/or the Collateral, and all
renewals, extensions and restatements of, and amendments and
supplements to any or all of the foregoing.
"LOANS" means the Advances, loans and other extensions of
credit by the Administrative Agent on behalf of the Lenders to or for
the account of the Borrower pursuant to this Agreement.
"MAJORITY LENDERS" means Lenders holding at least fifty (50%)
of the outstanding aggregate principal amount of the Loans (without
regard to any sale by a Lender of a participation in any Loan under
SECTION 9.5).
"MARKETABLE TITLE" means title free of all liens and
encumbrances other than the Permitted Liens, that entitles Borrower (i)
to receive not less than the percentage set forth ON SCHEDULE 4.6 as
"Net Revenue Interest" and (ii) to bear not more than the percentages
set forth on SCHEDULE 4.6 as "Working Interests" without a
corresponding increase in the Net Revenue Interest as such percentages
relate to each Well as described in SCHEDULE 4.6 and is otherwise free
and clear from reasonable doubt as to matters of law and fact such that
a prudent operator of Oil and Gas Properties, advised of the facts and
their legal significance, would willingly accept.
"MATERIAL ADVERSE EFFECT" means any material and adverse
effect on (a) the business, assets, liabilities, financial condition,
business or operations of the Borrower, (b) the ability of the Borrower
to meet its Obligations under any of the Loan Documents on a timely
basis as provided herein or therein or (c) the legality, validity,
binding effect or enforceability against the Borrower of any Loan
Document to which it is a party.
"MATURITY DATE" means October 16, 2011.
"MORTGAGED PROPERTIES" means those Oil and Gas Properties
covered by the Mortgages, including, without limitation, the Oil and
Gas Properties described on SCHEDULE 4.6 as same may be amended from
time to time.
"MORTGAGES" means the mortgages described in SECTIONS
3.1(A)(4)(I) AND (II).
"MULTIEMPLOYER PLAN" means a "MULTIEMPLOYER PLAN," within the
meaning of Section 4001(a)(3) of ERISA, to which the Borrower or any
ERISA Affiliate makes, is making, or is obligated to make contributions
or, during the preceding three (3) calendar years, has made, or been
obligated to make, contributions.
"NET PROCEEDS OF PRODUCTION" means for any calendar month,
Gross Proceeds of Production less the sum of (a) Permitted Expenses
actually paid during such calendar month and not accrued in any
previous period and (b) Permitted Expenses accrued during the relevant
calendar month but not actually paid.
________________________________________________________________________________
8
"NOTES" means the promissory notes of the Borrower payable to
the order of the respective Lender, in substantially the form attached
hereto as EXHIBIT A with appropriate completions, and all extensions,
renewals, replacements, modifications, supplements or rearrangements
thereof from time to time, and "NOTE" means any one of the Notes.
"OBLIGATIONS" means all present and future loans, advances,
indebtedness, obligations, covenants, duties and liabilities, and all
renewals for any period, increases and extensions thereof, or any part
thereof, now or hereafter owing to the Lenders or the Administrative
Agent by the Borrower arising from or pursuant to any of the Loan
Documents including, without limitation, obligations under Derivative
Contracts with any Lender or Lender Affiliate entered into at the time
such counterparty was a Lender or an Affiliate of a Lender, together
with all interest accruing thereon, and costs, expenses, and attorneys'
fees incurred in the enforcement or collection thereof, whether such
indebtedness, obligations, and liabilities are direct, indirect, fixed,
contingent, liquidated, unliquidated, joint, several, or joint and
several.
"OIL AND GAS PROPERTIES" means fee, leasehold or other
interests in or under mineral estates, or oil, gas and other liquid or
gaseous hydrocarbon leases with respect to properties situated in the
United States, including, without limitation, overriding royalty and
royalty interests, leasehold estate interests, net profits interests,
production payment interests and mineral fee interests, together with
contracts executed in connection therewith and all tenements,
hereditaments, appurtenances and properties, real or personal,
appertaining, belonging, affixed or incidental thereto.
"ORGANIZATIONAL DOCUMENTS" shall mean, as applicable, for any
entity, such entity's articles or certificate of incorporation,
by-laws, memorandum and articles of association, partnership agreement,
trust agreement, certificate of limited partnership, articles of
organization, certificate of formation, shareholder agreement, voting
trust agreement, operating agreement, subscription agreement, limited
liability company agreement and/or analogous documents, as amended,
modified or supplemented from time to time.
"OTHER TAXES" means any and all present or future stamp or
documentary taxes or any other excise or Property taxes, charges or
similar levies arising from any payment made hereunder or from the
execution, delivery or enforcement of, or otherwise with respect to,
this Agreement and any other Loan Document.
"PARTICIPATION RIGHTS" means the right, but not obligation of
the Lenders to participate in the Buena Vista Prospect, assigned to the
Lenders pursuant to the Equity Kicker Letter.
"PAYMENT STATEMENT" means each statement prepared by or under
the supervision of a Responsible Officer and submitted to the
Administrative Agent pursuant to SECTION 5.6, and setting forth for the
calendar month preceding the date of delivery thereof, in such detail
and with such supporting documentation as may reasonably be required by
the Administrative Agent, a statement of the calculation by the
________________________________________________________________________________
9
Borrower of the amount of the installment due in repayment of the Debt
evidenced by the Notes pursuant to SECTION 2.3 on such date, including,
without limitation, a statement of the gross volume of sales for which
the Borrower was paid during such month from all of the Mortgaged
Properties and prices received for such production, payments made or
received with respect to Derivative Contracts, Permitted Expenses
itemized by category, and Third Party Proceeds, all of which shall be
certified by a Responsible Officer as having been prepared in good
faith and on the basis of the best information available to the
Borrower as of the time of preparation thereof.
"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 the Borrower sponsors, maintains, or to which the Borrower
makes, is making, or is obligated to make contributions, or in the case
of a multiple employer plan (as described in Section 4064(a) of ERISA)
has made contributions at any time during the immediately preceding
five (5) plan years.
"PERMITTED EXPENSES" means, for each period for which the Net
Proceeds of Production is determined, the sum of the following, to the
extent only that the Borrower has been billed for such or the payment
obligation of the Borrower with respect thereto has otherwise accrued
during the relevant period only and to the extent not already deducted
in any remittance to the Borrower and without duplication of any item:
(a) lease operating expenses attributable to the Mortgaged Properties
including third party overhead charges under applicable operating
agreements, engineering expenses and, to the extent such expenses are
approved by the Administrative Agent, the cost of preparation of
reserve reports, outside land and legal expense, (but expressly
excluding (i) expenses of re-working, remedial operations or facilities
modification, upgrade, expansion or replacement as to which approval,
vote or election of co-owners is required, (ii) capital expenses not
constituting routine repairs and maintenance, (iii) all costs
associated with hedging contracts, and (iv) the expense of drilling,
deepening, sidetracking, plugging-back, completing, recompleting and/or
plugging and abandoning any well); (b) third party transportation and
marketing expenses attributable to the Mortgaged Properties; (c) any ad
valorem, severance, gross production and similar taxes (expressly
excluding income taxes) relating to the Mortgaged Properties; (d) net
obligations to make payments to a counterparty to the Derivative
Contracts entered into by the Borrower as required pursuant to SECTION
5.21 or permitted pursuant to SECTION 6.2; (e) insurance premiums
allocable to the Mortgaged Properties; (f) general and administrative
expenses not to exceed $50,000 per month directly or indirectly related
to exploration and development operation activities within the AMI; (g)
corporate income Taxes; (h) interest required pursuant to SECTION 2.5;
(i) charges associated with marketing Oil and Gas product from
Borrower's Oil and Gas Properties; (j) any of the foregoing claims,
fees and expenses in excess of Gross Proceeds of Production for any
prior accounting period since the Closing Date which have not been
utilized in the calculation of Net Proceeds of Production in such prior
accounting period and (k) to the extent incurred under SECTION 5.25,
all reasonable fees and out of pocket expenses associated with the
formation of the Subsidiary, assignment of its Oil and Gas Properties
thereto and amendment to the Security Documents in connection
therewith.
________________________________________________________________________________
10
"PERMITTED LIENS" means, to the extent same are valid and
enforceable: (a) Liens for Taxes, not yet due or which are being
Contested in Good Faith; (b) Liens in connection with workers'
compensation, unemployment insurance or other social security (other
than Liens created by Section 4068 of ERISA), old age pension or public
liability obligations which are not yet due or which are being
Contested in Good Faith; (c) vendors', carriers', warehousemen's,
repairmen's, mechanics', workmen's, materialmen's, construction or
other similar Liens arising by operation of Law in the ordinary course
of business or incident to the drilling, construction or improvement of
any Property in respect of obligations which are not yet due or which
are being Contested in Good Faith; (d) Liens existing and perfected
prior to the filing of the Mortgages in favor of operators and
non-operators under joint operating agreements arising in the ordinary
course of business to secure amounts owing, which amounts are not yet
due or are being Contested in Good Faith; (e) Liens under division
orders and other agreements customary in the oil and gas business for
processing, producing and selling hydrocarbons and statutory Liens in
favor of royalty owners; (f) Liens created in favor of the
Administrative Agent or any Lender securing Obligations hereunder and
other Liens expressly permitted under the Security Documents; (g)
easements, rights-of-way, restrictions and other similar encumbrances,
and minor defects in the chain of title which are customarily accepted
in the oil and gas industry, none of which interfere with the ordinary
conduct of the business of the owner of the Property or materially
detract from the value or use of the Property to which they apply; (h)
Liens of record under terms and provisions of the leases, unit
agreements, assignments and other transfer of title documents in the
chain of title under which the owner of the relevant Property acquired
such Property; (i) Liens securing the purchase price or existing under
conditional sale for title retention contracts for equipment purchased
or leased in the normal course of business of the Borrower, provided
that such Lien shall not extend to or cover any other Property of the
Borrower; (j) Lessor's Liens under oil and gas leases securing payment
of royalties; and (h) Obligations pursuant to the Equity Kicker Letter.
"PERSON" means any individual, sole proprietorship, firm,
corporation, trust, association, institution, partnership, joint
venture, limited liability company, Tribunal or other entity.
"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 the Borrower sponsors, maintains or to which the
Borrower makes, is making or is obligated to make contributions and
includes any Pension Plan.
"PRIME RATE" means the prime rate published in The Wall Street
Journal's "Money Rates" or similar table. If multiple prime rates are
quoted in the table, then the highest prime rate will be the Prime
Rate. In the event that the prime rate is no longer published by The
Wall Street Journal in the "Money Rates" or similar table, then
Administrative Agent may select an alternative published index based
upon comparable information as a substitute Prime Rate. Upon the
selection of a substitute Prime Rate, the applicable interest rate
shall thereafter vary in relation to the substitute index.
________________________________________________________________________________
11
"PRO RATA PERCENTAGE" means, with respect to each Lender, at
any time, a fraction (expressed as a percentage carried out to the
ninth decimal place), the numerator of which is the amount of the
Commitment of such Lender at such time and the denominator of which is
the aggregate amount of the Commitments at such time. The initial Pro
Rata Percentage of each Lender is set forth opposite the name of such
Lender on SCHEDULE 2.2 or in the Assignment and Assumption Agreement
pursuant to which such Lender becomes a party hereto, as applicable.
"PROPERTY" means any interest in any kind of property or
asset, whether real, personal or mixed, tangible or intangible.
"PROVED RESERVES" means those reserves denominated as such and
determined in accordance with the methods commonly accepted by the
Society of Petroleum Engineers for evaluating oil and gas reserves.
"REGULATION D" means Regulation D of the Board of Governors of
the Federal Reserve System (or any successor).
"RELATED PARTIES" means, with respect to any specified Person,
such Person's Affiliates and the respective directors, officers,
employees, agents and advisors (including attorneys, accountants and
experts) of such Person and such Person's Affiliates.
"REPORTABLE EVENT" means any of the events set forth in
Section 4043(b) of ERISA or the regulations thereunder, other than any
such event for which the 30-day notice requirement under ERISA has been
waived in regulations issued by the PBGC.
"RESERVOIR" means a separate, identifiable underground
accumulation of oil, gas and/or associated hydrocarbons segregated from
other such accumulations and characterized by a single pressure system.
"RESPONSIBLE OFFICERS" means ▇▇▇▇▇▇▇ ▇. Newport and ▇▇▇▇ ▇▇▇▇,
and other executive officers of Borrower as designated in written
notice to Administrative Agent.
"RIGHTS" means rights, remedies, powers and privileges.
"SALES REPORT DATE" has the meaning assigned such term in
SECTION 5.7(A).
"SECTION" means a section or subsection in this Agreement
unless specified otherwise.
"SECURITY DOCUMENTS" means the documents described in SECTION
3.1(A)(4) of this Agreement and all other documents now or hereafter
existing which provide the Administrative Agent and/or the Lenders with
Collateral, as the same may be amended or restated from time to time.
________________________________________________________________________________
12
"SUBSIDIARY" of any 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.
"TAXES" means all taxes, assessments, filing or other fees,
levies, imposts, duties, deductions, withholdings, stamp taxes,
interest equalization taxes, capital transaction taxes, foreign
exchange taxes or charges, or other charges of any nature whatsoever
from time to time or at any time imposed by any Law or Tribunal.
"THIRD PARTY PROCEEDS" means that portion, if any, of proceeds
from the sale of hydrocarbon production attributable to the interest of
any Person other than the Borrower in any Mortgaged Property and as to
which such proceeds are actually received by the Borrower during any
period for which Gross Proceeds of Production is calculated, (e.g.
royalty interests, overriding royalty interests, net profits interests,
production payments and other interests payable out of or measured by
production); provided, however, other than interests in the Mortgaged
Properties conveyed pursuant to the Equity Kicker Letter, the interest
of such other Person is legally vested in such Person or the
predecessors in interest to such Person at the time of the acquisition
by the Borrower of its interest in the Mortgaged Properties.
"TRIBUNAL" means any court, governmental department or
authority, commission, board, bureau, agency, arbitrator or
instrumentality of any state, political subdivision, commonwealth,
nation, territory, county, parish or municipality, whether now or
hereafter existing, having jurisdiction over the Administrative Agent,
any Lender, the Borrower or any of their respective Property.
"UNMATURED EVENT OF DEFAULT" means any event or occurrence
which solely with the lapse of time or the giving of notice or both
will ripen into an Event of Default.
"WELL" means any oil and gas well which the Borrower drills on
the Mortgaged Properties with the proceeds, in whole or in part, of
Advances hereunder.
1.2 ACCOUNTING TERMS. All accounting and financial terms used in any of
the Loan Documents and the compliance with each covenant contained in the Loan
Documents that relates to financial matters shall be determined in accordance
with GAAP, except to the extent that a deviation therefrom is expressly stated
in such Loan Documents.
1.3 NUMBER AND GENDER OF WORDS. Whenever the singular number is used in
any Loan Document, the same shall include the plural where appropriate, and VICE
VERSA; words of any gender in any Loan Document shall include each other gender
where appropriate; and the words "herein," "hereof," "hereunder" and other words
of similar import refer to the relevant Loan Document as a whole and not to any
particular part, section or subdivision thereof.
________________________________________________________________________________
13
ARTICLE 2
TERMS OF CREDIT
2.1 ADVANCING COMMITMENT.
(a) Subject to the terms and conditions (including, without
limitation, the right of the Lenders to terminate the Commitment
hereunder upon an Event of Default) and relying on the representations
and warranties contained in this Agreement and the other Loan
Documents, from time to time until the Commitment Termination Date,
each Lender severally (and not jointly) agrees to make Advances of up
to its Pro Rata Percentage, PROVIDED, HOWEVER, no Advance shall be made
which will cause the sum of all Advances pursuant to this SECTION 2.1
to exceed, either singularly or cumulatively, the Advance Limit.
Subject to the terms and conditions set forth herein, Borrower may
borrower, prepay and re-borrow Loans..
(b) Notwithstanding anything to the contrary herein, the
Borrower shall not request and the Lenders shall not be obligated to
make more than two (2) Advances in any calendar month.
(c) The obligation of the Borrower to repay to each Lender the
aggregate amount of all Advances made by such Lender together with
interest accruing in connection therewith, shall be evidenced by each
Lender's respective Note. The liability for payment of principal and
interest evidenced by the Notes shall be limited to principal amounts
actually advanced and outstanding from time to time pursuant to this
Agreement and the other Loan Documents and interest accrued on such
amounts calculated in accordance with this Agreement.
2.2 BORROWING PROCEDURES. Each Borrowing Request shall be made
subject to the following procedures:
(a) other than the initial Advance, which shall be funded on
or before ten (10) days following the date hereof, each Advance shall
be made upon the Borrower's irrevocable written notice delivered to the
Administrative Agent in the form of a Borrowing Request duly completed;
which notice must be received by the Administrative Agent prior to
11:00 a.m. (New York, New York time) fifteen (15) Business Days prior
to the requested date of such Advance supported by an AFE together with
any necessary technical analyses, reports and data supporting the
merits of such proposed operation for written approval of the
Administrative Agent (unless the applicable time for responding to an
AFE under an associated operating agreement is less than 15 days, in
which case Borrower shall provide to Lenders as much time as is
reasonably practicable);
(b) each Borrowing Request shall specify the amount of the
Advance;
(c) the Administrative Agent will promptly notify each Lender
(in no event later than five (5) Business Days prior to the requested
date of such Advance) of the amount of such Lender's Pro Rata
Percentage of that Advance and such Borrowing Request shall not
thereafter be revocable by the Borrower; and
________________________________________________________________________________
14
(d) provided the applicable conditions in ARTICLE 3 are met,
each Lender will make the amount of its Pro Rata Percentage of each
Advance available to the Administrative Agent for the account of the
Borrower at the Administrative Agent's Payment Office by 12:30 p.m.
(New York, New York time) on the date requested by the Borrower in
funds immediately available to the Administrative Agent. The proceeds
of all such Advances will then be wire transferred to the Borrower
pursuant to written instructions given to the Administrative Agent by
the Borrower.
2.3 REPAYMENT PROVISIONS. All outstanding principal Debt evidenced by
the Notes, accrued interest thereon at the applicable rate herein provided and
expenses due and payable hereunder shall be repayable:
(a) in monthly installments each equal to ninety percent (90%)
(or such lesser percentage as is necessary to repay in full such
outstanding Debt evidenced by the Notes, accrued interest thereon and
expenses due and payable hereunder) of the Net Proceeds of Production
attributable to the Mortgaged Properties calculated for the calendar
month in which proceeds are actually received, with such amount being
applied first to any expenses due and payable under SECTION 9.3 hereof
or otherwise due under the Loan Documents, second to accrued and unpaid
interest, and third, the remainder to principal, the first of such
installments commencing November 15, 2009, and continuing thereafter on
the fifteenth (15th) day of each succeeding calendar month through and
including the Maturity Date; and
(b) all outstanding Debt evidenced by the Notes, accrued
interest thereon and expenses due and payable hereunder, if not sooner
paid, shall be repayable in full upon the Maturity Date.
(c) Certain of the Security Documents contain as additional
Collateral an assignment unto and in favor of the Administrative Agent,
as agent for the Lenders, of all oil, gas and other minerals produced
and to be produced from or attributable to the Mortgaged Properties
together with all of the revenues and proceeds attributable to such
production, and such Security Documents further provide that all such
revenues and proceeds which may be so collected by the Administrative
Agent pursuant to such assignment shall be applied to the payment of
the Notes and the satisfaction of all other Debt to be secured by such
Security Documents. It is the intention of the Borrower and the Lenders
that the first purchasers of production deliver all Gross Proceeds of
Production to the Gross Proceeds Account pursuant to such assignment.
In connection with the rights of the Administrative Agent to Gross
Proceeds of Production, the Borrower hereby grants the Administrative
Agent a power of attorney, which power is coupled with an interest and
is irrevocable, to complete in all respects and deliver to the
addressee the letter transfer orders executed in connection with the
Security Documents.
(d) The Lenders and the Borrower expressly acknowledge and
agree that so long as no Event of Default shall have occurred and be
continuing, the Debt evidenced by the Notes shall be repaid as set
forth above in this SECTION 2.3. Further, so long as no Event of
Default shall have occurred and be continuing, all revenues not applied
in repayment of the Debt evidenced by the Notes as set forth herein
shall be transferred to the Borrower by the Administrative Agent by the
second (2nd) Business Day of the succeeding calendar month.
________________________________________________________________________________
15
2.4 BORROWING BASE DETERMINATIONS.
(a) The initial Borrowing Base is hereby established at
$6,800,000.00.
(b) The Borrowing Base shall be redetermined by the
Administrative Agent at the commencement of each Borrowing Base Period,
effective as of the date set forth in a notice of redetermination
delivered to the Borrower and the Lenders by the Administrative Agent.
(c) Each determination of the Borrowing Base shall be made, in
the sole discretion of the Administrative Agent, by reviewing the
estimates of the projected rate of production and projected revenues
from the Mortgaged Properties and such other credit factors (including,
without limitation, the assets, liabilities, cash flow, current
Derivative Contracts, business, properties, management and ownership of
the Borrower) as the Administrative Agent in its sole discretion deems
significant. The Administrative Agent may make adjustments, in good
faith and at its sole discretion and in accordance with its customary
practices, to such estimates of the projected rate of production and
projected revenues.
(d) In addition to scheduled Borrowing Base redeterminations
pursuant to SECTION 2.4(B), the Administrative Agent may cause a
special redetermination during any Borrowing Base Period. The
Administrative Agent shall redetermine the Borrowing Base using the
most recent reserve report delivered to the Administrative Agent
pursuant to SECTION 5.5, as adjusted for cumulative production, any
material additions to, deletions from or any other material changes in
the Proved Reserves attributable to the Mortgaged Properties and
changes, if any, to pricing and cost assumptions since the effective
date of such reserve report and in accordance with the procedures set
forth in SECTION 2.4(B) and (C) which redetermined Borrowing Base shall
then be the effective Borrowing Base until further redetermination.
