1
EXHIBIT 10.20
================================================================================
CREDIT AGREEMENT
Dated as of December 10, 1996
AMONG
HEPGP Ltd.
AS BORROWER
AND
THE HALLWOOD GROUP INCORPORATED
AS PARENT GUARANTOR
AND
HALLWOOD G.P., INC.
as a Guarantor
AND
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
AS LENDER
================================================================================
2
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.1. Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.2. Accounting Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 1.3. Interpretation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE II
TERMS OF FACILITY . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 2.1. Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 2.2. The Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 2.3. Interest on the Loan and Payment Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 2.4. Interest on Overdue Amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 2.5. Principal Payments on the Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 2.6. Voluntary Prepayment of the Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 2.7. Facility Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.8. Change in Circumstances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.9. Time, Place and Method of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 2.10. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE III
CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 3.1. Conditions Precedent to the Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 3.2. Certain Post-Closing Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE IV
REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . 23
SECTION 4.1. Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 4.2. Organization; Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 4.3. Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 4.4. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 4.5. No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 4.6. Ownership of Properties; Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 4.7. Mortgaged Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 4.8. No Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 4.9. Financial Position; No Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 4.10. Litigation; Adverse Effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 4.11. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 4.12. Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
-i-
3
SECTION 4.13. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 4.14. Governmental Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 4.15. Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 4.16. Subsidiaries; Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 4.17. Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 4.18. Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 4.19. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 4.20. Licenses, Permits, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 4.21. Location of the Loan Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 4.22. Gas Imbalances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 4.23. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
ARTICLE V
AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 5.1. Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 5.2. Payment and Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 5.3. Business of the Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 5.4. Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 5.5. Right of Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 5.6. Maintenance of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 5.7. Payment of Taxes and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 5.8. Compliance with Laws and Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 5.9. Maintenance of Ownership of Oil and Gas Interests . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 5.10. Operation of Properties and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 5.11. Environmental Law Compliance and Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 5.12. ERISA Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 5.13. Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 5.14. Permits, Licenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 5.15. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 5.16. Title Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 5.17. Performance of Partnership Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE VI
NEGATIVE COVENANTS OF THE BORROWER . . . . . . . . . . . . . . . . . . . 37
SECTION 6.1. Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 6.2. Restrictions on Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 6.3. Liens; Negative Pledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 6.4. Consolidation, Mergers and Acquisitions; Fundamental Changes . . . . . . . . . . . . . . . . . 38
SECTION 6.5. Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 6.6. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 6.7. Certain Contracts; Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 6.8 Amendments to Organizational Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 6.9. Subsidiaries, Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 6.10. Sales of Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
-ii-
4
SECTION 6.11. ERISA Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 6.12. Sales and Leasebacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 6.13. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 6.14. Hedging Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 6.15. Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE VII
EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 7.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 7.2. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 7.3. Right of Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 7.4. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE VIII
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 8.1. Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 8.2. Notices, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 8.3. No Waiver; Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 8.4. Costs, Expenses and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 8.5. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 8.6. Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 8.7. Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 8.8. Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 8.9. Participations; Assignments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 8.10. Separability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 8.11. Marshalling; Recapture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 8.12. Representation by the Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 8.13. No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 8.14. Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 8.15. Jurisdiction; Consent to Service of Process . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 8.16. WAIVER OF JURY TRIAL, DAMAGES, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 8.17. FINAL AGREEMENT OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Schedules
---------
Schedule 3.1(g) - Description of Existing Immaterial Liens
Schedule 4.6 - Description of Title Matters
Schedule 4.10 - Description of Existing Litigation
Schedule 4.13 - Description of Existing Environmental Matters
Schedule 4.16 - Description of Existing Partnerships of the Borrower
Schedule 4.22 - Description of Existing Gas Imbalances
Schedule 6.5 - Description of Existing Investments
Exhibits
--------
-iii-
5
Exhibit A - Form of Compliance Certificate
Exhibit B - Form of Conveyance Agreement
Exhibit C - Form of Deed of Trust
Exhibit D - Form of Note
Exhibit E - Form of Parent Guaranty
Exhibit F - Form of Parent Pledge Agreement
Exhibit G - Form of Security Agreement
Exhibit H - Form of Certificate of Borrower
Exhibit I - Form of Interest Rate Protection Agreement
Exhibit J - Form of GP Guaranty
Exhibit K - Form of GP Pledge Agreement
-iv-
6
[Conformed Copy]
CREDIT AGREEMENT
CREDIT AGREEMENT dated as of December 10, 1996, among HEPGP
LTD., a Colorado limited partnership of which Hallwood G.P., Inc., a Delaware
corporation is the sole general partner and of which the Parent Guarantor, as
hereinafter defined, is the sole limited partner (the "Borrower"), THE HALLWOOD
GROUP INCORPORATED, a Delaware corporation (the "Parent Guarantor"), HALLWOOD
G.P., INC., a Delaware corporation ("Hallwood GP"), and FIRST UNION NATIONAL
BANK OF NORTH CAROLINA, a national banking association (the "Lender").
PRELIMINARY STATEMENTS
WHEREAS, the Parent Guarantor owns a ninety-nine percent (99%) limited
partner interest in the Borrower;
WHEREAS, Hallwood GP owns a one percent (1%) general partner interest
in the Borrower;