(e) In addition to the scheduled Borrowing Base
redeterminations pursuant to SECTION 2.4(B), the Borrower may cause a
special redetermination during any Borrowing Base Period. The Borrower
shall furnish additional reserve reports with respect to the Mortgaged
Properties, which additional reserve reports shall be in form and
substance satisfactory to the Administrative Agent, prepared by an
independent petroleum engineer satisfactory to the Administrative
Agent, which shall set forth, as of a specific date, any material
additions to, deletions from or any other material changes in the
Proved Reserves attributable to the Mortgaged Properties reflected in
the reserve report most recently furnished to the Administrative Agent
as provided pursuant to SECTION 5.5. The Administrative Agent shall
promptly redetermine the Borrowing Base in accordance with the
procedures set forth in SECTION 2.4(B) and (C) which redetermined
Borrowing Base shall then be the effective Borrowing Base until further
redetermination.
2.5 INTEREST RATES. Principal amounts of Advances outstanding under the
Notes shall bear interest at the lesser of (a) the Facility Rate, calculated on
the basis of a year of three hundred sixty (360) days, or (b) the Highest Lawful
________________________________________________________________________________
16
Rate, calculated on the basis of a year of three hundred sixty-five (365) or
three hundred sixty-six (366) days, as the case may be, and if no Highest Lawful
Rate exists, all outstanding Advances under the Notes shall bear interest at the
Facility Rate, calculated on the basis of a year of three hundred sixty (360)
days.
If an Event of Default shall exist and for so long an Event of Default
is continuing, principal amounts outstanding under the Notes and, to the extent
permitted by applicable Law, any interest payment on the Advances or any fees or
other amounts owed hereunder, shall bear interest (including post-petition
interest in any proceeding under the Bankruptcy Code or other applicable
Bankruptcy Laws) from the date of such Event of Default (if such Event of
Default is not cured on or prior to the expiration of any right to cure provided
under the Loan Documents) until the date such Event of Default is cured at the
lesser of (a) the Default Rate, calculated on the basis of a year of three
hundred sixty (360) days, or (b) the Highest Lawful Rate, calculated on the
basis of a year of three hundred sixty-five (365) or three hundred sixty-six
(366) days, as the case may be, and if no Highest Lawful Rate exists, principal
amounts outstanding under the Notes shall bear interest at the Default Rate,
calculated on the basis of a year of three hundred sixty (360) days.
2.6 RESERVED.
2.7 GENERAL PROVISIONS RELATING TO INTEREST. It is the intention of the
parties hereto to comply strictly with the applicable usury Laws as in effect
from time to time; and in this connection, there shall never be taken, reserved,
contracted for, collected, charged or received on any Loan or any other
Obligation interest in excess of that which would accrue at the Highest Lawful
Rate.
If under any circumstances the aggregate amount paid on the Obligations
includes amounts that are by Law deemed to be interest which exceed the Highest
Lawful Rate (the "EXCESS INTEREST"), the Borrower stipulates that such payment
and collection will have been and will be deemed to have been, to the fullest
extent permitted by applicable Laws, the result of mathematical error on the
part of the Borrower, the Administrative Agent and the Lenders, and the
Administrative Agent and the Lenders shall promptly credit the amount of such
excess interest on the principal amount of the outstanding Obligations, or if
the principal amount of the Obligations shall have been paid in full, refund the
excess interest to the Borrower. In the event that the maturity of the Notes is
accelerated by reason of an election of the Lenders resulting from any Event of
Default or by reason of operation of SECTION 7.2(A), or in the event of any
prepayment, then such consideration that constitutes interest under Laws
applicable to the Administrative Agent or the Lenders may never exceed the
Highest Lawful Rate, and excess interest, if any, provided for in the Notes,
this Agreement or otherwise shall be cancelled automatically by the
Administrative Agent or the Lenders as of the date of such acceleration or
prepayment and, if theretofore paid, shall be credited by the Administrative
Agent or the Lenders on the principal amount of the Obligations, or if the
principal amount of the Obligations shall have been paid in full, refunded by
the Administrative Agent or the Lenders to the Borrower.
All sums paid, or agreed to be paid, to the Administrative Agent or the
Lenders for the use, forbearance, and detention of the proceeds of the Loans
shall, to the extent permitted by applicable Law, be amortized, prorated,
allocated, and spread throughout the full term of the Obligations until paid in
full so that the actual rate of interest is uniform, but does not exceed the
Highest Lawful Rate, throughout the full term hereof.
2.8 FEES. The Borrower agrees to pay to the Administrative Agent a fee
equal to $30,000 as an annual administrative fee; such fee shall be fully earned
and payable on the Closing Date and each anniversary thereof. Borrower agrees to
________________________________________________________________________________
17
pay to Guggenheim Corporate Funding, for its account, a facility fee equal to 2%
of the Borrowing Base, payable on the Closing Date with respect to the initial
Borrowing Base and on each date on which the Borrowing Base is redetermined an
additional 2% fee with respect to the incremental increase made to the Borrowing
Base on such date.
2.9 VOLUNTARY PREPAYMENT. Borrower shall have the right and option to
voluntarily prepay without premium or penalty, all or any part of the balance
outstanding on the Notes. Any such prepayments of Debt evidenced by the Notes
shall be applied first to the payment of expenses and accrued and unpaid
interest thereon and then to the reduction of principal and any other
Obligations then due and owing.
2.10 MANDATORY PREPAYMENT OR ACTIONS IN LIEU THEREOF. If at any time
the outstanding principal evidenced by the Notes shall be in excess of the
Borrowing Base as then determined, the Borrower shall immediately, but in no
event later than thirty (30) days following any such determination, at the
Borrower's election: (a) prepay the Obligations in an aggregate amount at least
equal to such excess, which payment shall be in addition to any principal
installment otherwise due during such period or (b) pledge to the Administrative
Agent for the benefit of the Lenders additional Oil and Gas Properties
(reasonably acceptable to the Administrative Agent) sufficient to increase the
Borrowing Base to equal the unpaid principal amounts evidenced by the Notes. The
determination of the value, title and environmental status of the Oil and Gas
Properties so added shall be made by the Administrative Agent, at its sole
discretion.
2.11 METHOD OF PAYMENT; PRO RATA TREATMENT. All payments of principal,
interest, and other amounts to be made by the Borrower under this Agreement and
the other Loan Documents shall be made to the Administrative Agent at the
Administrative Agent's Payment Office for the account of the Lenders in dollars
and in immediately available funds, without setoff, deduction, or counterclaim,
not later than 1:00 P.M. New York, New York time on the date on which such
payment shall become due (each such payment made after such time on such due
date to be deemed to have been made on the next succeeding Business Day). Each
payment received by the Administrative Agent under this Agreement or any other
Loan Document for the account of a Lender shall be paid promptly to such Lender
in immediately available funds. Whenever any payment under this Agreement or any
other Loan Document shall be stated to be due on a day that is not a Business
Day, such payment may be made on the next succeeding Business Day, and such
extension of time shall in such case be included in the computation of the
payment of interest.
Each payment and prepayment of principal or interest under the Notes
shall be made to the Administrative Agent for the account of the Lenders pro
rata in accordance with the respective unpaid principal amounts evidenced by the
Notes.
2.12 INCREASED COSTS.
(a) If any Lender determines that any Change in Law regarding
capital requirements has the effect of reducing the rate of return on
such Lender's capital or on the capital of such Lender's holding
company, if any, as a consequence of this Agreement or the Loan made by
such Lender to a level below that which such Lender or such Lender's
holding company could have achieved but for such Change in Law (taking
into consideration such Lender's policies and the policies of such
Lender's holding company with respect to capital adequacy), then from
time to time the Borrower will pay to such Lender such additional
amount or amounts as will compensate such Lender or such Lender's
holding company for any such reduction suffered.
________________________________________________________________________________
18
(b) A certificate of a Lender setting forth the amount or
amounts necessary to compensate such Lender or its holding company, as
the case may be, as specified in SECTION 2.12(A) and reasonably
detailed calculations therefor shall be delivered to the Borrower and
shall be conclusive absent manifest error. The Borrower shall pay such
Lender the amount shown as due on any such certificate within 30 days
after receipt thereof.
(c) Failure or delay on the part of any Lender to demand
compensation pursuant to this SECTION 2.12 shall not constitute a
waiver of such Lender's right to demand such compensation.
2.13 TAXES
(a) Any and all payments by or on account of any obligation of
the Borrower under any Loan Document shall be made free and clear of
and without deduction for any Indemnified Taxes or Other Taxes;
provided that if the Borrower shall be required to deduct any
Indemnified Taxes or Other Taxes from such payments, then (i) the sum
payable shall be increased as necessary so that after making all
required deductions (including deductions applicable to additional sums
payable under this SECTION 2.13), the Administrative Agent or Lender
(as the case may be) receives an amount equal to the sum it would have
received had no such deductions been made, (ii) the Borrower shall make
such deductions and (iii) the Borrower shall pay the full amount
deducted to the relevant Tribunal in accordance with applicable law.
(b) The Borrower shall pay any Other Taxes to the relevant
Tribunal in accordance with applicable law.
(c) The Borrower shall indemnify the Administrative Agent and
each Lender, within ten (10) days after written demand therefor, for
the full amount of any Indemnified Taxes or Other Taxes paid by the
Administrative Agent or such Lender as the case may be, on or with
respect to any payment by or on account of any obligation of the
Borrower hereunder (including Indemnified Taxes or Other Taxes imposed
or asserted on or attributable to amounts payable under this SECTION
2.13) and any penalties, interest and reasonable expenses arising
therefrom or with respect thereto, whether or not such Indemnified
Taxes or Other Taxes were correctly or legally imposed or asserted by
the relevant Tribunal. A certificate of the Administrative Agent or a
Lender as to the amount of such payment or liability under this SECTION
2.13 and reasonably detailed calculations therefor shall be delivered
to the Borrower and shall be conclusive absent manifest error.
(d) As soon as practicable after any payment of Indemnified
Taxes or Other Taxes by the Borrower to a Tribunal, the Borrower shall
deliver to the Administrative Agent the original or a certified copy of
a receipt issued by such Tribunal evidencing such payment, a copy of
the return reporting such payment or other evidence of such payment
reasonably satisfactory to the Administrative Agent.
________________________________________________________________________________
19
ARTICLE 3
CONDITIONS
3.1 CONDITIONS PRECEDENT TO EXECUTION AND MAKING OF INITIAL ADVANCE.
The execution and delivery of this Agreement by the Lenders and the
Administrative Agent and the making of the initial Advance pursuant to SECTION
2.1 is subject to the fulfillment of the following conditions precedent, with
all documents to be delivered to the Administrative Agent (with sufficient
copies for each Lender) to be in form and substance reasonably satisfactory to
the Administrative Agent:
(a) The Administrative Agent shall have received the following
documents, appropriately executed and acknowledged by all appropriate
parties and in multiple counterparts as requested by the Administrative
Agent:
(1) this Agreement executed by each party hereto;
(2) Notes executed by the Borrower payable to each
Lender in the principal amount of their respective
Commitments;
(3) a certificate of the Secretary of Borrower
certifying as of the Closing Date: (i) resolutions of the
board of directors of Borrower, authorizing the transactions
contemplated hereby; (ii) the names and genuine signatures of
the officers of Borrower authorized to execute, deliver and
perform, as applicable, this Note, the Security Documents and
all other Loan Documents; (iii) the Organizational Documents
of Borrower as in effect on the Closing Date; (iv) the good
standing and existence certificates for Borrower, from
Borrower's state of incorporation, formation or organization,
as applicable, evidencing Borrower's qualification to do
business in such state as of a date satisfactory to
Administrative Agent; and (v) as applicable, certificate(s) of
authority for Borrower from foreign states wherein Borrower
conducts business, evidencing Borrower's qualifications to do
business in such state as of a date satisfactory to
Administrative Agent;
(4) the following documents creating, evidencing and
perfecting Liens in favor of the Administrative Agent to
secure the Obligations:
(i) a First Amendment and Supplement to Deed
of Trust, Security Agreement, Financing Statement and
Assignment of Production from Borrower in favor of
Administrative Agent, as agent for the Lenders,
covering the Mortgaged Properties located in the
State of Mississippi;
(ii) a First Amendment to First Lien Act of
Mortgage, Assignment of Production, Security
Agreement, Fixture Filing and Financing Statement
from Borrower in favor of Administrative Agent, as
agent for the Lenders, covering the Mortgaged
Properties located in the State of Louisiana;
________________________________________________________________________________
20
(iii) the Amended and Restated Security
Agreement from the Borrower covering all Property of
the Borrower and accounts related thereto;
(iv) Letters in Lieu of transfer orders, in
the form of EXHIBIT E hereto, directed to each party
remitting proceeds from the sale of production from
such Oil and Gas Properties;
(v) the Deposit Account Control Agreement
regarding the blocked account to which the Gross
Proceeds of Production are directed; and
(vi) the Cash Collateral Account Agreement
from the Borrower covering the blocked account
covered by the Deposit Account Control Agreement;
(5) The Conveyance of Permanent Overriding Royalty
Interest and Conveyance of Reducing Overriding Royalty
Interest;
(6)The Equity Kicker Letter and related documentation
received thereunder;
(7) The Assignment of Participation Rights in the
Buena Vista Prospect;
and
(8) Such other agreements, documents, instruments,
opinions, certificates, waivers, consents, and evidence as the
Administrative Agent or the Lenders may reasonably request in
compliance with or to accomplish the terms and provisions of
any of the Loan Documents;
(b) The representations and warranties contained in ARTICLE 4
shall be true and correct in all material respects on the date of
execution of this Agreement;
(c) No Event of Default or Unmatured Event of Default shall
have occurred and be continuing;
________________________________________________________________________________
21
(d) The Administrative Agent shall have received copies of the
Borrower's most recent Financial Statements, in form and substance
acceptable to the Administrative Agent in its sole discretion;
(e) The Administrative Agent shall have received an insurance
certificate as set forth in SECTION 5.18;
(f) Administrative Agent shall have received (i) the fees due
on the Closing Date under SECTION 2.8, (ii) any such costs, fees and
expenses due under SECTION 9.3 and (iii) estimated fees and expenses
associated with the filing of the Security Documents;
(g) The Administrative Agent shall have received an opinion of
Borrower's special New York counsel, Borrower's Nevada counsel and
Borrower's counsel in Louisiana and Mississippi covering the
enforceability of the applicable Conveyance of Overriding Royalty
Interest in form and substance acceptable to the Administrative Agent
at its sole discretion;
(h) The Administrative Agent shall be satisfied with the
environmental condition, material contracts related to, and Borrower's
title to its Oil and Gas Properties;
(i) The Administrative Agent shall have received a Borrowing
Request from the Borrower requesting the initial Advance to (i)
refinance the Bridge Loan Agreement, (ii) fund the ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇-▇ ▇▇▇▇, (▇▇▇) fund the acquisition of Oil and Gas Properties in the
Buena Vista Prospect, and (iv) pay costs and fees described under
SECTION 5.23;
(j) The Administrative Agent shall be satisfied with the
Borrower's program for Derivative Contracts described under SECTION
5.21;
(k) The Administrative Agent shall be satisfied with the
Borrower's corporate governance and discussions with Borrower's board
of directors on such corporate governance;
(l) Borrower shall enter into a joint operating agreement with
American Exploration Corp. for the Buena Vista Prospect that is
reasonably consistent with industry standard practices and reasonably
satisfactory to Administrative Agent;
and
(m) All legal matters incident to the execution of this
Agreement shall be satisfactory to ▇▇▇▇▇▇ and ▇▇▇▇▇, LLP, special
counsel for the Administrative Agent.
3.2 FURTHER CONDITIONS TO EACH ADVANCE. The obligation of the
Lenders to make any Advance pursuant to SECTION 2.1 is subject to fulfillment of
the following further conditions precedent:
(a) The representations and warranties contained in ARTICLE 4
shall be true and correct in all material respects as of the date of
the Advance;
________________________________________________________________________________
22
(b) No Event of Default or Unmatured Event of Default shall
have occurred and be continuing or will have occurred at the completion
of making the Advance;
(c) No Material Adverse Effect shall have occurred since the
Closing Date;
(d) The Administrative Agent shall have received a Borrowing
Request as required under SECTION 2.2(A); and
(e) To the extent not previously furnished by Borrower with
respect to any Advance (after the initial Advance) in connection with
the Drilling and Completion Costs for any Well, the Administrative
Agent shall have received such technical and engineering information
along with a drilling title opinion, in form and substance satisfactory
to the Administrative Agent evidencing Borrower 's title in the subject
Well and such other information that Administrative Agent may
reasonably request in its determination, in its sole discretion,
whether or not to fund such requested Advance.
3.3 CONDITION SUBSEQUENT TO EXECUTION. On or before June 15, 2010,
Borrower shall either (i) raise, on terms and conditions satisfactory to
Administrative Agent, at least $10,000,000.00 of equity capital, of which at
least $7,500,000.00 shall be deposited in the Gross Proceeds Account to be
allocated to drilling, completion and hookup of the initial Well drilled on the
Buena Vista Prospect or (ii) enter into an arms-length, industry trade that
provides for a third party to carry all of Borrower's costs through to the tanks
or sales meter for an initial Well sufficient to test the Haynesville interval
in the Buena Vista Prospect and which carry permits Borrower to retain at least
sixty-five percent (65%) of its net acreage in the Buena Vista Prospect.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
To induce the Lenders to enter into this Agreement and to make
the Advances pursuant to SECTION 2.1, the Borrower represents and warrants to
the Administrative Agent and the Lenders (which representations and warranties
shall survive delivery of the Notes and the making of the Advances until all
Obligations have been fully discharged) that:
4.1 EXISTENCE AND GOOD STANDING. The Borrower is a corporation, duly
formed, legally existing and in good standing under the Laws of the jurisdiction
of its formation and is duly qualified and in good standing as a foreign
corporation in all jurisdictions where the failure to be so qualified could
reasonably be expected to result in a Material Adverse Effect.
4.2 DUE AUTHORIZATION. The execution and delivery by the Borrower of
this Agreement and the borrowings hereunder, the execution and delivery by the
Borrower of the Notes and the other Loan Documents, the repayment of the Loans
and interest and fees provided in the Notes and this Agreement and the
performance of all Obligations of the Borrower under this Agreement and the
other Loan Documents, are within the power of the Borrower, have been duly
authorized by all necessary company action on behalf of the Borrower and do not
(a) require the consent of any Tribunal or other Person which has not been
obtained, (b) contravene or conflict with any provision of applicable Law or the
________________________________________________________________________________
23
certificate of formation or company agreement of the Borrower, (c) contravene,
conflict with or result in a default under any indenture, instrument, contract
or other agreement to which the Borrower is a party or by which its Properties
may be presently bound or encumbered, or (d) result in or require the creation
or imposition of any Lien upon any of the Property of the Borrower, other than
Permitted Liens.
4.3 VALID AND BINDING OBLIGATIONS. This Agreement and the other Loan
Documents to which it is a party constitute valid and binding obligations of the
Borrower, enforceable in accordance with their respective terms, except as
limited by Debtor Relief Laws and general principles of equity.
4.4 SCOPE AND ACCURACY OF FINANCIAL STATEMENTS. The Financial
Statements of the Borrower, which have been delivered to the Lender, have been
prepared in accordance with GAAP and fairly and accurately present the financial
condition and the results of the operations thereof in all material respects, as
of the dates and for the periods stated therein.
4.5 LIABILITIES AND LITIGATION. Except as set forth on SCHEDULE 4.5 and
on the Financial Statements of the Borrower submitted to Administrative Agent
prior to Closing, the Borrower does not have any material liabilities of any
nature, direct or contingent; and the Borrower is not in default with respect to
any such material liabilities or any material agreements by which it is bound.
There is no judgment against the Borrower, nor is there any Litigation or other
action of any nature pending before any Tribunal or, to the knowledge of the
Borrower, threatened against or affecting the Borrower or any of its Property.
4.6 TITLE TO ASSETS. The Borrower has Marketable Title to all of the
Mortgaged Properties set forth on SCHEDULE 4.6.
4.7 RESERVED.
4.8 RESERVED.
4.9 GAS IMBALANCES. There are no gas imbalances, take or pay or other
prepayments with respect to the Mortgaged Properties which would require the
Borrower to deliver oil and gas produced from such Mortgaged Properties at some
future time without then or thereafter receiving full payment therefor.
4.10 AUTHORIZATIONS AND CONSENTS. No authorization, consent, approval,
exemption, franchise, permit or license of, or filing (except for filings
required to perfect and maintain perfection of the Liens created by the Security
Documents) with, any Tribunal or any third Person is required to authorize, or
is otherwise required in connection with, the valid execution, delivery and
performance by the Borrower of this Agreement, the other Loan Documents to which
it is a party or any other agreement contemplated hereby or the repayment by the
Borrower of the Obligations.
4.11 COMPLIANCE WITH LAWS. Neither the business nor any of the
activities of the Borrower as presently conducted violates any applicable Law,
the result of which violation would have a Material Adverse Effect. The
Borrower, and to the extent the Borrower is not the operator of any of its Oil
and Gas Properties, the operator, has confirmed that it or the operator
possesses all licenses, approvals, registrations, permits and other
authorizations necessary to enable it to carry on its business in all material
respects as now conducted. All such licenses, approvals, registrations, permits
and other authorizations are in full force and effect. Furthermore, the Borrower
does not have any reason to believe that it will be unable to obtain the renewal
of any such licenses, approvals, registrations, permits and other authorizations
in due course.
________________________________________________________________________________
24
4.12 PROPER FILING OF TAX RETURNS AND PAYMENT OF TAXES DUE. The
Borrower has duly and properly filed all Tax returns which are required to be
filed and has paid all Taxes due pursuant to such returns or pursuant to any
assessment received, except such Taxes, if any, as are being Contested in Good
Faith. The charges and reserves on the books of the Borrower with respect to any
Taxes are adequate, and the Borrower does not owe any deficiency or additional
assessment in a material amount in connection with Taxes.
4.13 ERISA COMPLIANCE. The Borrower does not sponsor or maintain a Plan
or Pension Plan as defined under the provisions of ERISA, the Code and any other
Federal or state law.
4.14 INVESTMENT COMPANY ACT COMPLIANCE. The Borrower is not an
"investment company" or directly or indirectly controlled by or acting on behalf
of any Person which is an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
4.15 LIEN PRIORITY. The Liens created in favor of the Administrative
Agent under the Security Documents constitute and, until released or otherwise
terminated in accordance with the Loan Documents, shall remain first priority
Liens covering the Collateral securing the Obligations, subject only to
Permitted Liens.
4.16 USE OF PROCEEDS. The proceeds of any Loan are not and will not be
used directly or indirectly for the purpose of purchasing or carrying, or for
the purpose of extending credit to others for the purpose of purchasing or
carrying, any "margin stock" as that term is defined in Regulation U of the
Board of Governors of the Federal Reserve System, as amended, and in violation
of Regulations T, U or X.
4.17 FULL DISCLOSURE. All of the Loan Documents and all written
statements furnished by or on behalf of the Borrower in connection with the
consummation of the transactions contemplated by this Agreement, when taken
together, do not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements contained herein or
therein not misleading as of the date made or deemed made.
4.18 PLACES OF BUSINESS. The chief executive office and principal place
of business of the Borrower is ▇▇▇▇▇ ▇▇ ▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇. All
records of the Borrower are maintained at such office.
4.19 IDENTIFICATION NUMBERS. The Borrower's Federal employer
identification number is ▇▇-▇▇▇▇▇▇▇ and its organizational identification number
issued by the State of Nevada is E0358282006-3.
4.20 SUBSIDIARIES. The Borrower currently has no Subsidiaries.
4.21 NO DEFAULT. No Event of Default exists or would be reasonably
expected to result from the incurring of any Obligations by the Borrower.
ARTICLE 5
AFFIRMATIVE COVENANTS
________________________________________________________________________________
25
So long as any Debt evidenced by the Notes remains unpaid or
the Lenders remain obligated to make Advances, and in the absence of written
consent of the Administrative Agent to the contrary:
5.1 MAINTENANCE AND ACCESS TO RECORDS. The Borrower will keep adequate
records, in accordance with GAAP, of all of its transactions so that at any
time, and from time to time, its true and complete financial condition may be
readily determined. At any Lender's or the Administrative Agent's reasonable
request, the Borrower will make all such records available during normal
business hours for inspection and permit any Lender or the Administrative Agent
to make and take away copies thereof.
5.2 QUARTERLY FINANCIAL STATEMENTS. The Borrower will deliver to the
Administrative Agent with sufficient copies for the Lenders, as soon as
available but in no event later than seventy five (75) days after the end of
each fiscal quarter of each fiscal year of the Borrower, quarterly unaudited
Financial Statements of the Borrower reflecting the financial condition and
results of operations of the Borrower as at the end of such period and from the
beginning of such year to the end of such quarter, as applicable; provided the
documents required to be delivered under this SECTION 5.2 shall be deemed to
have been delivered on the date on which such documents are posted on the
Securities and Exchange Commission's website at ▇▇▇▇://▇▇▇.▇▇▇.▇▇▇. Such
Financial Statements shall be certified by a Responsible Officer as having been
prepared in accordance with GAAP and presenting the financial condition and the
results of the operations of the Borrower subject to changes resulting from
year-end audit adjustments.
5.3 ANNUAL FINANCIAL STATEMENTS. The Borrower will deliver to the
Administrative Agent with sufficient copies for the Lenders, as soon as
available but in no event later than one hundred twenty (120) days after the
close of each fiscal year of the Borrower, annual audited Financial Statements
of the Borrower reflecting the financial condition of the Borrower, together
with a report and opinion issued by a nationally recognized firm of independent
certified public accountants or another firm of independent certified public
accountants reasonably satisfactory to the Administrative Agent, that such
Financial Statements fairly present the financial position and results of
operations of the Borrower for the periods indicated in accordance with GAAP
provided the documents required to be delivered under this SECTION 5.3 shall be
deemed to have been delivered on the date on which such documents are posted on
the Securities and Exchange Commission's website at ▇▇▇▇://▇▇▇.▇▇▇.▇▇▇.
5.4 COMPLIANCE CERTIFICATES. The Borrower will deliver to the
Administrative Agent with sufficient copies for the Lenders, with each Financial
Statement delivered pursuant to SECTION 5.2 or 5.3 a duly executed Compliance
Certificate.
5.5 RESERVE REPORTS.
(a) Commencing March 1, 2010, and thereafter, as soon as available but
in any event no later than March 1 of each year, the Borrower shall deliver, (i)
a report, in form and substance satisfactory to the Administrative Agent,
prepared by an independent petroleum engineer or firm of engineers acceptable to
the Administrative Agent in its sole discretion, which report shall set forth,
as of February 1 of such year, projections of future net income from
hydrocarbons classified as Proved Reserves attributable to all of its Oil and
Gas Properties and (ii) such other information concerning such Oil and Gas
Properties as the Administrative Agent may reasonably request, including,
without limitation, engineering, geological and performance data.
________________________________________________________________________________
6
(b) Commencing September 1, 2010, and thereafter, as soon as available
but in any event no later than September 1 of each year, the Borrower shall
deliver, (i) a report, in form and substance satisfactory to the Lender,
internally prepared by the Borrower's engineers, which report shall set forth,
as of September 1 of such year, projections of future net income from
hydrocarbons classified as Proved Reserves attributable to all of its Oil and
Gas Properties and (ii) such other information concerning such Oil and Gas
Properties as the Lender may reasonably request, including, without limitation,
engineering, geological and performance data.
(c) Each reserve report delivered hereunder shall be accompanied by a
certificate from a Responsible Officer certifying to the knowledge of the
Borrower, (i) the assumptions stated or used in the preparation of such reserve
report are reasonable, (ii) identifying any ▇▇▇▇▇ which have been sold or added
since the effective date of the last reserve report delivery, (iii) that there
has been no material adverse change in the amount of the estimated oil and gas
reserves shown in such reserve report since the date thereof, except for changes
which have occurred as a result of production in the ordinary course of
business, and (iv) such reserve report does not omit any statement or
information necessary to cause the same not to be misleading in any material
respect.
5.6 PAYMENT STATEMENTS. The Borrower will deliver to the Administrative
Agent, with sufficient copies for each Lender, on or before the fifth (5th) day
of each calendar month (or the next Business Day should the fifth (5th) day of
the relevant calendar month not be a Business Day), a Payment Statement as to
the payment due and payable on the fifteenth (15th) day of the relevant calendar
month pursuant to SECTION 2.3.
5.7 SALES, PRODUCTION, OPERATIONS, AND LEASE ACQUISITION REPORTS .
(a) The Borrower will deliver to the Administrative Agent with
sufficient copies for the Lenders, as soon as available and in any
event within thirty (30) days after the end of each calendar month (the
"SALES REPORT DATE"), commencing with the month ending October 2009, a
report summarizing, as requested by the Administrative Agent, (i) the
gross volume of sales and actual production during such month from all
of the Borrower's Oil and Gas Properties and current prices being
received for such production for the calendar month, which as to gas is
two months prior to such Sales Report Date and as to oil is one month
prior to such Sales Report Date, (ii) the related severance, gross
production, occupation, excise, sales, recording, ad valorem, gathering
and other similar Taxes, if any, deducted from gross proceeds during
such month, (iii) production imbalances, (iv) leasehold operating
expenses, (v) Drilling and Completion Costs expenditures attributable
thereto and incurred during such month, and (vi) any changes or
additions to the purchasers of production from such Properties,
including contact names, addresses and contract identification number.
(b) The Borrower will deliver to the Administrative Agent with
sufficient copies for the Lenders, as soon as available and in any
event within thirty (30) days after the end of each calendar month (the
"ACQUISITION REPORT DATE"), commencing with the month ending October
2009, a report summarizing, as requested by the Administrative Agent,
(i) a schedule of Oil and Gas Properties acquired by the Borrower
during such month, (ii) lease acquisition costs, (iii) title reports
covering the newly acquired Oil and Gas Properties and (iv) a
certificate that such Oil and Gas Properties are mortgaged to secure
the Facility.
________________________________________________________________________________
27
(c) During any period in which the Borrower is participating
in a Well being drilled in the AMI, the Borrower will within a
reasonable time after receipt from operator deliver to the
Administrative Agent by e-mail (to the e-mail address provided in
SECTION 9.1 hereof) daily drilling reports. Upon the request of the
Administrative Agent, the Borrower will promptly deliver to the
Administrative Agent a report, in form reasonably acceptable to the
Administrative Agent, summarizing operations conducted on the Mortgaged
Properties for the time period requested by the Administrative Agent.
5.8 LIENS ON NEWLY ACQUIRED OIL AND GAS PROPERTIES. As new Oil and Gas
Properties are acquired by the Borrower within the AMI, from time to time, the
Borrower shall execute and deliver, as security for the payment of the Notes and
the performance of the Obligations of the Borrower under this Agreement, such
Security Documents (each substantially in the form of the similar instruments
given pursuant to SECTIONS 3.1(A)(4)(I) and (II) in connection with the
Mortgaged Properties) as necessary to create a first priority Lien (subject to
Permitted Liens) on all of Borrower's Oil and Gas Mortgaged Properties not
already encumbered by the Security Documents. Additionally, the Borrower shall
assign such overriding royalty interest to Guggenheim Corporate Funding, LLC as
may be required under the Equity Kicker Letter.
5.9 TITLE OPINIONS. Upon the request of the Administrative Agent, the
Borrower shall have prepared, with sufficient copies delivered to the
Administrative Agent (i) with respect to each drillsite, division order title
opinions, drill site title opinions, or other title information, and (ii) with
respect to each offsite acreage site, such title information as is in the
Borrower's possession, each in form reasonably satisfactory to the
Administrative Agent, evidencing the Borrower's Marketable Title to any of the
Mortgaged Properties.
5.10 STATEMENT OF MATERIAL ADVERSE EFFECT. The Borrower will deliver to
the Administrative Agent with sufficient copies for the Lenders, promptly upon
any Responsible Officer having knowledge of any Unmatured Event of Default,
Event of Default or event or condition (except for events or conditions as to
the economy of the United States as a whole or the energy industry in the United
States generally) causing, or that could reasonably be expected to cause, a
Material Adverse Effect, a statement of a Responsible Officer, setting forth the
Unmatured Event of Default, Event of Default or such event or condition causing,
or that could reasonably be expected to cause, a Material Adverse Effect and the
steps being taken with respect thereto.
5.11 TITLE DEFECTS. Other than Permitted Liens, the Borrower will clear
any title defects to the Mortgaged Properties as requested by the Administrative
Agent, and, in the event any such title defects are not cured in a timely
manner, pay all related costs and fees incurred by the Administrative Agent to
do so.
5.12 ADDITIONAL INFORMATION. The Borrower will furnish to the
Administrative Agent with sufficient copies for the Lenders, promptly upon the
Administrative Agent's request from time to time, such additional financial or
other information concerning the assets, liabilities, operations and
transactions of the Borrower as the Administrative Agent may reasonably request.
5.13 COMPLIANCE WITH LAWS AND PAYMENT OF TAXES. The Borrower will
comply in all material respects with all Laws and pay all Taxes, claims for
labor, supplies, rent and other obligations which, if unpaid, might become a
Lien against any of its Property, except any of the foregoing being Contested in
Good Faith.
________________________________________________________________________________
28
5.14 MAINTENANCE OF EXISTENCE AND GOOD STANDING. The Borrower will
maintain its corporate existence or qualification and good standing in its
jurisdiction of formation and in all jurisdictions wherein the Property owned or
business conducted makes such qualification necessary, except where the failure
to so qualify could not reasonably to be expected to have a Material Adverse
Effect.
5.15 FURTHER ASSURANCES. The Borrower will promptly cure any defects,
errors or omissions in the execution and delivery of the Loan Documents and,
upon notice, take such other action and immediately execute and deliver to the
Administrative Agent all such other and further instruments as may be reasonably
required or desired by the Administrative Agent from time to time in compliance
with the covenants and agreements made in this Agreement and the other Loan
Documents, including, without limitation, to create, perfect and maintain Liens
on the Collateral and all other Property intended as security for the
Obligations.
5.16 SUPPLEMENT OVERRIDING ROYALTY. As new Oil and Gas Properties are
acquired by Borrower in the AMI, Borrower shall execute and deliver to
Administrative Agent supplements to the Conveyance of Overriding Royalty
covering such new Oil and Gas Properties.
5.17 MAINTENANCE OF TANGIBLE PROPERTY. The Borrower will maintain, or
to the extent that the right of operating is vested in others, will exercise
commercially reasonable efforts to require the operator to maintain, the
Mortgaged Properties in good repair and working order and make all necessary
replacements thereof and operate the Mortgaged Properties in a good and
workmanlike manner.
5.18 MAINTENANCE OF INSURANCE. The Borrower will maintain insurance
with respect to its Oil and Gas Properties and business against such
liabilities, casualties, risks and contingencies and in such amounts as are
customarily maintained in the industry in the same or similar locations and
reasonably satisfactory to the Administrative Agent. Such insurance shall name
"Guggenheim Corporate Funding, LLC, as Administrative Agent for the Lenders" as
an additional insured and loss payee with respect to the Mortgaged Properties
and the insurer will give at least 30 days prior notice of any cancellation to
the Administrative Agent. The Borrower will furnish to the Administrative Agent,
on the Closing Date and annually thereafter, certificates evidencing such
insurance. As any new Mortgaged Properties are added by the Borrower hereunder,
the Borrower shall cause its insurance carrier to issue such amendment or
supplemental certificate evidencing compliance with the terms hereof.
5.19 RIGHT OF INSPECTION. The Borrower will permit any authorized
representative of the Administrative Agent or any Lender, upon prior written
notice to the Borrower, to visit and inspect any Collateral at such reasonable
times during normal business hours and as often as the Administrative Agent or
any Lender may request; provided however, that such inspection shall be at the
sole risk of the Administrative Agent and the Administrative Agent and the
Lenders shall indemnify, defend and hold the Borrower harmless from any claims
against or losses suffered by the Borrower arising from any injury suffered by
such authorized representative except to the extent such losses are caused by
the gross negligence or willful misconduct of the Borrower or its Affiliates.
5.20 NOTICE. The Borrower will, upon obtaining knowledge of any of the
following, immediately notify the Administrative Agent of: (a) the receipt of
any notice from, or the taking of any action by, the holder of any promissory
note or other evidence of Debt of the Borrower with respect to a claimed
default, together with a statement specifying the notice given or other action
taken by such holder and what action the Borrower is taking or proposes to take
________________________________________________________________________________
29
with respect thereto; (b) any legal, judicial or regulatory proceedings
affecting the Borrower in which the amount involved is material and is not
covered by insurance or that could, if adversely determined, reasonably be
expected to cause a Material Adverse Effect; (c) any dispute between the
Borrower and any Tribunal or any Person that could, if adversely determined,
reasonably be expected to cause a Material Adverse Effect; (d) information that
in any way relates to or affects the filing of any financing statement or other
security instrument for the purpose of perfecting or continuing a Lien on the
Collateral; and (e) any event that materially and adversely affects the
Collateral or the Rights of the Administrative Agent or the Lenders with respect
to such Collateral.
5.21 COLLATERAL PROTECTION. The Borrower will purchase and maintain in
effect Derivative Contracts satisfactory to the Administrative Agent covering at
least sixty percent (60%) of the estimated production from Borrower's proved
producing Oil and Gas Properties on a rolling two (2) year basis at prices and
with counterparties satisfactory to Administrative Agent.
5.22 MAINTENANCE OF CONTROLLED ACCOUNT.
(a) The Borrower shall maintain with the Depositary a controlled
deposit account styled "MAINLAND RESOURCES, INC.," Account No. 7236530205 (the
"GROSS PROCEEDS ACCOUNT"). The Borrower shall instruct all current and future
purchasers of production from the Borrower's Oil and Gas Properties to deposit
the Gross Proceeds of Production into the Gross Proceeds Account until such time
as the Borrower and Administrative Agent shall otherwise direct subject at all
times to the Deposit Account Control Agreement.
(b) Pursuant to the provisions of the Security Documents, the Borrower
shall grant to the Administrative Agent (for the benefit of the Lenders) a
first-priority security interest in the Gross Proceeds Account and all proceeds
and products thereof, which security interest shall be perfected through
"CONTROL" (as such term is described in Section 9-104 of any applicable version
of the Uniform Commercial Code). If, for any reason, the full outstanding
principal amount of the Notes is accelerated and becomes due and payable, then
the Administrative Agent shall be authorized to withdraw all of the funds on
deposit in the Gross Proceeds Account (excluding Third Party Proceeds), which
funds shall be applied against expenses, interest and principal outstanding
under the Notes and other Obligations in Administrative Agent's discretion. So
long as no Event of Default exists and is continuing, the Borrower shall have
the right to withdraw funds in the Gross Proceeds Account, provided that
following an Event of Default and for so long as any Event of Default is
continuing, the Borrower shall not transfer, withdraw or otherwise dispose of
any funds held from time to time in such accounts and Administrative Agent shall
have exclusive control over the funds held in such accounts.
5.23 USE OF PROCEEDS. Proceeds from the Loans shall be used solely to
(i) refinance outstanding principal under the Bridge Loan Agreement, in the
amount of approximately $2,600,000.00, (ii) fund cash calls associated with
Borrower's ▇▇▇▇▇▇▇▇▇-▇▇▇▇▇▇▇ #16-1 Well, in an amount not to exceed
$1,000,000.00, (iii) fund Borrower's acquisition of certain leaseholds located
within the Buena Vista Prospect, in an amount not to exceed $2,500,000.00, (iv)
to pay Borrower's out of pocket legal expenses, closing fees and Derivative
Contract costs attributable to this Facility, in an amount not to exceed
$400,000.00 and (v) pay general corporate expenses, in amount not to exceed
$300,000.00, in the event the Lenders exercise their Participation Rights.
________________________________________________________________________________
30
5.24 RIGHT OF LAST OFFER.
(a) If Borrower or any of its Affiliates requires a new loan, credit
arrangement or third party financing, in order to enter into a participation
agreement, joint venture, or other contract to develop or acquire any interest
or rights with respect to lands and minerals located within the AMI (a "New
Project") within one (1) year from the repayment of this Facility, Borrower
shall or shall cause such Affiliate seeking any financing arrangements from any
third parties, to make a written presentation ("Presentation", and the date when
presented being the "Presentation Date") detailing the particulars of the New
Project to the Lenders, including such information as it set forth in SECTION
5.24(B) below, in order for the Lenders to evaluate the New Project.
(b) The Presentation shall include technical data and commercial terms
including, by way of example but not of limitation, third party reserve reports
and actual costs, expenses and obligations incurred, or to be incurred, in
connection with the New Project and the terms of any third party proposed
financing arrangements, with respect thereto.
(c) The Lenders shall thereafter have the right to match the terms of
the proposed third-party financing for the New Project, which such terms shall
be no less favorable than the terms set forth in the third party financing. The
right of the Lenders to propose financing shall last for a period of thirty (30)
days following the Presentation Date (the "Exclusive Period"), during which time
the parties agree to use commercially reasonable efforts to negotiate the terms
and conditions for financing the New Project. During the Exclusive Period,
Borrower shall not and shall not permit any such Affiliate to solicit, discuss,
or negotiate any financing arrangement with any third party. Assuming the
Lenders determine that the terms of the new financing are satisfactory, and
assuming that such terms are no less favorable to a Borrower than the terms set
forth in the third party financing then Borrower shall, or Borrower shall cause
such Affiliate to enter into the new financing with the Lenders on or prior to
the end of the Exclusive Period.
(d) If the Lenders shall have failed to propose financing terms equal
to or more favorable than the terms set forth in the third party financing to
Borrower, or shall have rescinded or rejected the terms for financing the New
Project within the Exclusive Period, then the rights of the Lenders with respect
to proposing financing for such New Project shall terminate provided this right
of last offer shall remain in effect and shall be binding for any other New
Projects.
5.25 FORMATION OF SUBSIDIARY. In the event that Borrower has not
satisfied the Condition Subsequent under SECTION 3.2 hereof on or before March
31, 2010, Borrower promptly shall, but in no event later than April 15, 2010,
(i) form a special purpose subsidiary to hold all of its Oil and Gas Properties,
(ii) Borrower shall convey all of its Oil and Gas Properties to such Subsidiary
subject to the Liens in favor of Administrative Agent, (iii) such Subsidiary
shall become an Guarantor hereunder and pledge all of its assets to
Administrative Agent as security for its Guaranty and Borrower's Obligations,
and (iv) Borrower shall pledge all of the equity in such Subsidiary in favor of
Administrative Agent.
ARTICLE 6
NEGATIVE COVENANTS
So long as any Debt evidenced by the Notes remains unpaid or
the Lenders remain obligated to make Advances, and in absence of written consent
of the Lenders to the contrary:
________________________________________________________________________________
31
6.1 OTHER DEBT. The Borrower will not incur, create, assume or suffer
to exist any Debt except: (a) Loans or other Obligations hereunder, (b)
unsecured current accounts payable incurred in the ordinary course of business,
provided such accounts are paid within sixty (60) days of the due date or are
being Contested in Good Faith, and (c) pursuant to Derivative Contracts required
or permitted by this Agreement.
6.2 DERIVATIVE CONTRACTS. The Borrower shall not enter into or in any
manner be liable under any Derivative Contract except (a) Derivative Contracts
as required under SECTION 5.21 and (b) Derivative Contracts entered into with
the purpose and effect of hedging prices on hydrocarbons attributable to the
Mortgaged Properties and expected to be produced by the Borrower provided that
at all times: (i) the aggregate of all such Derivative Contracts limits or
reduces such market price risk for a term approved by Administrative Agent; (ii)
no such contract, when aggregated with all Derivative Contracts permitted under
this SECTION 6.2 requires such Person to deliver more than 85% of total
estimated hydrocarbons to be produced during any calendar month from the
Mortgaged Properties and (iii) each such contract shall be with any of the
Lenders, any Affiliates of the Lenders or with a counter-party or have a
guarantor of the obligation of the counter-party who, at the time the contract
is made, has long-term obligations rated AA or Aa2 or better, respectively, by
Standard & Poor's Rating Group or ▇▇▇▇▇'▇ Investors Service, Inc. (or a
successor credit rating agency).
Any Debt to any Lenders or any Affiliate of the Lenders incurred under
any Derivative Contract shall be treated as an Obligation PARI PASSU and secured
pro rata under the Security Documents with all Obligations otherwise incurred
hereunder or under the other Loan Documents. Borrower covenants and agrees that
the payment on each and all of such Derivative Contracts with any of the Lenders
or their Affiliates is and shall be secured by Liens on the Collateral under the
Security Documents.
6.3 GUARANTY OF PAYMENT OR PERFORMANCE. The Borrower will not guarantee
any contract or otherwise be or become liable in connection with any obligation
of any Person, except that the foregoing restriction shall not apply to
performance guaranties, performance surety or other bonds or endorsements of
instruments for collection, in each case in the ordinary course of business.
6.4 LOANS, ADVANCES OR INVESTMENTS. The Borrower will not make or agree
to make or allow to remain outstanding any Investment, including, without
limitation, any loans or advances or the purchase (for cash or securities) of
all or a substantial part of the Property or capital stock of any Person, except
advances or extensions of credit in the form of accounts receivable incurred in
the ordinary course of business and upon terms common in the industry for such
accounts receivable.
6.5 MORTGAGES OR PLEDGES OF ASSETS. The Borrower will not create,
incur, assume or permit to exist any Lien on any of the Mortgaged Property or
Property within the AMI (now owned or hereafter acquired), except Permitted
Liens.
6.6 CANCELLATION OF INSURANCE. The Borrower will not allow any
insurance policy required to be carried hereunder to be terminated or lapse or
expire without provision for adequate renewal or replacement thereof.
6.7 SALES OF PROPERTY. The Borrower will not sell, transfer or
otherwise dispose of, in one or any series of transactions, any of the
Collateral except:
(a) for production inventory in the ordinary course of business; and
________________________________________________________________________________
32
(b) for used, surplus, obsolete or worn-out equipment in the ordinary
course of business; and
(c) sales made with the consent of the Administrative Agent and subject
to any conditions with respect thereto.
6.8 DIVIDENDS AND DISTRIBUTIONS. The Borrower will not declare, pay or
make, whether in cash or other Property, any dividend, distribution or return of
capital on, or purchase, redeem or otherwise acquire for value, any of its
shareholders' interests.
6.9 CHANGES IN STRUCTURE. The Borrower will not enter into any
transaction of consolidation, merger or amalgamation; liquidate, wind up or
dissolve (or suffer any liquidation or dissolution); or convey, sell, lease,
assign, transfer or otherwise dispose of all or substantially all (measured in
value) of its Property or business.
6.10 PAYMENT OF ACCOUNTS PAYABLE. The Borrower will not allow any
account payable to be in excess of sixty (60) days past due, except such as are
being Contested in Good Faith.
6.11 TRANSACTIONS WITH AFFILIATES. The Borrower will not directly or
indirectly, enter into any transaction (including the sale, lease or exchange of
Property or the rendering of service) with any of its Affiliates, other than
upon fair and reasonable terms no less favorable than could be obtained in an
arm's length transaction with a Person which was not an Affiliate.
6.12 NATURE OF BUSINESS. The Borrower will not make any material change
in the character of its business as carried on at the date hereof.
6.13 NO SUBSIDIARIES. The Borrower will not own any Subsidiaries.
6.14 ERISA. The Borrower will not maintain an ERISA Plan.
6.15 NEGATIVE PLEDGE AGREEMENTS. The Borrower will not create, incur,
assume or permit to exist any contract, agreement or understanding (other than
this Agreement or the Security Documents) which in any way prohibits or
restricts the granting, conveying, creation or imposition of any Lien on any of
its Property, or which requires the consent of or notice to other Persons in
connection therewith.
6.16 GAS IMBALANCES, TAKE-OR-PAY OR OTHER PREPAYMENTS. The Borrower
will not allow gas imbalances in excess of two percent (2%) of the Borrower's
projected hydrocarbon production from the Mortgaged Properties nor enter into
any, take-or-pay or other prepayments with respect to the Oil and Gas Properties
of the Borrower which would require the Borrower to deliver hydrocarbons
produced on Oil and Gas Properties at some future time without then or
thereafter receiving full payment therefor.
6.17 DEPOSIT ACCOUNTS. The Borrower shall not create, maintain, invest
or deposit proceeds from the sale of Collateral into any deposit account,
securities account or investment account unless such accounts are subject to the
Deposit Account Control Agreement or the Borrower shall have otherwise delivered
to the Administrative Agent a duly executed tri-party account control agreement
with respect to such accounts on terms and conditions reasonably satisfactory to
the Administrative Agent.
________________________________________________________________________________
33
ARTICLE 7
EVENTS OF DEFAULT
7.1 EVENTS OF DEFAULT. The occurrence of any of the following events
shall constitute an Event of Default:
(a) The Borrower shall fail to pay when due any installment of
principal or interest on the Notes;
(b) Default shall occur in the due observance or performance
under ARTICLE 5 of this Agreement (except for SECTION 5.10), and such
default shall remain unremedied for in excess of fifteen (15) days
after the earlier of (i) notice given by the Administrative Agent or
any Lender (through the Administrative Agent), or (ii) actual knowledge
thereof by the Borrower;
(c) Default shall occur in the due observance or performance
of SECTION 3.3, SECTION 5.10 or ARTICLE 6 of this Agreement;
(d) Any Financial Statement, representation, warranty or
certificate made or furnished by or on behalf of the Borrower to the
Administrative Agent or any Lender in connection with this Agreement or
other Loan Document, or as an inducement to the Lenders to enter into
this Agreement, or in any instrument furnished in compliance with or in
reference to this Agreement or any other Loan Document, shall be
materially false, incorrect, or misleading at or as of the time made;
(e) Default shall be made by the Borrower (as principal or
guarantor or other surety) in payment or performance of any bond,
debenture, note or other evidence of Debt for borrowed money having an
outstanding principal amount in excess of $25,000, or under any credit
agreement, loan agreement, indenture, promissory note, third party
Derivative Contract or similar agreement or instrument executed in
connection with any of the foregoing, and such default shall remain
unremedied for in excess of the period of grace, if any, with respect
thereto, with the effect of accelerating the maturity of any such Debt
or establishing a right to accelerate the maturity of such Debt;
(f) The Borrower shall file a petition seeking relief for
itself under Debtor Relief Laws, or file an answer consenting to,
admitting the material allegations of or otherwise not controverting,
or fail timely to controvert a petition filed against it seeking relief
under Debtor Relief Laws;
(g) An order for relief shall be entered against the Borrower
under any Debtor Relief Laws, which order is not stayed, or upon the
entry of an order, judgment or decree by operation of Law or by a court
of competent jurisdiction which is not stayed, ordering relief against
the Borrower under, or approving as properly filed, a petition seeking
relief against the Borrower under the provisions of any Debtor Relief
Laws, or appointing a receiver, liquidator, assignee, sequestrator,
________________________________________________________________________________
34
trustee or custodian of the Borrower or of any substantial part of its
Property, or ordering the reorganization, winding up or liquidation of
any the Borrower's affairs, or upon the expiration of sixty (60) days
after the filing of any involuntary petition against the Borrower
seeking any of the relief specified in the preceding Section or this
Section without the petition being dismissed prior to that time;
(h) The Borrower (i) makes a general assignment for the
benefit of its creditors, (ii) consents to the appointment of or taking
possession by a receiver, liquidator, assignee, sequestrator, trustee
or custodian of the Borrower or any substantial part of its Property,
(iii) admits insolvency or inability to pay its debts generally as such
debts become due, (iv) fails generally to pay its debts as such debts
become due, or (v) takes any action (or an action shall be taken by its
managers or the holders of a majority in interest of its membership
interests) looking to the dissolution or liquidation of the Borrower;
(i) Final judgment for the payment of money in excess of
$25,000 (net of any insurance claim paid with respect therefore) shall
be rendered against the Borrower and such judgment shall remain
undischarged for a period of thirty (30) days during which execution
shall not be effectively stayed;
(j) The Security Documents 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, cease to create a valid Lien of the priority required thereby on
any of the Collateral purported to be covered thereby, or, upon
perfection, cease to be a perfected Lien on any of the Collateral
purported to be covered thereby, or the Borrower or any other Person
who may have granted or purported to grant such Lien shall so state in
writing;
(k) A judgment creditor of any Person who is the owner of any
of the Collateral shall obtain possession of any of the Collateral by
any means, including, without limitation, levy, attachment or self
help;
(l) The validity or enforceability of any of the Loan
Documents shall be contested by the Borrower or the Borrower shall deny
that it has any or further liability or Obligation under any of the
Loan Documents or allege that any of the Loan Documents shall be
construed or enforced other than in accordance with their terms;
(m) The Borrower shall have concealed, removed, or permitted
to be concealed or removed, any part of its Property with the intent to
hinder, delay or defraud its creditors or any of them, or made or
suffered a transfer of any of its Property which is fraudulent under
any Debtor Relief Laws (except for such transfers in favor of the
Lender); or shall have made any transfer (other than in the ordinary
course of business) of its Property to or for the benefit of a creditor
at a time when other creditors similarly situated have not been paid;
or
(n) ▇▇▇▇▇▇▇ ▇. Newport or ▇▇▇▇ ▇▇▇▇ shall cease or fail for
any reason to serve and function in their current capacity as officers
of the Borrower and shall not be succeeded in such position by a person
reasonably acceptable to the Administrative Agent.
________________________________________________________________________________
35
7.2 RIGHTS UPON OCCURRENCE OF AN EVENT OF DEFAULT.
(a) Upon the occurrence of any Event of Default specified in
SECTIONS (F), (G), or (H) of SECTION 7.1, immediately and without
notice, (i) all Obligations evidenced by the Notes shall immediately
become due and payable without presentment, demand, protest, notice of
protest or dishonor, notice of intent to accelerate, notice of
acceleration or other notice of any kind, all of which are expressly
waived by the Borrower and (ii) all obligations of the Lenders to make
further Advances, if any, under this Agreement, shall immediately and
automatically cease and terminate unless and until the Lenders shall
reinstate any such obligation in writing.
(b) Upon the occurrence and at any time during the continuance
of any other Event of Default, the Administrative Agent, upon request
of the Majority Lenders, may by notice to the Borrower take either or
both of the following actions: (i) terminate all obligations of the
Lenders to make further Advances, if any, under this Agreement and
thereupon all such obligations shall immediately and automatically
cease and terminate unless and until the Lenders shall reinstate any
such obligation in writing and (ii) declare all Obligations evidenced
by the Notes to be immediately due and payable without presentment,
demand, protest, notice of protest or dishonor, notice of intention to
accelerate, notice of acceleration or other notice of any kind, all of
which are expressly waived by the Borrower.
(c) THE BORROWER ACKNOWLEDGES AND UNDERSTANDS THAT UNDER THE
LAWS OF THE STATE OF NEW YORK, UNLESS WAIVED, THE BORROWER HAS THE
RIGHT TO NOTICE OF THE LENDERS' INTENT TO ACCELERATE THE OBLIGATIONS
EVIDENCED BY THE NOTES, THE RIGHT TO NOTICE OF THE ACTUAL ACCELERATION
OF THE OBLIGATIONS EVIDENCED BY THE NOTES, AND THE RIGHT TO PRESENTMENT
OF THE NOTES BY THE LENDERS' DEMAND FOR PAYMENT. THE BORROWER
ACKNOWLEDGES THAT IT UNDERSTANDS THAT IT CAN WAIVE THESE RIGHTS AND BY
THE BORROWER'S EXECUTION OF THIS AGREEMENT IT AGREES TO WAIVE ITS RIGHT
TO NOTICE OF INTENT TO ACCELERATE, ITS RIGHT TO NOTICE OF ACCELERATION,
AND ITS RIGHT TO PRESENTMENT OR OTHER DEMAND FOR PAYMENT.
(d) In addition to the foregoing, upon the occurrence of any
Event of Default, the Administrative Agent and the Lenders may exercise
any or all of the Rights provided in any or all of the Loan Documents.
ARTICLE 8
THE ADMINISTRATIVE AGENT
8.1 APPOINTMENT; POWERS . Each of the Lenders hereby irrevocably
(subject to SECTION 8.6) appoints the Administrative Agent as its agent and
authorizes the Administrative Agent to take such actions on its behalf and to
________________________________________________________________________________
36
exercise such powers as are delegated to the Administrative Agent by the terms
hereof and the other Loan Documents, together with such actions and powers as
are reasonably incidental thereto.
8.2 DUTIES AND OBLIGATIONS OF ADMINISTRATIVE AGENT . The Administrative
Agent shall not have any duties or obligations except those expressly set forth
in the Loan Documents. Without limiting the generality of the foregoing, the
Administrative Agent (a) shall not be subject to any fiduciary or other implied
duties, regardless of whether an Unmatured Event of Default or Event of Default
has occurred and is continuing, (b) shall not have any duty to take any
discretionary action or exercise any discretionary powers, except as provided in
SECTION 8.3, and (c) except as expressly set forth herein, shall not have any
duty to disclose, and shall not be liable for the failure to disclose, any
information relating to the Borrower that is communicated to or obtained by the
Administrative Agent or any of its Affiliates in any capacity. The
Administrative Agent shall be deemed not to have knowledge of any Unmatured
Event of Default or Event of Default unless and until written notice thereof is
given to it by the Borrower or a Lender, and shall not be responsible for or
have any duty to ascertain or inquire into (a) any statement, warranty or
representation made in or in connection with this Agreement or any other Loan
Document, (b) the contents of any certificate, report or other document
delivered hereunder or under any other Loan Document or in connection herewith
or therewith, (c) the performance or observance of any of the covenants,
agreements or other terms or conditions set forth herein or in any other Loan
Document, (d) the validity, enforceability, effectiveness or genuineness of this
Agreement, any other Loan Document or any other agreement, instrument or
document, (e) the satisfaction of any condition set forth in ARTICLE 3 or
elsewhere herein, other than to confirm receipt of items expressly required to
be delivered to it or as to those conditions precedent specifically required to
be to its satisfaction, (f) the existence, value, perfection or priority of any
collateral security or the financial or other condition of the Borrower or any
other obligor or guarantor, or (g) any failure by the Borrower or any other
Person (other than itself) to perform any of its obligations hereunder or under
any other Loan Document or the performance or observance of any covenants,
agreements or other terms or conditions set forth herein or therein.
8.3 ACTION BY ADMINISTRATIVE AGENT. The Administrative Agent shall not
have any duty to take any discretionary action or exercise any discretionary
powers, except discretionary rights and powers expressly contemplated hereby
that it is required to exercise in writing as directed by the Majority Lenders
(or such other number or percentage of the Lenders as shall be necessary under
the circumstances as provided in SECTION 9.2) and in all cases it shall be fully
justified in failing or refusing to act hereunder or under any other Loan
Documents unless it shall (a) receive written instructions from the Majority
Lenders or the Lenders, as applicable, (or such other number or percentage of
the Lenders as shall be necessary under the circumstances as provided in SECTION
9.2) specifying the action to be taken and (b) be indemnified to its
satisfaction by the Lenders against any and all liability and expenses which may
be incurred by it by reason of taking or continuing to take any such action. The
instructions as aforesaid and any action taken or failure to act pursuant
thereto shall be binding on all of the Lenders. If an Unmatured Event of Default
or Event of Default has occurred and is continuing, then the Administrative
Agent shall take such action with respect to such Unmatured Event of Default or
Event of Default as shall be directed by the requisite Lenders in the written
instructions (with indemnities) described in this SECTION 8.3, provided that,
unless and until the Administrative Agent shall have received such directions,
the Administrative Agent may (but shall not be obligated to) take such action,
or refrain from taking such action, with respect to such Unmatured Event of
Default or Event of Default as it shall deem advisable in the best interests of
the Lenders. In no event, however, shall the Administrative Agent be required to
take any action which exposes the Administrative Agent to personal liability or
which is contrary to this Agreement, the Loan Documents or applicable law. The
________________________________________________________________________________
37
Administrative Agent shall not be liable for any action taken or not taken by it
with the consent or at the request of the Majority Lenders or the Lenders (or
such other number or percentage of the Lenders as shall be necessary under the
circumstances as provided in SECTION 9.2), and otherwise the Administrative
Agent shall not be liable for any action taken or not taken by it hereunder or
under any other Loan Document or under any other document or instrument referred
to or provided for herein or therein or in connection herewith or therewith
INCLUDING ITS OWN ORDINARY NEGLIGENCE, except for its own gross negligence or
willful misconduct.
8.4 RELIANCE BY ADMINISTRATIVE AGENT . The Administrative Agent shall
be entitled to rely upon, and shall not incur any liability for relying upon,
any notice, request, certificate, consent, statement, instrument, document or
other writing believed by it to be genuine and to have been signed or sent by
the proper Person. The Administrative Agent also may rely upon any statement
made to it orally or by telephone and believed by it to be made by the proper
Person, and shall not incur any liability for relying thereon, and each of the
Lenders hereby waives the right to dispute the Administrative Agent's record of
such statement, except in the case of gross negligence or willful misconduct by
the Administrative Agent. The Administrative Agent may consult with legal
counsel, independent accountants and other experts selected by it, and shall not
be liable for any action taken or not taken by it in accordance with the advice
of any such counsel, accountants or experts. The Administrative Agent may deem
and treat the payee of any Note as the holder thereof for all purposes hereof
unless and until a written notice of the assignment or transfer thereof
permitted hereunder shall have been filed with the Administrative Agent.
8.5 SUBAGENTS. The Administrative Agent may perform any and all its
duties and exercise its rights and powers by or through any one or more
sub-agents appointed by it. The Administrative Agent and any such sub-agent may
perform any and all its duties and exercise its rights and powers through their
respective Related Parties. The exculpatory provisions of the preceding SECTIONS
of this ARTICLE 8 shall apply to any such sub-agent and to the Related Parties
of the Administrative Agent and any such sub-agent, and shall apply to their
respective activities in connection with the syndication of the credit
facilities provided for herein as well as activities as Administrative Agent.
8.6 RESIGNATION OR REMOVAL OF ADMINISTRATIVE AGENT. Subject to the
appointment and acceptance of a successor Administrative Agent as provided in
this SECTION 8.6, the Administrative Agent may resign at any time by notifying
the Lenders, and the Borrower, and Administrative Agent may be removed at any
time with or without cause by the Majority Lenders. Upon any such resignation or
removal, the Majority Lenders shall have the right, in consultation with and
upon the approval of the Borrower (so long as no Event of Default has occurred
and is continuing), which approval shall not be unreasonably withheld, to
appoint a successor. If no successor shall have been so appointed by the
Majority Lenders or shall have accepted such appointment within 30 days after
the retiring Administrative Agent gives notice of its resignation or removal of
the retiring Administrative Agent, then the retiring Administrative Agent may,
on behalf of the Lenders, appoint a successor Administrative Agent which shall
be a bank with an office in New York, New York, or an Affiliate of any such
bank. Upon the acceptance of its appointment as Administrative Agent hereunder
by a successor, such successor shall succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Administrative Agent, and
the retiring Administrative Agent shall be discharged from its duties and
obligations hereunder. The fees payable by the Borrower to a successor
Administrative Agent shall be the same as those payable to its predecessor
unless otherwise agreed between the Borrower and such successor. After the
Administrative Agent's resignation hereunder, the provisions of this ARTICLE 8
and SECTION 9.3 shall continue in effect for the benefit of such retiring
________________________________________________________________________________
38
Administrative Agent, its sub-agents and their respective Related Parties in
respect of any actions taken or omitted to be taken by any of them while it was
acting as Administrative Agent.
8.7 ADMINISTRATIVE AGENT AS A LENDER. Each Person serving as an
Administrative Agent hereunder shall have the same rights and powers in its
capacity as a Lender as any other Lender and may exercise the same as though it
were not an Administrative Agent, and such Person and its Affiliates may accept
deposits from, lend money to and generally engage in any kind of business with
the Borrower or any Affiliate thereof as if it were not an Administrative Agent
hereunder.
8.8 NO RELIANCE. Each Lender acknowledges that it has, independently
and without reliance upon the Administrative Agent or any other Lender and based
on such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement and each other Loan
Document to which it is a party. Each Lender also acknowledges that it will,
independently and without reliance upon the Administrative Agent or any other
Lender and based on such documents and information as it shall from time to time
deem appropriate, continue to make its own decisions in taking or not taking
action under or based upon this Agreement, any other Loan Document, any related
agreement or any document furnished hereunder or thereunder. The Administrative
Agent is not required to keep itself informed as to the performance or
observance by the Borrower of this Agreement, the Loan Documents or any other
document referred to or provided for herein or to inspect the Property or books
of the Borrower. Except for notices, reports and other documents and information
expressly required to be furnished to the Lenders by the Administrative Agent
hereunder, the Administrative Agent shall not have any duty or responsibility to
provide any Lender with any credit or other information concerning the affairs,
financial condition or business of the Borrower (or any of its Affiliates) which
may come into the possession of the Administrative Agent or any of its
Affiliates. In this regard, each Lender acknowledges that ▇▇▇▇▇▇ and ▇▇▇▇▇, LLP
is acting in this transaction as special counsel to the Administrative Agent
only, except to the extent otherwise expressly stated in any legal opinion or
any Loan Document. Each other party hereto will consult with its own legal
counsel to the extent that it deems necessary in connection with the Loan
Documents and the matters contemplated therein.
8.9 AUTHORITY OF ADMINISTRATIVE AGENT TO RELEASE COLLATERAL AND LIENS.
Each Lender hereby authorizes the Administrative Agent to release any collateral
that is permitted to be sold or released pursuant to the terms of the Loan
Documents. Each Lender hereby authorizes the Administrative Agent to execute and
deliver to the Borrower, at the Borrower's sole cost and expense, any and all
releases of Liens, termination statements, assignments or other documents
reasonably requested by the Borrower in connection with any sale or other
disposition of Property to the extent such sale or other disposition is
permitted by the terms of SECTION 6.7 or is otherwise authorized by the terms of
the Loan Documents.
8.10 ADMINISTRATIVE AGENT MAY FILE PROOFS OF CLAIM. In case of any
Unmatured Event of Default or Event of Default under SECTIONS 7.1(F), (G), or
(H), the Administrative Agent (regardless of whether the principal of any Loan
shall then be due and payable and regardless of whether the Administrative Agent
has made any demand on the Borrower or any guarantor) shall be entitled and
empowered, by intervention in such proceeding or otherwise:
(a) to (i) file and prove a claim for the whole amount of the
principal and interest owing and unpaid in respect of the Loans, and
all other Debt that is owing and unpaid and (ii) file such other
documents as may be necessary or advisable in order to have the claims
of the Lenders and the Administrative Agent (including any claim for
________________________________________________________________________________
39
the reasonable compensation, expenses, disbursements and advances of
the Lenders, the Administrative Agent, and its respective agents and
counsel and all other amounts due the Lenders and the Administrative
Agent under SECTION 9.3) allowed in such judicial proceeding; and
(b) to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute the same.
Each Lender hereby authorizes any custodian, receiver, assignee,
trustee, conservator, sequestrator or other similar official in any such
judicial proceeding: (a) to make such payments to the Administrative Agent; and
(b) if the Administrative Agent shall consent to the making of such payments
directly to the Lenders, to pay to the Administrative Agent any amount due for
the reasonable compensation, expenses, disbursements and advances of the
Administrative Agent and its agents and counsel, and any other amounts due the
Administrative Agent under SECTION 9.3. Nothing contained herein shall be deemed
to authorize the Administrative Agent to authorize or consent to or accept or
adopt on behalf of any Lender any plan of reorganization, arrangement,
adjustment or composition affecting the Debt or the rights of any Lender or to
authorize the Administrative Agent to vote in respect of the claim of any Lender
in any such proceeding. Each Lender retains its right to file and prove a claim
separately.
8.11 DELIVERY BY ADMINISTRATIVE AGENT . The Administrative Agent shall
promptly provide each Lender copies of all written information, certificates and
notices delivered to the Administrative Agent by or on behalf of the Borrower
pursuant to the terms of this Agreement or any other Loan Document.
ARTICLE 9
MISCELLANEOUS
9.1 NOTICES. Any notice required or permitted to be given under or in
connection with this Agreement or any of the other Loan Documents (except as may
otherwise be expressly required therein) shall be in writing and shall be mailed
by certified mail, return receipt requested, postage prepaid, or sent by telex,
telegram, telecopy, facsimile, electronically by e-mail or other similar form of
rapid transmission confirmed by mailing (by certified mail, return receipt
requested, postage prepaid) written confirmation at substantially the same time
as such rapid transmission, or personally delivered to an officer of the
receiving party. All such communications shall be mailed, sent, delivered, faxed
or e-mailed,
(a) if to the Borrower to:
Mainland Resources, Inc.
▇▇▇▇▇ ▇▇ ▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. Newport
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Email: ▇▇▇▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
or to such other address or to such individual's or department's attention as
the Borrower may have furnished the Administrative Agent and the Lenders in
writing.
________________________________________________________________________________
40
(b) if to the Administrative Agent to:
Guggenheim Corporate Funding, LLC
▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: Fund Controller
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
e-mail: ▇▇▇▇▇▇▇.▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
and
Guggenheim Corporate Funding, LLC
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
e-mail: ▇▇▇▇.▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
or to such other address or to such individual's or department's attention as
the Administrative Agent may have furnished the Borrower and the Lenders in
writing;
(c) if to a Lender to the intended recipient at the "Address
for Notices" specified below its name on the signature pages hereof or to such
other address or to such individual's or department's attention as such Lender
may have furnished the Borrower, the Administrative Agent and the other Lenders
in writing
Any communication so addressed and mailed shall be deemed to be given
when so mailed, and any notice so sent by rapid transmission is acknowledged,
and any communication so delivered in person shall be deemed to be given when
receipted for or actually received by an authorized officer of the Borrower, the
Administrative Agent or a Lender, as the case may be.
9.2 AMENDMENTS AND WAIVERS.
(a) No failure on the part of the Administrative Agent or any
Lender to exercise and no delay in exercising, and no course of dealing with
respect to, any right, power or privilege, or any abandonment or discontinuance
of steps to enforce such right, power or privilege, under any of the Loan
Documents shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege under any of the Loan Documents
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies of the Administrative Agent
and the Lenders hereunder and under the other Loan Documents are cumulative and
are not exclusive of any rights or remedies that they would otherwise have. No
waiver of any provision of this Agreement or any other Loan Document or consent
to any departure by any party therefrom shall in any event be effective unless
the same shall be permitted by SECTION 9.2 (B), and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. Without limiting the generality of the foregoing, the making of a Loan
shall not be construed as a waiver of any Event of Default, regardless of
whether the Administrative Agent or any Lender may have had notice or knowledge
of such Event of Default at the time.
________________________________________________________________________________
41
(b) Neither this Agreement nor any provision hereof nor any
Loan Document nor any provision thereof may be waived, amended or modified
except pursuant to an agreement or agreements in writing entered into by the
Borrower and the Majority Lenders or by the Borrower and the Administrative
Agent with the consent of the Majority Lenders; provided that no such agreement
shall (i) increase the Commitment of any Lender without the written consent of
such Lender, (ii) reduce the principal amount of any Loan or reduce the rate of
interest thereon, or reduce any fees payable hereunder, or reduce any other Debt
hereunder or under any other Loan Document, without the written consent of each
Lender affected thereby, (iii) postpone the scheduled date of payment of the
principal amount of any Loan or any interest thereon, or any fees payable
hereunder, or any other Debt hereunder or under any other Loan Document, or
reduce the amount of, waive or excuse any such payment, or postpone or extend
the Maturity Date without the written consent of each Lender affected thereby,
(iv) change SECTION 2.11 in a manner that would alter the pro rata sharing of
payments required thereby without the written consent of each Lender, (v) or
release any of the collateral (other than as provided in SECTION 8.9), without
the written consent of each Lender, or (vi) change any of the provisions of this
SECTION 9.2(B) or the definition of "Majority Lenders" or any other provision
hereof specifying the number or percentage of Lenders required to waive, amend
or modify any rights hereunder or under any other Loan Documents or make any
determination or grant any consent hereunder or under any other Loan Documents,
without the written consent of each Lender, provided further that no such
agreement shall amend, modify or otherwise affect the rights or duties of the
Administrative Agent hereunder or under any other Loan Document without the
prior written consent of such Administrative Agent.
9.3 EXPENSES, INDEMNITY; DAMAGE WAIVER.
(a) In connection with the closing of the transactions
contemplated by this Agreement, the Borrower shall pay all reasonable
out-of-pocket expenses incurred by the Administrative Agent, including, without
limitation, the reasonable fees, charges and disbursements of counsel and other
outside consultants for the Administrative Agent in connection with the
preparation, negotiation, execution, and delivery of this Agreement and the
other Loan Documents. On and after the Closing Date, the Borrower shall pay (i)
all reasonable out-of-pocket expenses incurred by the Administrative Agent in
the administration of this Agreement and the other Loan Documents (including
without limitation, but for purposes of illustration only: preparation of
amendments, modifications, waivers, consents related to the provisions hereof,
negotiation, documentation and recordation of supplemental Security Documents
and other Loan Documents in connection with the pledge of Mortgaged Properties
as additional ▇▇▇▇▇ are proposed and drilled with Advances hereunder, review of
title information related thereto, and advice of counsel to the Administrative
Agent as to the rights and duties of the Administrative Agent and the Lenders
with respect thereto) whether or not the transactions contemplated hereby or
thereby shall be consummated and (ii) all costs, expenses, Taxes, assessments
and other charges incurred by the Administrative Agent or any Lender in
connection with any filing, registration, recording or perfection of any
security interest contemplated by this Agreement or any Security Document or any
other document referred to therein. In addition to the foregoing, the Borrower
shall pay, upon the occurrence and continuation of an Unmatured Event of Default
or Event of Default, all out-of-pocket expenses incurred by the Administrative
Agent or any Lender, including the fees, charges and disbursements of any
counsel for the Administrative Agent or any Lender, in connection with the
enforcement or protection of its rights in connection with this Agreement or any
other Loan Document, including its rights under this SECTION 9.3, or in
connection with the Loans made hereunder, including, without limitation, all
such out-of-pocket expenses incurred during any workout, restructuring or
negotiations in respect of such Loans.
________________________________________________________________________________
42
(b) THE BORROWER SHALL INDEMNIFY THE ADMINISTRATIVE AGENT AND
EACH LENDER, AND EACH RELATED PARTY OF ANY OF THE FOREGOING PERSONS (EACH SUCH
PERSON BEING CALLED AN "INDEMNITEE") AGAINST, AND HOLD EACH INDEMNITEE HARMLESS
FROM, ANY AND ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES AND RELATED EXPENSES,
INCLUDING THE FEES, CHARGES AND DISBURSEMENTS OF ANY COUNSEL FOR ANY INDEMNITEE,
INCURRED BY OR ASSERTED AGAINST ANY INDEMNITEE ARISING OUT OF, IN CONNECTION
WITH, OR AS A RESULT OF (i) THE EXECUTION OR DELIVERY OF THIS AGREEMENT OR ANY
OTHER LOAN DOCUMENT OR ANY AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY OR
THEREBY, THE PERFORMANCE BY THE PARTIES HERETO OR THE PARTIES TO ANY OTHER LOAN
DOCUMENT OF THEIR RESPECTIVE OBLIGATIONS HEREUNDER OR THEREUNDER OR THE
CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED HEREBY OR BY ANY OTHER LOAN
DOCUMENT, (ii) THE FAILURE OF THE BORROWER OR ANY SUBSIDIARY TO COMPLY WITH THE
TERMS OF ANY LOAN DOCUMENT, INCLUDING THIS AGREEMENT, OR WITH ANY GOVERNMENTAL
REQUIREMENT, (iii) ANY INACCURACY OF ANY REPRESENTATION OR ANY BREACH OF ANY
WARRANTY OR COVENANT OF THE BORROWER OR ANY GUARANTOR SET FORTH IN ANY OF THE
LOAN DOCUMENTS OR ANY INSTRUMENTS, DOCUMENTS OR CERTIFICATIONS DELIVERED IN
CONNECTION THEREWITH, (iv) ANY LOAN OR THE USE OF THE PROCEEDS THEREFROM, (v)
ANY OTHER ASPECT OF THE LOAN DOCUMENTS, (vi) THE OPERATIONS OF THE BUSINESS OF
THE BORROWER AND ITS SUBSIDIARIES BY THE BORROWER AND ITS SUBSIDIARIES, (vii)
ANY ASSERTION THAT THE LENDERS WERE NOT ENTITLED TO RECEIVE THE PROCEEDS
RECEIVED PURSUANT TO THE SECURITY DOCUMENTS, (viii) ANY ENVIRONMENTAL LAW
APPLICABLE TO THE BORROWER OR ANY SUBSIDIARY OR ANY OF THEIR PROPERTIES,
INCLUDING WITHOUT LIMITATION, THE PRESENCE, GENERATION, STORAGE, RELEASE,
THREATENED RELEASE, USE, TRANSPORT, DISPOSAL, ARRANGEMENT OF DISPOSAL OR
TREATMENT OF OIL, OIL AND GAS WASTES, SOLID WASTES OR HAZARDOUS SUBSTANCES ON
ANY OF THEIR PROPERTIES, (ix) THE BREACH OR NON-COMPLIANCE BY THE BORROWER OR
ANY SUBSIDIARY WITH ANY ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR ANY
SUBSIDIARY, (x) THE PAST OWNERSHIP BY THE BORROWER OR ANY SUBSIDIARY OF ANY OF
THEIR PROPERTIES OR PAST ACTIVITY ON ANY OF THEIR PROPERTIES WHICH, THOUGH
LAWFUL AND FULLY PERMISSIBLE AT THE TIME, COULD RESULT IN PRESENT LIABILITY,
(xi) THE PRESENCE, USE, RELEASE, STORAGE, TREATMENT, DISPOSAL, GENERATION,
THREATENED RELEASE, TRANSPORT, ARRANGEMENT FOR TRANSPORT OR ARRANGEMENT FOR
DISPOSAL OF OIL, OIL AND GAS WASTES, SOLID WASTES OR HAZARDOUS SUBSTANCES ON OR
AT ANY OF THE PROPERTIES OWNED OR OPERATED BY THE BORROWER OR ANY SUBSIDIARY OR
ANY ACTUAL OR ALLEGED PRESENCE OR RELEASE OF HAZARDOUS MATERIALS ON OR FROM ANY
PROPERTY OWNED OR OPERATED BY THE BORROWER OR ANY OF ITS SUBSIDIARIES, (xii) ANY
ENVIRONMENTAL LIABILITY RELATED IN ANY WAY TO THE BORROWER OR ANY OF ITS
SUBSIDIARIES, OR (xiii) ANY OTHER ENVIRONMENTAL, HEALTH OR SAFETY CONDITION IN
CONNECTION WITH THE LOAN DOCUMENTS, OR (xiv) ANY ACTUAL OR PROSPECTIVE CLAIM,
LITIGATION, INVESTIGATION OR PROCEEDING RELATING TO ANY OF THE FOREGOING,
WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY AND REGARDLESS OF WHETHER
ANY INDEMNITEE IS A PARTY THERETO, AND SUCH INDEMNITY SHALL EXTEND TO EACH
________________________________________________________________________________
43
INDEMNITEE NOTWITHSTANDING THE SOLE OR CONCURRENT NEGLIGENCE OF EVERY KIND OR
CHARACTER WHATSOEVER, WHETHER ACTIVE OR PASSIVE, WHETHER AN AFFIRMATIVE ACT OR
AN OMISSION, INCLUDING WITHOUT LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT
IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS OF ONE OR MORE OF THE
INDEMNITEES OR BY REASON OF STRICT LIABILITY IMPOSED WITHOUT FAULT ON ANY ONE OR
MORE OF THE INDEMNITEES; PROVIDED THAT SUCH INDEMNITY SHALL NOT, AS TO ANY
INDEMNITEE, BE AVAILABLE TO THE EXTENT THAT SUCH LOSSES, CLAIMS, DAMAGES,
LIABILITIES OR RELATED EXPENSES ARE DETERMINED BY A COURT OF COMPETENT
JURISDICTION BY FINAL AND NONAPPEALABLE JUDGMENT TO HAVE RESULTED FROM THE GROSS
NEGLIGENCE, WILLFUL MISCONDUCT OR VIOLATION OF LAW OF SUCH INDEMNITEE.
(c) To the extent that the Borrower fails to pay any amount
required to be paid by it to the Administrative Agent under SECTIONS 9.3 (A) or
(B), each Lender severally agrees to pay to the Administrative Agent, as the
case may be, a percentage which is equal the percentage of the outstanding
principal Debt evidenced by the Note executed in favor of such Lender to the
outstanding principal Debt evidenced by all of the Notes (determined as of the
time that the applicable unreimbursed expense or indemnity payment is sought) of
such unpaid amount; provided that the unreimbursed expense or indemnified loss,
claim, damage, liability or related expense, as the case may be, was incurred by
or asserted against the Administrative Agent in its capacity as such.
(d) To the extent permitted by applicable law, each party
hereto shall not assert, and hereby waives, any claim against another party or
any Indemnitee, on any theory of liability, for special, indirect, consequential
or punitive damages (as opposed to direct or actual damages) arising out of, in
connection with, or as a result of, this Agreement, any other Loan Document or
any agreement or instrument contemplated hereby or thereby, the transactions
contemplated hereby or thereby, any Loan or the use of the proceeds thereof.
(e) All amounts due under this SECTION 9.3 shall be payable
promptly after written demand therefor.
9.4 SURVIVAL OF AGREEMENTS. All representations and warranties of the
Borrower herein or in the other Loan Documents and all covenants and agreements
not fully performed before the effective date or dates of this Agreement or the
other Loan Documents shall survive such date or dates.
9.5 SUCCESSORS AND ASSIGNS.
(a) The provisions of this Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns permitted hereby, except that (i) the Borrower may not assign or
otherwise transfer any of its rights or obligations hereunder without the prior
written consent of each Lender (and any attempted assignment or transfer by the
Borrower without such consent shall be null and void) and (ii) no Lender may
assign or otherwise transfer its rights or obligations hereunder except in
accordance with this SECTION 9.5. Nothing in this Agreement, expressed or
implied, shall be construed to confer upon any Person (other than the parties
hereto, their respective successors and assigns permitted hereby, Participants
(to the extent provided in SECTION 9.5 (C)) and, to the extent expressly
contemplated hereby, the Related Parties of each of the Administrative Agent and
the Lenders) any legal or equitable right, remedy or claim under or by reason of
this Agreement.
________________________________________________________________________________
44
(b) (i) Subject to the conditions set forth in SECTION
9.5(B)(II), any Lender may assign to one or more assignees all or a portion of
its rights and obligations under this Agreement (including all or a portion of
its Commitment and the Loans at the time owing to it) with the prior written
consent (such consent not to be unreasonably withheld or delayed) of the
Borrower, provided that no consent of the Borrower shall be required for an
assignment to a Lender, an Affiliate of a Lender, or, if an Event of Default has
occurred and is continuing, any other assignee.
(ii) Assignments shall be subject to the following
additional conditions:
(A) except in the case of an assignment to a
Lender or an Affiliate of a Lender or an assignment
of the entire remaining amount of the assigning
Lender's Commitment, the amount of the Commitment of
the assigning Lender subject to each such assignment
(determined as of the date the Assignment and
Acceptance with respect to such assignment is
delivered to the Administrative Agent) shall not be
less than $500,000.00, and the Commitments of any
assigning Lender remaining a party hereto after
giving effect to the assignment shall be at least
$500,000.00, unless, in each case, each of the
Borrower and the Administrative Agent otherwise
consent, provided that no such consent of the
Borrower shall be required if an Event of Default has
occurred and is continuing;
(B) each partial assignment shall be made as
an assignment of a proportionate part of all the
assigning Lender's rights and obligations under this
Agreement;
(C) the parties to each assignment shall
execute and deliver to the Administrative Agent an
Assignment and Acceptance, together with a processing
and recordation fee of $5,000.00 payable by the
assigning Lender; and
(D) in the case of an assignment to a CLO,
the assigning Lender shall retain the sole right to
approve any amendment, modification or waiver of any
provision of this Agreement, provided that the
Assignment and Acceptance between such Lender and
such CLO may provide that such Lender will not,
without the consent of such CLO, agree to any
amendment, modification or waiver described in the
first proviso to SECTION 9.2 that affects such CLO.
(iii) Subject to SECTION 9.5(B)(IV) and the
acceptance and recording thereof, from and after the effective date specified in
each Assignment and Acceptance the assignee thereunder shall be a party hereto
and, to the extent of the interest assigned by such Assignment and Acceptance,
have the rights and obligations of a Lender under this Agreement, and the
assigning Lender thereunder shall, to the extent of the interest assigned by
such Assignment and Acceptance, be released from its obligations under this
Agreement (and, in the case of an Assignment and Acceptance covering all of the
assigning Lender's rights and obligations under this Agreement, such Lender
________________________________________________________________________________
45
shall cease to be a party hereto but shall continue to be entitled to the
benefits of SECTIONS 2.10, 2.11 and 9.3). Any assignment or transfer by a Lender
of rights or obligations under this Agreement that does not comply with this
SECTION 9.5 shall be treated for purposes of this Agreement as a sale by such
Lender of a participation in such rights and obligations in accordance with
SECTION 9.5 (C).
(iv) The Administrative Agent, acting for this
purpose as an agent of the Borrower, shall maintain at one of its offices a copy
of each Assignment and Acceptance delivered to it and a register for the
recordation of the names and addresses of the Lenders, and the Commitment of,
and principal amount of the Loans owing to, each Lender pursuant to the terms
hereof from time to time (the "Register"). The entries in the Register shall be
conclusive, and the Borrower, the Administrative Agent and the Lenders may treat
each Person whose name is recorded in the Register pursuant to the terms hereof
as a Lender hereunder for all purposes of this Agreement, notwithstanding notice
to the contrary. The Register shall be available for inspection by the Borrower
and any Lender, at any reasonable time and from time to time upon reasonable
prior notice.
(v) Upon its receipt of a duly completed Assignment
and Acceptance executed by an assigning Lender and an assignee, the processing
and recordation fee referred to in SECTION 9.5(B) and any written consent to
such assignment required by SECTION 9.5(B), the Administrative Agent shall
accept such Assignment and Acceptance and record the information contained
therein in the Register. No assignment shall be effective for purposes of this
Agreement unless it has been recorded in the Register as provided in this
SECTION 9.5(B).
(c) (i) Any Lender may, without the consent of the
Borrower or the Administrative Agent sell participations to one or more banks or
other entities (a "Participant") in all or a portion of such Lender's rights and
obligations under this Agreement (including all or a portion of its Commitment
and the Loans owing to it); provided that (A) such Lender's obligations under
this Agreement shall remain unchanged, (B) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations
and (C) the Borrower, the Administrative Agent and the other Lenders shall
continue to deal solely and directly with such Lender in connection with such
Lender's rights and obligations under this Agreement. Any agreement or
instrument pursuant to which a Lender sells such a participation shall provide
that such Lender shall retain the sole right to enforce this Agreement and to
approve any amendment, modification or waiver of any provision of this
Agreement; provided that such agreement or instrument may provide that such
Lender will not, without the consent of the Participant, agree to any amendment,
modification or waiver described in the proviso to SECTION 9.2 that affects such
Participant. In addition such agreement must provide that the Participant be
bound by the provisions of SECTION 9.3. Subject to SECTION 9.5(C)(II), the
Borrower agrees that each Participant shall be entitled to the benefits of
SECTIONS 2.10, 2.11 and 2.13 to the same extent as if it were a Lender and had
acquired its interest by assignment pursuant to SECTION 9.5(B).
________________________________________________________________________________
46
(ii) A Participant shall not be entitled to receive
any greater payment under SECTION 2.10 OR 2.11 than the applicable Lender would
have been entitled to receive with respect to the participation sold to such
Participant, unless the sale of the participation to such Participant is made
with the Borrower's prior written consent and disclosure to the Borrower of all
facts relevant to such greater payment.
(d) Any Lender may at any time pledge or assign a security
interest in all or any portion of its rights under this Agreement to secure
obligations of such Lender, including any pledge or assignment to secure
obligations to a Federal Reserve Bank, and this SECTION 9.5(D) shall not apply
to any such pledge or assignment of a security interest; provided that no such
pledge or assignment of a security interest shall release a Lender from any of
its obligations hereunder or substitute any such pledgee or assignee for such
Lender as a party hereto.
9.6 INVALIDITY. In the event that any one or more of the provisions
contained in this Agreement or any of the other Loan Documents shall for any
reason be held invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement or any other Loan Document and all other terms and provisions
of the Loan Document shall nevertheless remain effective and shall be enforced
to the fullest extent permitted by applicable Law.
9.7 RESERVED.
9.8 WAIVERS. No waiver by the Administrative Agent or any Lender of any
of its Rights under this Agreement, the other Loan Documents or otherwise shall
be considered a waiver of any other or subsequent Right. No course of dealing on
the part of the Administrative Agent or any Lender, its officers, employees,
consultants or agents, nor any failure or delay by the Administrative Agent or
any Lender with respect to exercising any Right under any of the Loan Documents
shall operate as a waiver thereof.
9.9 CUMULATIVE RIGHTS. The Rights of the Administrative Agent and the
Lenders under the Note, this Agreement and each other Loan Document shall be
cumulative, and the exercise or enforcement of any such Right shall not preclude
the exercise or enforcement of any other Right.
9.10 EXHIBITS; CONFLICTS. The exhibits attached to this Agreement are
incorporated herein and shall be considered a part of this Agreement for the
purposes stated herein. In the event of any direct conflict between any of the
provisions of such exhibits or any of the other Loan Documents and the
provisions of this Agreement, the provisions of this Agreement shall prevail.
9.11 TITLES OF ARTICLES, SECTIONS AND SUBSECTIONS. All titles or
heading to articles, sections, subsections or other divisions of this Agreement
or the exhibits hereto are only for the convenience of the parties and shall not
be construed to have any effect or meaning with respect to the other content of
such articles, sections, subsections or other divisions, such other content
being controlling as to the agreement between the parties hereto.
________________________________________________________________________________
47
9.12 JURISDICTION. To the extent any matter with respect to the Notes,
this Agreement or any of the other Loan Documents is not resolved by Arbitration
under SECTION 9.21 below, all actions or proceedings may be instituted in the
courts of the State of New York, County of New York, the United States District
Court for the Southern District of New York, or elsewhere to the extent that
jurisdiction shall exist apart from the provisions of this SECTION 9.12, as the
Majority Lenders may elect. By execution and delivery of this Agreement, the
Borrower irrevocably and unconditionally submits to the non-exclusive
jurisdiction (both subject matter and personal) of each such court, and
irrevocably and unconditionally waives (a) any objection it may now or hereafter
have to the laying of venue in any of such courts and (b) any claim that any
action or proceeding brought in any of such courts has been brought in an
inconvenient forum. The choice of forum and laying of venue as set forth in this
SECTION 9.12 was negotiated in good faith by the Borrower and the Lenders and is
a significant term of the bargain between the Borrower and the Lenders governed
by this Agreement. The Borrower and the Lenders further agree that service of
process, summons, notice of document by U.S. registered mail to the address of
each set forth above shall be effective service of process for any action, suit
or proceeding brought against the other in any such court.
9.13 COUNTERPARTS. This Agreement may be executed in two or more
counterparts and multiple originals of such counterparts, and it shall not be
necessary that the signatures of all parties hereto be contained on any one
counterpart hereof. Any executed Agreement or any counterpart thereof shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
9.14 EFFECTIVENESS. This Agreement shall not be effective until
delivered to, accepted and executed by the Lenders, the Administrative Agent and
the Borrower.
9.15 DOCUMENTS. Except as expressly provided otherwise herein, all Loan
Documents and any other certificate, agreement or other document provided or to
be provided under the terms hereof shall be in form and substance reasonably
satisfactory to the Lender.
9.16 RIGHTS OF THIRD PERSON. All provisions of this Agreement are
imposed solely and exclusively for the benefit of the Lenders, the
Administrative Agent and the Borrower. No other Person shall have standing to
require satisfaction for such provisions in accordance with their terms or be
entitled to assume that the Lenders or the Administrative Agent will refuse to
perform their obligations hereunder in the absence of strict compliance with any
or all thereof, and any or all of such provisions may be freely waived in whole
or in part by the Lenders or the Administrative Agent at any time if in their
sole discretion they deem it advisable to do so.
9.17 ANNOUNCEMENTS. Each party covenants and agrees with the other
that, subject to applicable law, each party shall promptly advise and consult
with the other and obtain the other's written consent before issuing any press
release with respect to this Agreement or the transactions described herein.
9.18 SURVIVAL OF CERTAIN COVENANTS. The covenants of the Borrower set
forth in SECTION 9.3 shall survive repayment of the Debt for a period of one (1)
year.
9.19 JURY TRIAL WAIVED. THE BORROWER, THE ADMINISTRATIVE AGENT AND EACH
LENDER HEREBY AGREE THAT THEY SHALL AND HEREBY WAIVE, TO THE FULLEST EXTENT
PERMITTED BY LAW, TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM,
WHETHER AT LAW OR IN EQUITY, BROUGHT BY ANY OF THEM OR IN ANY MATTER WHATSOEVER
WHICH ARISES OUT OF OR IS IN CONNECTION IN ANY ANYWAY WITH THIS AGREEMENT.
________________________________________________________________________________
48
9.20 GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE UNITED STATES OF
AMERICA AND THE STATE OF NEW YORK (EXCEPT TO THE EXTENT THE LOCATION OR NATURE
OF THE COLLATERAL REQUIRES THE APPLICATION OF THE LAWS OF OTHER JURISDICTIONS TO
BE APPLIED AS TO MATTERS OF CREATION, PERFECTION AND PRIORITY OF LIENS AND THE
RIGHTS OF THE LENDER UPON DEFAULT).
9.21 ARBITRATION.
(a) ARBITRATION. Upon the demand of any party, any dispute
shall be resolved by binding arbitration (except as set forth in (e) below) in
accordance with the terms of this Agreement. A "DISPUTE" shall mean any action,
dispute, claim or controversy of any kind, whether in contract or tort,
statutory or common law, legal or equitable, now existing or hereafter arising
under or in connection with, or in any way pertaining to, any of the Loan
Documents, or any past, present or future extensions of credit and other
activities, transactions or obligations of any kind related directly or
indirectly to any of the Loan Documents, including without limitation, any of
the foregoing arising in connection with the exercise of any self-help,
ancillary or other remedies pursuant to any of the Loan Documents. Any party may
by summary proceedings bring an action in court to compel arbitration of a
dispute. Any party who fails or refuses to submit to arbitration following a
lawful demand by any other party shall bear all costs and expenses incurred by
such other party in compelling arbitration of any dispute.
(b) GOVERNING RULES. Arbitration proceedings shall be
administered by the American Arbitration Association ("AAA") or such other
administrator as the parties shall mutually agree upon in accordance with the
AAA commercial arbitration rules. All disputes submitted to arbitration shall be
resolved in accordance with the Federal Arbitration Act (Title 9 of the United
States Code), notwithstanding any conflicting choice of law provision in any of
the Loan Documents. The arbitration shall be conducted at a location in New York
selected by the AAA or other administrator. If there is any inconsistency
between the terms hereof and any such rules, the terms and procedures set forth
herein shall control. All statutes of limitation applicable to any dispute shall
apply to any arbitration proceeding. All discovery activities shall be expressly
limited to matters directly relevant to the dispute being arbitrated. Judgment
upon any award rendered in an arbitration may be entered in any court having
jurisdiction; provided however, that nothing contained herein shall be deemed to
be a waiver by any party that is a Lender of the protections afforded to it
under 12 U.S.C. 91 or any similar applicable state law.
(c) NO WAIVER; PROVISIONAL REMEDIES, SELF-HELP AND
FORECLOSURE. No provision hereof shall limit the right of any party to exercise
self-help remedies such as set-off, foreclosure against or sale of any real or
personal property collateral or security, or to obtain provisional or ancillary
remedies, including without limitation injunctive relief, sequestration,
attachment, garnishment or the appointment of a receiver, from a court of
competent jurisdiction before, after or during the tendency of any arbitration
or other proceeding. The exercise of any such remedy shall not waive the right
of any party to compel arbitration hereunder.
(d) ARBITRATOR QUALIFICATIONS AND POWERS; AWARDS. Arbitrators
must be active members of the New York State Bar with expertise in the
substantive laws applicable to the subject matter of the dispute. Arbitrators
________________________________________________________________________________
49
are empowered to resolve disputes by summary rulings in response to motions
filed prior to the final arbitration hearing. Arbitrators (i) shall resolve all
disputes in accordance with the substantive law of the state of New York, (ii)
may grant any remedy or relief that a court of the state of New York could order
or grant within the scope hereof and such ancillary relief as is necessary to
make effective any award, and (iii) shall have the power to award recovery of
all costs and fees, to impose sanctions and to take such other actions as they
deem necessary to the same extent a judge could pursuant to the Federal Rules of
Civil Procedure, the New York Rules of Civil Procedure or other applicable law.
Any dispute in which the amount in controversy is $5,000,000 or less shall be
decided by a single arbitrator who shall not render an award of greater than
$5,000,000 (including damages, costs, fees and expenses). By submission to a
single arbitrator, each party expressly waives any right or claim to recover
more than $5,000,000. Any dispute in which the amount in controversy exceeds
$5,000,000 shall be decided by majority vote of a panel of three arbitrators;
provided however, that all three arbitrators must actively participate in all
hearings and deliberations.
(e) MISCELLANEOUS. To the maximum extent practicable, the AAA,
the arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its business, by applicable law or
regulation, or to the extent necessary to exercise any judicial review rights
set forth herein. If more than one agreement for arbitration by or between the
parties potentially applies to a dispute, the arbitration provision most
directly related to the Loan Documents or the subject matter of the dispute
shall control. This arbitration provision shall survive termination, amendment
or expiration of any of the Loan Documents or any relationship between the
parties.
9.22 AMENDMENT AND RESTATEMENT OF BRIDGE LOAN AGREEMENT. The parties
hereto agree that this Agreement amends and restates (but does not extinguish)
the Bridge Loan Agreement in its entirety.
9.23 ENTIRE AGREEMENT . This Agreement and the other Loan Documents
contain the entire agreement between the parties relating to the transactions
contemplated hereby. All prior or contemporaneous understandings,
representations, statements and agreements, whether written or oral, are merged
herein and superseded by this Agreement. THIS WRITTEN AGREEMENT AND THE OTHER
LOAN DOCUMENTS REPRESENT 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.
[SIGNATURE PAGES FOLLOW]
________________________________________________________________________________
50
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be duly executed effective as of the date first above written.
BORROWER:
MAINLAND RESOURCES, INC.,
a Nevada corporation
By: _____________________________________
▇▇▇▇▇▇▇ ▇. Newport
President
________________________________________________________________________________
SIGNATURE PAGE - BORROWER
LENDERS:
GUGGENHEIM ENERGY OPPORTUNITIES FUND, LP,
a Delaware limited partnership
By: Guggenheim Investment Management, LLC
a Delaware limited liability company,
as Investment Manager
By:_________________________________
Name: _______________________________
Title: ________________________________
Guggenheim Energy Opportunities Fund, LP
▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: Fund Controller
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Fax #: (212) ▇▇▇- ▇▇▇▇
e-mail: ▇▇▇▇▇▇▇.▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇
________________________________________________________________________________
SIGNATURE PAGE - LENDER
SIGNATURE PAGE - ADMINISTRATIVE AGENT
ADMINISTRATIVE AGENT:
GUGGENHEIM CORPORATE FUNDING, LLC,
a Delaware limited liability company
By: _________________________________
Name: _______________________________
Title: ________________________________
________________________________________________________________________________
Signature Page - Administrative Agent
SCHEDULE I
AREA OF MUTUAL INTEREST
________________________________________________________________________________
All Lands located within the two mile halo around the boundary lines of the
following described lands:
DESOTO PARISH, LOUISIANA
Sections 11, 12, 13, 14, 15, 16, 20, 21, 22, and 23, T13N- R14W and Section 7,
T13N- R13W.
JEFFERSON COUNTY, MISSISSIPPI
Sections 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 19, 20, 21, 22,
23, 24, 37, T10N- R2W and Sections 3, 4, 5, 6, 7, 43, T9N- R2W.
In addition to the Area of Mutual Interest, which includes a two mile halo
around the boundary lines, any other acreage currently owned by the Borrower or
its Subsidiaries, and any lands purchased after the Effective Date by the
Borrower or its Subsidiaries with proceeds of the Facility.
SCHEDULE 1
SCHEDULE 2.1
USES OF INITIAL ADVANCE
________________________________________________________________________________
USES - CLOSING 10.20.09
________________________________________________________________________________
CLOSING FEES
Guggenheim Closing Fee 136,000
A&K Legal Fee 60,000
Remaining H&B Legal Fee 100,000
Other Closing Fees 24,741
WELL CAPEX
▇▇▇▇▇▇▇▇▇-▇▇▇▇▇▇▇ Completion 1,000,000
OTHER
Repay Guggenheim Bridge Loan 2,600,000
Mississippi Acreage 2,390,000
Other Working Capital 489,259
__________
TOTAL $6,800,000
________________________________________________________________________________
SCHEDULE 2.1
SCHEDULE 2.2
LENDERS' PRO RATA PERCENTAGES
________________________________________________________________________________
LENDER COMMITMENT
GUGGENHEIM ENERGY OPPORTUNITIES FUND, LP $40,000,000.00
________________________________________________________________________________
SCHEDULE 2.2
SCHEDULE 4.5
LITIGATION
________________________________________________________________________________
ABIGAIL INVESTMENTS, LLC, ET AL V. ▇▇▇▇▇ ▇▇▇▇▇▇▇▇/CASE NO. 2:09-CV-1174 LRH-GWF
(JULY 22, 2009) - UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEVADA:
________________________________________________________________________________
SCHEDULE 4.5
SCHEDULE 4.6
MORTGAGED PROPERTIES
________________________________________________________________________________
See Exhibit A of Mortgage documents
________________________________________________________________________________
SCHEDULE 4.6
EXHIBIT A
FORM OF PROMISSORY NOTE
PROMISSORY NOTE
$________________ ____________, 200__
FOR VALUE RECEIVED and WITHOUT GRACE, in the installments hereinafter
provided, the undersigned ("Maker") promises to pay to the order of GUGGENHEIM
ENERGY OPPORTUNITIES FUND, LP ("PAYEE") the sum of ___________________
($_________), or so much thereof as may be advanced to or for the benefit of
Maker by Payee pursuant to that certain Senior Secured Advancing Line of Credit
Agreement dated of even date herewith between Maker, Guggenheim Corporate
Funding, LLC, as Administrative Agent (the "ADMINISTRATIVE AGENT") for the
parties designated as lenders thereto ("LENDERS") and the Lenders (as may be
amended, modified, supplemented or restated from time to time, the "CREDIT
AGREEMENT"), together with interest as set forth in the Credit Agreement;
provided, however, that it is the intention of Maker and Payee to comply
strictly with all applicable usury laws as in effect from time to time; and
there is no intention to contract for, nor shall there ever be collected,
charged or received on this Promissory Note (this "NOTE"), interest in excess of
that which would accrue and be payable on the basis of the Highest Lawful Rate.
All payments of principal and interest are payable in lawful money of
the United States of America to Administrative Agent as set forth in the Credit
Agreement.
Each advance by Payee to Maker and each payment of principal hereunder
by Maker shall be reflected by a notation made by Payee on its records or on a
ledger appended to this Note and the aggregate unpaid amount of advances
reflected by said notations shall be deemed rebuttably presumptive evidence of
the principal amount owing under this Note.
This Note is issued pursuant to the Credit Agreement, and reference is
made to the Credit Agreement for matters governed thereby, including, without
limitation, certain events which will entitle the holder hereof to accelerate
the maturity of all amounts due hereon. Capitalized terms used but not defined
herein shall have the same meanings as in the Credit Agreement.
If under any circumstances the aggregate amounts paid on this Note
include amounts which by Law are deemed interest and which would exceed the
maximum non-usurious amount of interest which could lawfully have been collected
on this Note, Maker stipulates that such payment and collection will have been
and will be deemed to have been the result of mathematical error on the part of
both Maker and Payee or the holder of this Note, and the party receiving such
excess payments shall promptly refund the amount of such excess (to the extent
only of such interest payments above the maximum non-usurious amount which could
lawfully have been collected and retained) upon discovery of such error by the
party receiving such payment or notice thereof from the party making such
payment.
The principal indebtedness evidenced by this Note and all interest
accrued thereon shall be payable pursuant to the terms of the Credit Agreement,
with the last payment thereof due on or before Maturity Date. If any installment
provided for in the Credit Agreement, either of principal or interest, is not
paid when due, then the Administrative Agent may or at the request or direction
of Payee or the owner or holder hereof may, at their option, without notice
(including, without limitation, notice of intention to accelerate maturity
________________________________________________________________________________
Exhibit A
Page 1
and/or notice of acceleration of maturity) or demand, declare this Note at once
matured, due and payable in full, and in such case the entire amount of unpaid
principal hereunder and accrued interest thereon shall immediately become due
and payable.
If default is made in the payment of this Note and it is placed in the
hands of an attorney for collection, or collected through probate or bankruptcy
proceedings, or if suit is brought on the same, Maker agrees to pay reasonable
attorneys' fees and other costs of collection.
Maker and any and all endorsers, guarantors and sureties severally
waive notice (including, without limitation, notice of intention to accelerate
maturity and/or notice of acceleration of maturity), demand, presentment for
payment, protest and the filing of suit hereon for the purpose of fixing
liability and consent that the time of payment hereof may be extended and
re-extended from time to time without notice to them or any of them. Maker
acknowledges and understands that under certain Laws, unless waived, Maker has
the right to notice of intent to accelerate the indebtedness evidenced by this
Note, the right to notice of the actual acceleration of the indebtedness
evidenced by this Note, and the right to presentment of this Note by demand for
payment. Maker acknowledges that it understands that it can waive these rights
and by Maker's execution of this Note it agrees to waive its right to notice of
intent to accelerate, its right to notice of acceleration, and its right to
presentment or other demand for payment.
Maker may at any time pay the full amount or any part of this Note
without the payment of any premium or fee.
THIS NOTE SHALL BE GOVERNED AND CONTROLLED BY THE INTERNAL LAWS OF THE
STATE OF NEW YORK.
Without being limited thereto or thereby, this Note is secured by the
Security Documents more particularly described in the Credit Agreement.
MAKER:
MAINLAND RESOURCES, INC.,
a Nevada corporation
By: ____________________________________
▇▇▇▇▇▇▇ ▇. Newport
President
________________________________________________________________________________
Exhibit A
Page 2
EXHIBIT B
FORM OF BORROWING REQUEST
________________________________________________________________________________
BORROWING REQUEST
This Borrowing Request is submitted to Guggenheim Corporate Funding, as
agent for the Lenders ("ADMINISTRATIVE AGENT"), by MAINLAND RESOURCES, INC.
("BORROWER"), pursuant to that certain Senior Secured Advancing Line of Credit
Agreement dated as of October 16, 2009 (as amended, modified, supplement or
restated from time to time, the "CREDIT AGREEMENT"), among Administrative Agent,
the lenders party thereto (the "Lenders"), and Borrower. Capitalized terms used
but not otherwise defined herein shall have the same meaning given them in the
Credit Agreement. Borrower hereby requests an Advance under the Credit Agreement
in the amount set forth below:
A. ADVANCE REQUEST
1. Amount of Advance requested $ __________
2. Total principal amount currently outstanding
(excluding this Advance Request) $ __________
3. Lesser of Borrowing Base or Maximum Commitment $ __________
4. Availability remaining (excluding this Advance Request) $ __________
5. Date of requested Advance: __________
B. REPRESENTATIONS AND WARRANTIES
1. Borrower hereby represents and warrants to Administrative Agent and the
Lenders that the following statements are true and correct as of the
date of this Borrowing Request.
a. Each Loan Document previously delivered to Administrative
Agent pursuant to SECTIONS 3.1 and 3.2 of the Credit
Agreement, as applicable, is in full force and effect and has
not been terminated, amended or modified.
b. All representations and warranties of Borrowers in the Credit
Agreement and the other Loan Documents including, but not
limited to, those made in ARTICLE IV of the Credit Agreement,
are true, complete and correct, except to the extent any such
representations and warranties are expressly limited to an
earlier date, in which case, on and as of the date of such
Advance, such representations and warranties shall continue to
be true and correct as of such specified earlier date.
c. After giving effect to the requested Advance, there will be no
Unmatured Event of Default or Event of Default under the
Credit Agreement or any of the Loan Documents.
________________________________________________________________________________
Exhibit B
Page 1
d. All conditions precedent to the making of this Advance set
forth in ARTICLE III of the Credit Agreement and the
applicable conditions set forth in ARTICLE II of the Credit
Agreement have been satisfied.
e. All proceeds of the requested Advance shall only be used for
the purposes permitted in SECTION 5.23 of the Credit
Agreement.
f. Borrower is submitting with this Advance Request an AFE
(attached as EXHIBIT A, and including all supporting
documentation), together with a technical memorandum for
written approval of the Administrative Agent, at least fifteen
(15) days prior to the date of the requested Advance relating
to Drilling and Completion Costs of the proposed Well (unless
the applicable time for responding to an AFE under the
operating agreement is less than fifteen (15) days, in which
case Borrower shall provide to Lenders as much time as is
reasonably practicable).
The undersigned certifies that he is a duly elected, qualified and
acting President of Borrower, and that as such he is authorized to execute this
Borrowing Request on behalf of Borrower. The undersigned further certifies,
represents and warrants on behalf of Borrower that Borrower is entitled to
receive the requested borrowing under the terms and conditions of the Credit
Agreement.
EXECUTED this ____ day of ____________, 20__ .
MAINLAND RESOURCES, INC.,
a Nevada corporation
By: __________________________________
▇▇▇▇▇▇▇ ▇. Newport
President
________________________________________________________________________________
Exhibit B
Page 2
EXHIBIT C
FORM OF COMPLIANCE CERTIFICATE
________________________________________________________________________________
COMPLIANCE CERTIFICATE
Financial Statement Date: ____________,
To: Guggenheim Corporate Funding, LLC, as Administrative Agent
Ladies and Gentlemen:
Reference is made to that certain Senior Secured Advancing Line of
Credit Agreement, dated as of October 16, 2009, (as amended, modified,
supplement or restated from time to time, the "AGREEMENT;" the terms defined
therein being used herein as therein defined), among Mainland Resources, Inc.
("BORROWER"), the lenders from time to time party thereto (the "LENDERS"), and
Guggenheim Corporate Funding, LLC, as Administrative Agent (the "ADMINISTRATIVE
AGENT").
The undersigned Responsible Officer hereby certifies as of the date
hereof that he/she is the __________________________________________________of
the Borrower, and that, as such, he/she is authorized to execute and deliver
this Certificate to the Administrative Agent on the behalf of the Borrower, and
that:
[USE FOLLOWING PARAGRAPH 1 FOR FISCAL YEAR-END FINANCIAL STATEMENTS]
1. Attached hereto are the year-end audited financial statements required
by SECTION 5.3 of the Agreement for the fiscal year of the Borrower ended as of
the above date, together with the report and opinion of an independent certified
public accountant required by such section.
[USE FOLLOWING PARAGRAPH 1 FOR FISCAL QUARTER-END FINANCIAL STATEMENTS]
1. Attached hereto are the unaudited financial statements required by
SECTION 5.2 of the Agreement for the fiscal quarter of the Borrower ended as of
the above date. Such financial statements fairly present the financial
condition, results of operations and cash flows of the Borrower in accordance
with GAAP as at such date and for such period, subject only to normal year-end
audit adjustments and the absence of footnotes.
2. The undersigned has reviewed and is familiar with the terms of the
Agreement and has made, or has caused to be made under his/her supervision, a
detailed review of the transactions and condition (financial or otherwise) of
the Borrower during the accounting period covered by the attached financial
statements.
3. A review of the activities of the Borrower during such fiscal period has
been made under the supervision of the undersigned with a view to determining
whether during such fiscal period the Borrower performed and observed all its
Obligations under the Loan Documents, and to the best knowledge of the
undersigned during such fiscal period, the Borrower performed and observed each
covenant and condition of the Loan Documents applicable to it, and no Unmatured
Event of Default or Event of Default has occurred and is continuing.
________________________________________________________________________________
Exhibit C
Page 1
4. The representations and warranties of the Borrower contained in ARTICLE
IV of the Agreement, and any representations and warranties of the Borrower that
are contained in any document furnished at any time under or in connection with
the Loan Documents, are true and correct on and as of the date hereof, except to
the extent that such representations and warranties specifically refer to an
earlier date, in which case they are true and correct as of such earlier date,
and except that for purposes of this Compliance Certificate, the representations
and warranties contained in SECTION 4.4 of the Agreement shall be deemed to
refer to the most recent statements furnished pursuant to SECTION 4.4 of the
Agreement, including the statements in connection with which this Compliance
Certificate is delivered.
5. The financial covenant analyses and information set forth and attached
hereto are true and accurate on and as of the date of this Certificate.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as
of ____________, __________.
MAINLAND RESOURCES, INC.,
a Nevada corporation
By: _____________________________________
▇▇▇▇▇▇▇ ▇. Newport
President
________________________________________________________________________________
Exhibit C
Page 2
EXHIBIT D
FORM OF ASSIGNMENT AND ACCEPTANCE AGREEMENT
________________________________________________________________________________
This ASSIGNMENT AND ACCEPTANCE AGREEMENT (this "AGREEMENT") dated as of
_______________________, 200__, is made between
_____________________________________ (the "ASSIGNOR") and (the "ASSIGNEE").
R E C I T A L S
WHEREAS, Assignor is party to that certain Senior Secured Advancing
Line of Credit Agreement, dated as of October 16, 2009, (as the same may be
amended, modified, supplemented or restated from time to time, the "CREDIT
AGREEMENT"), among MAINLAND RESOURCES, INC. ("BORROWER"), the several financial
institutions from time to time party thereto (the "LENDERS"), and GUGGENHEIM
CORPORATE FUNDING, LLC, as Administrative Agents (the " ADMINISTRATIVE AGENT")
for the Lenders (terms defined in the Credit Agreement are used herein with the
same meaning);
WHEREAS, as provided in the Credit Agreement, the Lenders have
committed to extend credit to Borrower in an aggregate amount not to exceed
___________ Dollars ($________); and
WHEREAS, Assignor wishes to assign to Assignee part of the rights and
obligations of Assignor under the Credit Agreement in respect of its Commitment,
together with a corresponding portion of each of its outstanding Loans in a
total amount equal to Dollars (U.S. $_______) (the "ASSIGNED AMOUNT") on the
terms listed on ANNEX I hereto and subject to the conditions set forth herein
and in the Credit Agreement, and Assignee wishes to accept assignment of such
rights and to assume such obligations from Assignor on such terms and subject to
such conditions;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, the parties hereto agree as follows:
1. ASSIGNMENT AND ASSUMPTION.
(a) Before giving effect to this Agreement, Assignor's (a)
Commitment is $_______________, (b) aggregate principal amount of its
outstanding Loans is $_________________, (c) and (c) Pro Rata Percentage is
______%. With effect on and after the Effective Date (as defined in Section 4
hereof), Assignor hereby sells and assigns to Assignee, and Assignee hereby
purchases and assumes from Assignor, the Assigned Amount, which shall be equal
to percent ( %) (the "ASSIGNEE'S PERCENTAGE SHARE") of all of Assignor's rights
and obligations under the Credit Agreement, including, without limitation,
Assignee's Percentage Share of Assignor's (i) Commitment, and (ii) outstanding
Loans. After giving effect to this Agreement on the Effective Date (defined
herein), the Commitment, outstanding Loans and Pro Rata Percentage of Assignor
and Assignee, respectively, are set forth as follows:
________________________________________________________________________________
Exhibit D
Page 1
OUTSTANDING PRO RATA
LOANS SHARE COMMITMENT
ASSIGNOR $___________ ___________% $___________
ASSIGNEE $___________ ___________% $___________
The assignment set forth in this SECTION 1(A) shall be without recourse
to, or representation or warranty (except as expressly provided in this
Agreement) by, Assignor.
(b) With effect on and after the Effective Date (defined
herein), Assignee shall be a party to the Credit Agreement, shall become a
"Lender" for all purposes as therein defined and contemplated, and shall succeed
to all of the rights and be obligated to perform all of the obligations of a
Lender under the Credit Agreement with a Commitment in the amount and with the
Pro Rata Percentage set forth above for Assignee. Assignee agrees that it is
bound by the terms and conditions set forth in the Credit Agreement as if it
were an original signatory thereto, and that it will perform in accordance with
their terms all of the obligations which by the terms of the Credit Agreement
are required to be performed by it as a Lender. It is the intent of the parties
hereto that (i) the Commitment of Assignor shall, as of the Effective Date
(defined herein), be reduced by Assignee's Percentage Share and (ii) Assignor
shall relinquish its rights and be released from its obligations under the
Credit Agreement to the extent such obligations have been assumed by Assignee.
2. PAYMENTS.
(a) As consideration for the sale, assignment and transfer
contemplated in Section 1 hereof, Assignee shall pay to Assignor on the
Effective Date (defined herein) in immediately available funds an amount equal
to Dollars ($_____), representing Assignee's Percentage Share of the principal
amount of all Loans previously made, and currently owned, by Assignor under the
Credit Agreement and outstanding on the Effective Date (defined herein).
(b) Assignee further agrees to pay to Administrative Agent a
processing or transfer fee in the amount of $_________.
(c) To the extent payment to be made by Assignee pursuant to
Section 2(a) hereof is not made when due, Assignor shall be entitled to recover
such amount together with interest thereon at the Federal Funds Rate per annum
accruing from the date such amounts were due.
3. REALLOCATION OF PAYMENTS. Any interest, commissions, fees and other
payments accrued to but excluding the Effective Date (defined herein) with
respect to Assignor's Commitment Percentage of the Loans shall be for the
account of Assignor. Any interest, fees and other payments accrued on and after
the Effective Date (defined herein) with respect to the Assigned Amount shall be
for the account of Assignee. Each of Assignor and Assignee agree that it will
hold in trust for the other party any interest, commissions, fees and other
amounts which it may receive to which the other party is entitled pursuant to
the preceding sentence and pay to the other party any such amounts which it may
receive promptly upon receipt. Assignor's and Assignee's obligations to make the
payments referred to in this Section 3 are non-assignable.
________________________________________________________________________________
Exhibit D
Page 2
4. EFFECTIVE DATE; NOTICES.
(a) The effective date for this Agreement shall be ________
_______________ (the "EFFECTIVE DATE"); PROVIDED that the following conditions
precedent have been satisfied on or before the Effective Date:
(i) this Agreement shall be executed and delivered by
Assignor and Assignee;
(ii) the consent of Borrower and Administrative Agent
shall have been duly obtained in the form set forth on ANNEX
II hereof, and shall be in full force and effect as of the
Effective Date;
(iii) Assignee shall pay to Assignor all amounts due
to Assignor under this Agreement; and
(iv) the processing or transfer fee referred to in
SECTION 2(B) shall have been paid to Administrative Agent.
(b) Promptly following the execution of this Agreement,
Assignor shall deliver to Administrative Agent for acceptance by Administrative
Agent, the notices, agreements or other documents as may be required under the
Credit Agreement.
(c) Promptly following payment by Assignee of the
consideration as provided in SECTION 2 hereof, Assignor shall deliver its
promissory note(s) to Administrative Agent and shall request that new notes be
issued to Assignor and Assignee dated the Effective Date to properly reflect the
respective amounts of the Loans held by each party.
5. ADMINISTRATIVE AGENT
(a) Assignee hereby appoints and authorizes Assignor to take
such action as Administrative Agent on its behalf and to exercise such powers
under the Credit Agreement as are delegated to Administrative Agent by the
Lenders pursuant to the terms of the Credit Agreement.
(b) Assignee shall assume no duties or obligations held by
Assignor in its capacity as Administrative Agent under the Credit Agreement.
6. REPRESENTATIONS AND WARRANTIES.
(a) Assignor represents and warrants that (i) it is the legal
and beneficial owner of the interest being assigned by it hereunder and that
such interest is free and clear of any lien, security interest or other adverse
claim; (ii) it is duly organized and existing and it has the full power and
authority to take, and has taken, all action necessary to execute and deliver
this Agreement and any other documents required or permitted to be executed or
delivered by it in connection with this Agreement and to fulfill its obligations
hereunder; (iii) no notices to, or consents, authorizations or approvals of, any
person are required (other than any already given or obtained) for its due
execution, delivery and performance of this Agreement, and apart from any
agreements or undertaking or filings required by the Credit Agreement, no
further action by, or notice to, or filing with, any person is required of it
for such execution, delivery or performance; and (iv) this Agreement has been
duly executed and delivered by it and constitutes the legal, valid and binding
obligations of Assignor, enforceable against Assignor in accordance with the
terms hereof, except subject, as to enforcement, to Bankruptcy, insolvency,
moratorium, reorganization and other laws of general application relating to or
affecting creditors' rights and to general equitable principles.
________________________________________________________________________________
Exhibit D
Page 3
(b) Assignor makes no representation or warranty and assumes
no responsibility with respect to any statements, warranties or representations
made in or in connection with the Credit Agreement or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Credit
Agreement or any other instrument or document furnished pursuant thereto.
Assignor makes no representation or warranty in connection with, and assumes no
responsibility with respect to, the solvency, financial condition or statements
of Borrower or any guarantor or the performance or observance by Borrower or any
guarantor of any of its respective obligations under the Credit Agreement or any
other instrument or document furnished in connection therewith.
(c) Assignee represents and warrants that (i) it is duly
organized and existing and it has full power and authority to take, and has
taken, all action necessary to execute and deliver this Agreement and any other
documents required or permitted to be executed or delivered by it in connection
with this Agreement, and to fulfill its obligations hereunder; (ii) no notices
to, or consents, authorizations or approvals of, any person are required (other
than any already given or obtained) for its due execution, delivery and
performance of this Agreement; and apart from any agreements or undertaking or
filings required by the Credit Agreement, no further action by, or notice to, or
filing with, any person is required of it for such execution, delivery or
performance; (iii) this Agreement has been duly executed and delivered by it and
constitutes the legal, valid and binding obligations of Assignee, enforceable
against Assignee in accordance with the terms hereof, except subject, as to
enforcement, to Bankruptcy, insolvency, moratorium, reorganization and other
laws of general application relating to or affecting creditors' rights and to
general equitable principles; (iv) it is eligible under the Credit Agreement to
be an assignee in accordance with the terms hereof; and (v) that it has received
a copy of the Credit Agreement and the exhibits and schedules thereto, and has
received (or waived the requirement that it receive) copies of each of the
documents which were required to be delivered under the Credit Agreement as a
condition to the making of the Loans thereunder.
7. FURTHER ASSURANCES. Assignor and Assignee each hereby agree to
execute and deliver such other instruments, and take such other action, as
either party may reasonably request in connection with the transactions
contemplated by this Agreement, including, without limitation, the delivery of
any notices or other documents or instruments to Borrower, Administrative Agent
or any guarantor which may be required in connection with the assignment and
assumption contemplated hereby.
8. INDEMNITY. Assignee agrees to indemnify and hold harmless Assignor
against any and all losses, costs, expenses (including, without limitation,
reasonable attorneys' fees and the allocated costs and expenses for in-house
counsel) and liabilities incurred by Assignor in connection with or arising in
any manner from the non-performance by Assignee of any obligation assumed by
Assignee under this Agreement.
9. MISCELLANEOUS.
(a) Any amendment or waiver of any provision of this Agreement
shall be in writing signed by the parties hereto. No failure or delay by either
party hereto in exercising any right, power or privilege hereunder shall operate
as a waiver thereof and any waiver of any breach of the provisions of this
Agreement shall be without prejudice to any rights with respect to any other or
further breach hereof.
(b) All payments made hereunder shall be made without any
set-off or counterclaim.
(c) All communications among the parties or notices in
connection herewith shall be in writing and mailed, hand-delivered or
transmitted by facsimile as follows: (i) if to Assignor or Assignee, at their
respective addresses or facsimile numbers set forth on the signature pages
hereof and (ii) if to Borrower, Administrative Agent or any guarantor, at their
________________________________________________________________________________
Exhibit D
Page 4
respective addresses or facsimile numbers set forth in the Credit Agreement or
to such other address or facsimile number as shall be designated in a written
notice given in accordance with the Credit Agreement. All such communications
and notices shall be effective upon receipt. Assignee specifies as Lending
Office(s) the office(s) set forth beneath its name on the signature pages
hereof.
(d) Assignor and Assignee shall each pay its own costs and
expenses incurred in connection with the negotiation, preparation, execution and
performance of this Agreement.
(e) The representations and warranties made herein shall
survive the consummation of the transactions contemplated hereby.
(f) Subject to the terms of the Credit Agreement, this
Agreement shall be binding upon and inure to the benefit of Assignor and
Assignee and their respective successors and assigns; PROVIDED, HOWEVER, that no
party shall assign its rights hereunder without the prior written consent of the
other party, Administrative Agent and Borrower and any purported assignment,
absent such consents, shall be void. The preceding sentence shall not limit or
enhance the right of Assignee to assign or participate all or part of Assignee's
Percentage Share and the Assigned Amount and any outstanding Loans attributable
thereto in accordance with the Credit Agreement.
(g) This Agreement may be executed in any number of
counterparts and all of such counterparts taken together shall be deemed to
constitute one and the same instrument.
(h) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York (without regard to principles
of conflicts of law). Assignor and Assignee each irrevocably submits to the
non-exclusive jurisdiction of any New York state or federal court sitting in the
Southern District of New York over any suit, action or proceeding arising out of
or relating to this Agreement or the Credit Agreement and irrevocably agrees
that all claims in respect of such action or proceeding may be heard and
determined in such New York state or federal court. Each party to this Agreement
hereby irrevocably waives, to the fullest extent it may effectively do so, the
defense of an inconvenient forum to the maintenance of such action or
proceeding.
(i) This Agreement and any agreement, document or instrument
attached hereto or referred to herein integrate all the terms and conditions
mentioned herein or incidental hereto, and together with the Credit Agreement
constitutes the entire agreement and understanding between the parties hereto
and supersedes any and all prior agreements and understandings related to the
subject matter hereof. In the event of any conflict between the terms,
conditions and provisions of this Agreement and the Credit Agreement, the terms,
conditions and provisions of the Credit Agreement shall prevail.
(j) In the event of any inconsistency between the provisions
of this Agreement and Annex I hereto, this Agreement shall control. Headings are
for reference only and are to be ignored in interpreting this Agreement.
10. 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.
________________________________________________________________________________
Exhibit D
Page 5
IN WITNESS WHEREOF, Assignor and Assignee have caused this Agreement to be
executed and delivered by their duly authorized officers as of the date first
above written.
ASSIGNOR:
[________________________]
By:
Name:
Title:
Address for Notices:
________________________________________
_______________________________________
Facsimile No.:
ASSIGNEE:
[_________________________]
By:
Name:
Title:
Address for Notices:
___________________________________
___________________________________
Facsimile No.:
Lending Office:
___________________________________
___________________________________
___________________________________
Facsimile No.:
________________________________________________________________________________
Exhibit D
Page 6
ANNEX I
TO
ASSIGNMENT AND ACCEPTANCE AGREEMENT
1. COMPANY:
2. DATE OF CREDIT AGREEMENT:
3. ASSIGNOR:
4. ASSIGNEE:
5. DATE OF ASSIGNMENT AGREEMENT:
6. EFFECTIVE DATE:
7. FEES PAID BY ASSIGNEE TO ASSIGNOR:
8. INTEREST PAID BY ASSIGNEE TO ASSIGNOR:
9. PAYMENT INSTRUCTIONS:
Assignor:
Assignee:
10. ASSIGNEE'S NOTICE:
Instructions:
11. OTHER INFORMATION:
________________________________________________________________________________
Annex 1 to Exhibit D
ANNEX II
TO
ASSIGNMENT AND ACCEPTANCE AGREEMENT
_______________, 2009
ADMINISTRATIVE AGENT
Gentlemen:
We refer to the Senior Secured Advancing Line o Credit Agreement dated
as of October 16, 2009 (the "CREDIT AGREEMENT") among MAINLAND RESOURCES, INC.
("BORROWER"), the several financial institutions from time to time party thereto
(the "LENDERS"), and GUGGENHEIM CORPORATE FUNDING, LLC, as Administrative Agent
(the "ADMINISTRATIVE AGENT") for the Lenders from time to time party to the
Credit Agreement. Terms defined in the Credit Agreement are used herein as
therein defined.
1. We hereby give you notice of, and request the consent of Borrower
and Administrative Agent to, the assignment by (the "ASSIGNOR") to
_______________________ (the "ASSIGNEE") of % of the right, title and interest
of Assignor in and to the Credit Agreement (including without limitation the
right, title and interest of Assignor in and to the Commitment of Assignor and
all outstanding Loans made by Assignor). Before giving effect to such assignment
Assignor's (a) Commitment is $__________, (b) Pro Rata Percentage is _________%
and (c) aggregate principal amount of its outstanding Loans is $ . After giving
effect to such assignment, Assignor's and Assignee's respective Loans,
Commitment and Pro Rata Percentage are as follows:
Outstanding Loans Pro Rata Percentage Commitment
ASSIGNOR $___________ ___________% $___________
ASSIGNEE $___________ ___________% $___________
2. Assignee agrees that upon receiving the consent of Borrower and
Administrative Agent to such assignment and from and after the effective date of
the Assignment, Assignee will be bound by the terms of the Credit Agreement,
with respect to the interest in the Credit Agreement assigned to it as specified
above, as fully and to the same extent as if Assignee were the Lender originally
holding such interest in the Credit Agreement.
3. The following administrative details apply to Assignee:
4. Lending Office:
Assignee:
Address:
Attention:
Telephone: ( )
Facsimile: ( )
________________________________________________________________________________
Annex II to Exhibit D
Page 1
5. Notice Address:
Assignee:
Address:
Attention:
Telephone: ( )
Facsimile: ( )
6. Payment Instructions: Account No.: 7236272410
At:
Reference:
Attention:
7. Without limiting the generality of PARAGRAPH 2 hereinabove, the tax
forms to be delivered by Assignee pursuant to SECTION 2.13 of the Credit
Agreement, if any, will be promptly provided in compliance therewith.
IN WITNESS WHEREOF, Assignor and Assignee have caused this Assignment and
Acceptance to be executed by their respective duly authorized officials,
officers or agents as of the date first above mentioned.
Very truly yours,
[Name of Assignor]
By:
Name:
Title:
[Name of Assignee]
By:
Name:
Title:
GUGGENHEIM CORPORATE FUNDING, LLC,
as Administrative Agent, hereby grants its
consent to the foregoing assignment:
By:
Name:
Title:
________________________________________________________________________________
Annex II to Exhibit D
Page 2
EXHIBIT E
FORM OF LETTER IN LIEU
________________________________________________________________________________
Attn: Division Order Department
Re: Letter in Lieu of Transfer Order
Ladies and Gentlemen:
MAINLAND RESOURCES, INC., a Nevada corporation ("MORTGAGOR"), has
executed the documents described on EXHIBIT A attached hereto (collectively, the
"MORTGAGES") for the benefit of GUGGENHEIM CORPORATE FUNDING, LLC, as
administrative agent ("AGENT"), assigning, transferring and conveying certain
properties (the "MORTGAGED PROPERTY") described therein. Enclosed is a copy of
the Mortgages covering the Mortgaged Property.
Attached hereto is a list of 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 Mortgages, Mortgagor transferred and assigned all of
its interests in the Mortgaged Property to Agent. Therefore, Mortgagor hereby
authorizes and instructs you that all future payments attributable to the
Mortgaged Property, which would otherwise be paid to Mortgagor, should be made
by wire transfer payable to:
MAINLAND RESOURCES, INC.
Account No. 7236530205
Fifth Third Bank
until notified in writing by Agent to discontinue such payments. Also, Mortgagor
hereby requests that you change your records to reflect that Agent is entitled
to the proceeds of production attributable to the Mortgaged Property.
In consideration of your acceptance of this Letter-in-Lieu of Transfer
Order, 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 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, 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 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 Agent hereunder.
________________________________________________________________________________
Exhibit E
Page 1
2. Mortgagor hereby agrees that you are relieved of any responsibility in
connection with the application of the proceeds paid by you to Agent as
hereinabove specified and payment made by you to Agent 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 Agent as instructed herein and
NOT TO SUSPEND OR DELAY any payments by virtue of the assignment of production
from Mortgagor to 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.
This instruction letter is not to be modified, amended or terminated
unless you receive written instructions from both Mortgagor and Agent.
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 Agent in the enclosed
self-addressed envelope.
Very truly yours,
MAINLAND RESOURCES, INC.,
a Nevada corporation
By: _____________________________________
▇▇▇▇▇▇▇ ▇. Newport
President
GUGGENHEIM CORPORATE FUNDING, LLC,
a Delaware limited liability company
By:_______________________________________
Name:____________________________________
Title:_____________________________________
ACCEPTED this _____ day of ___________, 20___.
_______________________________________ , Purchaser of Production
By:_______________________________________
Name:____________________________________
Title:_____________________________________
________________________________________________________________________________
Exhibit E
Page 2
EXHIBIT F(I)
FORM OF CONVEYANCE OF PERMANENT OVERRIDING ROYALTY INTEREST
________________________________________________________________________________
CONVEYANCE OF OVERRIDING
ROYALTY INTEREST
STATE OF ______________ ss.
ss. KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF ____________ ss.
THAT MAINLAND RESOURCES, INC., a Nevada corporation, with
offices at ▇▇▇▇▇ ▇▇ ▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, (▇▇▇) ▇▇▇-▇▇▇▇
("ASSIGNOR"), for and in consideration of One Hundred Dollars ($100.00) and
other good and valuable consideration to it paid by _______________________., a
________________________________, with offices at ______________________________
("ASSIGNEE"), the receipt and sufficiency of which are hereby acknowledged, has
BARGAINED, SOLD, CONVEYED, TRANSFERRED, ASSIGNED and DELIVERED, and by these
presents does hereby BARGAIN, SELL, CONVEY, TRANSFER, ASSIGN and DELIVER unto
Assignee, as of __________________ (the "EFFECTIVE DATE"), an overriding royalty
interest equal to two and a half percent of eight-eighths (2.5% of 8/8ths) in
all oil, gas, casinghead gas and other hydrocarbons that are produced, saved and
marketed from those certain oil and gas leases, the lands covered by the leases
and ▇▇▇▇▇ more particularly described in the attached Exhibit "A", hereinafter
referred to as the "SUBJECT LEASES" (the "OVERRIDING ROYALTY INTEREST").
Assignor shall account to Assignee for the production of oil,
gas and related hydrocarbons attributable to the Overriding Royalty Interest on
the following basis, payable at first production from each of the Subject
Leases:
(a) Two and a half percent of eight-eighths (2.5% of 8/8ths)
of (1) the oil produced and saved and (2) distillate and condensate
recovered by separators, to be delivered to Assignee or to Assignee's
credit at the pipeline or other point where Assignor's share is
delivered to the purchaser free of all costs and expenses of
production; and
(b) On gas, including casinghead gas or other gaseous
substances produced from the Subject Leases and sold on or off the
premises, used on or off the premises in the manufacture of gasoline or
other products or otherwise used off the premises, the overriding
royalty shall be two and a half percent of eight-eighths (2.5% of
8/8ths) of the proceeds received from such sale, regardless of the
point of delivery, except that on gas, including casing-head gas or
other gaseous substances, produced from the Subject Leases and run to a
plant for the recovering of liquids therefrom, the royalty shall be (1)
two and a half percent of eight-eighths (2.5% of 8/8ths) of the
proceeds attributable to the liquids removed from said gas and sold at
the plant or elsewhere and (2) two and a half percent of eight-eighths
(2.5% of 8/8ths) of the proceeds received from the sale at the plant or
elsewhere of the residue gas remaining after the removal of such
liquids.
________________________________________________________________________________
Exhibit F(i)
Page 1
TO HAVE AND TO HOLD the Overriding Royalty Interest, together
with all and singular the rights and appurtenances thereto in anywise belonging
unto Assignee, its successors and assigns, subject, however, to the following
terms and provisions, to wit:
I.
The Overriding Royalty Interest shall also apply to the
production of oil, gas and related hydrocarbons under the terms and provisions
of any extension of any of the Subject Leases or any new lease, which covers all
or any portion of the same mineral interests in the lands covered by any of the
Subject Leases, acquired by or for the benefit of Assignor, its successors and
assigns, within one (1) year after the expiration of such Subject Lease,
provided, however, that no such new lease shall reduce the amount of the
Overriding Royalty Interest or prejudice the rights of Assignee in any material
respect.
II.
The Overriding Royalty Interest shall be paid free of
exploration, drilling, development, operating, production and other costs
incurred in or attributable to the exploration and production of oil, gas and
related hydrocarbons from said leases. The Overriding Royalty Interest shall
bear its proportionate cost of all post production expenses. All ad valorem,
production, severance, gathering and other taxes chargeable against the
Overriding Royalty Interest shall be paid by Assignee.
III.
To the extent it is in control of such matters, Assignor
agrees that it will conduct and carry on the development, maintenance and
operation of the Subject Leases with reasonable and prudent business judgment
and in accordance with good oil and gas field practices, and that it will drill
such ▇▇▇▇▇ as a reasonably prudent operator would drill from time to time in
order to protect the Subject Leases from drainage; provided, however, nothing
herein contained shall obligate Assignor to conduct any drilling operations
whatsoever upon the Subject Leases, or lands pooled therewith, except as set
forth above, or to continue to operate any well or to operate or maintain in
force or attempt to maintain in force any of the Subject Leases when, in
Assignor's opinion, such well or lease ceases to produce or is not capable of
producing oil, gas or associated hydrocarbons in paying quantities, or to
maintain said leases in effect by payment of delay rental payments or otherwise,
and the extent and duration of all operations, as well as the preservation of
each of the Subject Leases by delay rental payments or otherwise, shall be
solely at the will of Assignor. Assignor shall have the right at any time to
surrender or abandon any of the Subject Leases in whole or in part without
liability to Assignee, and in case of such surrender or abandonment, Assignor
may release the subject lease(s) directly to the lessor thereof.
IV.
Assignor shall have the right and power, without further
approval by Assignee, to pool and unitize any of the Subject Leases and to
alter, change or amend or terminate any pooling or unitization agreements
heretofore or hereafter entered into, as to all or any part of the lands covered
by the Subject Leases, as to any one or more of the formations or horizons
thereunder, upon such terms, and provisions as Assignor shall in its sole
discretion determine. If and whenever through the exercise of such right and
power, or pursuant to any law now existing or hereafter enacted, or any rule,
regulation or order of any governmental body now existing or hereafter
promulgated, any of the Subject Leases are pooled or unitized in any manner, the
Overriding Royalty Interest shall also be pooled and unitized, and in such event
Assignee shall be entitled to receive the Overriding Royalty Interest which
accrue to the Subject Leases under and by virtue of the pooling and unitization.
________________________________________________________________________________
Exhibit F(i)
Page 2
V.
This Conveyance is made and accepted subject to all orders,
rules and regulations and ordinances of Federal, state and other governmental
agencies having jurisdiction; to the terms and provisions of the Subject Leases;
to the terms and provisions of any farmout agreements, farmin agreements,
participation agreements, letter agreements, operating agreements or other
contracts that are in effect and which affect Assignor's interest in the Subject
Leases as of the Effective Date, to the extent the same are valid and in full
force and effect and apply to the Subject Leases; and to all pooling and
unitization agreements and other agreements, encumbrances, easements, and
restrictions filed of record.
VI.
If any of the Subject Leases covers less than the entire undivided
mineral fee interest in the lands covered thereby, then, with respect to such
Subject Leases the Overriding Royalty Interest herein assigned shall be
proportionately reduced to the proportion that the mineral fee interest in the
lands covered by such Subject Leases bears to the entire undivided mineral fee
interest in said lands. If Assignor owns less than all of the leasehold interest
in and to any of the Subject Leases, then in such event the Overriding Royalty
Interest herein assigned with respect to such Subject Leases shall be
proportionately reduced by the leasehold interest owned by Assignor at the time
of this Assignment.
VII.
Assignor shall maintain true and correct books and records
sufficient to enable Assignee, or its designated representative, to verify the
correctness of the amounts paid and payable to Assignee as the owner of the
Overriding Royalty Interest. The aforesaid books and records shall be open for
inspection by Assignee, or its designated representative, at the office of
Assignor during normal business hours.
VIII.
Assignor shall market or cause to be marketed the oil, gas and
related hydrocarbons produced from the Subject Leases at the best prices and on
the best terms that Assignor shall deem reasonably obtainable under the
circumstances. For such purpose sales of oil, gas or related hydrocarbons may
continue to be made by Assignor in accordance with existing gas sales contracts.
Assignor may amend such existing gas sales contracts or enter into new gas sales
contracts without prior consent or approval of Assignee.
IX.
Assignor hereby binds and obligates itself, its successors and
assigns, to warrant and forever defend all and singular the Overriding Royalty
Interest unto, Assignee, its successors and assigns, against every person
whomsoever lawfully claiming or to claim the same or any part thereof, by,
through or under Assignor, but not otherwise.
________________________________________________________________________________
Exhibit F(i)
Page 3
X.
This Conveyance shall be binding upon and inure to the benefit
of the parties hereto, their successors and assigns.
XI.
This Conveyance is made with full substitution and subrogation
of Assignee in and to all covenants of warranty by others heretofore given or
made with respect to the Subject Leases or any part thereof or interest therein.
XII.
This instrument may be executed in multiple counterparts. Each
of the counterparts hereof so executed shall for all purposes be deemed to be an
original, and all such counterparts shall together constitute but one and the
same instruments.
[SIGNATURE PAGE FOLLOWS.]
________________________________________________________________________________
Exhibit F(i)
Page 4
IN WITNESS WHEREOF, this instrument is executed this _____ day of
____________, _________.
ASSIGNOR:
MAINLAND RESOURCES, INC.,
a Nevada corporation
By:_______________________________
▇▇▇▇▇▇▇ ▇. Newport
President
The name and address of the Assignor is:
MAINLAND RESOURCES, INC.
▇▇▇▇▇ ▇▇ ▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. Newport
STATE OF TEXAS
COUNTY OF ▇▇▇▇▇▇
Personally appeared before me, the undersigned authority in and for the
said county and state, on this _____ day of _________________, _______, within
my jurisdiction, the within named ▇▇▇▇▇▇▇ ▇. Newport, who acknowledged that he
is President of Mainland Resources, Inc. a Nevada corporation, and that for and
on behalf of the said corporation, and as its act and deed he executed the above
and foregoing instrument, after first having been duly authorized by said
corporation so to do.
______________________________
Notary Public
My Commission Expires:
_____________________
________________________________________________________________________________
Exhibit F(i)
Page 5
ASSIGNEE:
________________________________
a ______________________________
By:___________________________________
Name: ________________________________
Title: _______________________________
The name and address of the Assignee is:
____________________________________
____________________________________
___________________________________
STATE OF __________________
COUNTY OF ________________________
Personally appeared before me, the undersigned authority in and for the
said county and state, on this _____ day of _________________, 2009, within my
jurisdiction, the within named ____________________________, who acknowledged
that he is ___________________ of __________________, a _____________________,
and that for and on behalf of the said entities, and as their act and deed he
executed the above and foregoing instrument, after first having been duly
authorized by said entities so to do.
______________________________
Notary Public
My Commission Expires:
_____________________
________________________________________________________________________________
Exhibit F(i)
Page 6
EXHIBIT F(II)
FORM OF CONVEYANCE OF REDUCING OVERRIDING ROYALTY INTEREST
________________________________________________________________________________
CONVEYANCE OF OVERRIDING
ROYALTY INTEREST
STATE OF ____________ ss.
ss. KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF _________ ss.
THAT MAINLAND RESOURCES, INC., a Nevada corporation, with
offices at ▇▇▇▇▇ ▇▇ ▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, (▇▇▇) ▇▇▇-▇▇▇▇
("ASSIGNOR"), for and in consideration of One Hundred Dollars ($100.00) and
other good and valuable consideration to it paid by _________________________, a
_______________________, with offices at ______________________________________
("ASSIGNEE"), the receipt and sufficiency of which are hereby acknowledged, has
BARGAINED, SOLD, CONVEYED, TRANSFERRED, ASSIGNED and DELIVERED, and by these
presents does hereby BARGAIN, SELL, CONVEY, TRANSFER, ASSIGN and DELIVER unto
Assignee, as of __________________ (the "EFFECTIVE DATE"), an overriding royalty
interest equal to five and a half percent of eight-eighths (5.5% of 8/8ths) in
all oil, gas, casinghead gas and other hydrocarbons that are produced, saved and
marketed from those certain oil and gas leases, the lands covered by the leases
and ▇▇▇▇▇ more particularly described in the attached Exhibit "A", hereinafter
referred to as the "SUBJECT LEASES" (the "OVERRIDING ROYALTY INTEREST"). The
Overriding Royalty Interest is not a contingent interest but is a fully and
presently vested real property interest.
Reference is made to that certain Senior Secured Advancing
Line of Credit Agreement dated as of October 16, 2009 by and among Assignor, as
Borrower, Guggenheim Corporate Funding, LLC, as Administrative Agent, and the
lenders from time to time party thereto ("LENDERS") (as such is from time to
time amended, supplemented, restated or otherwise modified, the "CREDIT
AGREEMENT"). Assignor shall account to Assignee for the production of oil, gas
and related hydrocarbons attributable to the Overriding Royalty Interest on the
following basis, payable out of production from each of the Subject Leases
commencing on the first day of the month that all Obligations (as defined in the
Credit Agreement) have been paid in full:
(a) Five and a half percent of eight-eighths (5.5% of 8/8ths)
of (1) the oil produced and saved and (2) distillate and condensate
recovered by separators, to be delivered to Assignee or to Assignee's
credit at the pipeline or other point where Assignor's share is
delivered to the purchaser free of all costs and expenses of
production; and
(b) On gas, including casinghead gas or other gaseous
substances produced from the Subject Leases and sold on or off the
premises, used on or off the premises in the manufacture of gasoline or
other products or otherwise used off the premises, the overriding
royalty shall be five and a half percent of eight-eighths (5.5% of
8/8ths) of the proceeds received from such sale, regardless of the
point of delivery, except that on gas, including casing-head gas or
other gaseous substances, produced from the Subject Leases and run to a
plant for the recovering of liquids therefrom, the royalty shall be (1)
five and a half percent of eight-eighths (5.5% of 8/8ths) of the
proceeds attributable to the liquids removed from said gas and sold at
the plant or elsewhere and (2) five and a half percent of eight-eighths
(5.5% of 8/8ths) of the proceeds received from the sale at the plant or
elsewhere of the residue gas remaining after the removal of such
liquids.
________________________________________________________________________________
Exhibit F(ii)
Page 1
TO HAVE AND TO HOLD the Overriding Royalty Interest, together
with all and singular the rights and appurtenances thereto in anywise belonging
unto Assignee, its successors and assigns, subject, however, to the following
terms and provisions, to wit:
I.
The Overriding Royalty Interest shall also apply to the
production of oil, gas and related hydrocarbons under the terms and provisions
of any extension of any of the Subject Leases or any new lease, which covers all
or any portion of the same mineral interests in the lands covered by any of the
Subject Leases, acquired by or for the benefit of Assignor, its successors and
assigns, within one (1) year after the expiration of such Subject Lease,
provided, however, that no such new lease shall reduce the amount of the
Overriding Royalty Interest or prejudice the rights of Assignee in any material
respect.
II.
The Overriding Royalty Interest shall be paid free of
exploration, drilling, development, operating, production and other costs
incurred in or attributable to the exploration and production of oil, gas and
related hydrocarbons from said leases. The Overriding Royalty Interest shall
bear its proportionate cost of all post production expenses. All ad valorem,
production, severance, gathering and other taxes chargeable against the
Overriding Royalty Interest shall be paid by Assignee.
III.
To the extent it is in control of such matters, Assignor
agrees that it will conduct and carry on the development, maintenance and
operation of the Subject Leases with reasonable and prudent business judgment
and in accordance with good oil and gas field practices, and that it will drill
such ▇▇▇▇▇ as a reasonably prudent operator would drill from time to time in
order to protect the Subject Leases from drainage; provided, however, nothing
herein contained shall obligate Assignor to conduct any drilling operations
whatsoever upon the Subject Leases, or lands pooled therewith, except as set
forth above, or to continue to operate any well or to operate or maintain in
force or attempt to maintain in force any of the Subject Leases when, in
Assignor's opinion, such well or lease ceases to produce or is not capable of
producing oil, gas or associated hydrocarbons in paying quantities, or to
maintain said leases in effect by payment of delay rental payments or otherwise,
and the extent and duration of all operations, as well as the preservation of
each of the Subject Leases by delay rental payments or otherwise, shall be
solely at the will of Assignor. Assignor shall have the right at any time to
surrender or abandon any of the Subject Leases in whole or in part without
liability to Assignee, and in case of such surrender or abandonment, Assignor
may release the subject lease(s) directly to the lessor thereof.
IV.
Assignor shall have the right and power, without further
approval by Assignee, to pool and unitize any of the Subject Leases and to
alter, change or amend or terminate any pooling or unitization agreements
heretofore or hereafter entered into, as to all or any part of the lands covered
by the Subject Leases, as to any one or more of the formations or horizons
thereunder, upon such terms, and provisions as Assignor shall in its sole
discretion determine. If and whenever through the exercise of such right and
power, or pursuant to any law now existing or hereafter enacted, or any rule,
regulation or order of any governmental body now existing or hereafter
________________________________________________________________________________
Exhibit F(ii)
Page 2
promulgated, any of the Subject Leases are pooled or unitized in any manner, the
Overriding Royalty Interest shall also be pooled and unitized, and in such event
Assignee shall be entitled to receive the Overriding Royalty Interest which
accrue to the Subject Leases under and by virtue of the pooling and unitization.
V.
This Conveyance is made and accepted subject to all orders,
rules and regulations and ordinances of Federal, state and other governmental
agencies having jurisdiction; to the terms and provisions of the Subject Leases;
to the terms and provisions of any farmout agreements, farmin agreements,
participation agreements, letter agreements, operating agreements or other
contracts that are in effect and which affect Assignor's interest in the Subject
Leases as of the Effective Date, to the extent the same are valid and in full
force and effect and apply to the Subject Leases; and to all valid and
enforceable pooling and unitization agreements and other agreements,
encumbrances, easements, and restrictions filed of record.
VI.
If any of the Subject Leases covers less than the entire undivided
mineral fee interest in the lands covered thereby, then, with respect to such
Subject Leases the Overriding Royalty Interest herein assigned shall be
proportionately reduced to the proportion that the mineral fee interest in the
lands covered by such Subject Leases bears to the entire undivided mineral fee
interest in said lands. If Assignor owns less than all of the leasehold interest
in and to any of the Subject Leases, then in such event the Overriding Royalty
Interest herein assigned with respect to such Subject Leases shall be
proportionately reduced by the leasehold interest owned by Assignor at the time
of this Assignment.
VII.
Assignor shall maintain true and correct books and records
sufficient to enable Assignee, or its designated representative, to verify the
correctness of the amounts paid and payable to Assignee as the owner of the
Overriding Royalty Interest. The aforesaid books and records shall be open for
inspection by Assignee, or its designated representative, at the office of
Assignor during normal business hours.
VIII.
Assignor shall market or cause to be marketed the oil, gas and
related hydrocarbons produced from the Subject Leases at the best prices and on
the best terms that Assignor shall deem reasonably obtainable under the
circumstances. For such purpose sales of oil, gas or related hydrocarbons may
continue to be made by Assignor in accordance with existing gas sales contracts.
Assignor may amend such existing gas sales contracts or enter into new gas sales
contracts without prior consent or approval of Assignee.
IX.
Assignor hereby binds and obligates itself, its successors and
assigns, to warrant and forever defend all and singular the Overriding Royalty
Interest unto, Assignee, its successors and assigns, against every person
whomsoever lawfully claiming or to claim the same or any part thereof, by,
through or under Assignor, but not otherwise.
X.
This Conveyance shall be binding upon and inure to the benefit
of the parties hereto, their successors and assigns.
________________________________________________________________________________
Exhibit F(ii)
Page 3
XI.
This Conveyance is made with full substitution and subrogation
of Assignee in and to all covenants of warranty by others heretofore given or
made with respect to the Subject Leases or any part thereof or interest therein.
XII.
This instrument may be executed in multiple counterparts. Each
of the counterparts hereof so executed shall for all purposes be deemed to be an
original, and all such counterparts shall together constitute but one and the
same instrument.
[SIGNATURE PAGE FOLLOWS.]
________________________________________________________________________________
Exhibit F(ii)
Page 4
IN WITNESS WHEREOF, this instrument is executed this ___ day of
____________, _______.
ASSIGNOR:
MAINLAND RESOURCES, INC.,
a Nevada corporation
By:_______________________________
▇▇▇▇▇▇▇ ▇. Newport
President
The name and address of the Assignor is:
MAINLAND RESOURCES, INC.
▇▇▇▇▇ ▇▇ ▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. Newport
STATE OF TEXAS
COUNTY OF ▇▇▇▇▇▇
Personally appeared before me, the undersigned authority in and for the
said county and state, on this _____ day of _________________, _________, within
my jurisdiction, the within named ▇▇▇▇▇▇▇ ▇. Newport, who acknowledged that he
is President of Mainland Resources, Inc. a Nevada corporation, and that for and
on behalf of the said corporation, and as its act and deed he executed the above
and foregoing instrument, after first having been duly authorized by said
corporation so to do.
______________________________
Notary Public
My Commission Expires:
_____________________
________________________________________________________________________________
Exhibit F(ii)
Page 5
ASSIGNEE:
__________________________________________
a __________________________
By:___________________________________
Name: ________________________________
Title: _______________________________
The name and address of the Assignee is:
__________________________________
__________________________________
__________________________________
STATE OF __________________
COUNTY OF ________________________
Personally appeared before me, the undersigned authority in and for the
said county and state, on this _____ day of _________________, 2009, within my
jurisdiction, the within named ____________________________, who acknowledged
that he is ___________________ of __________________, a _____________________,
and that for and on behalf of the said entities, and as their act and deed he
executed the above and foregoing instrument, after first having been duly
authorized by said entities so to do.
______________________________
Notary Public
My Commission Expires:
_____________________
________________________________________________________________________________
Exhibit F(ii)
Page 6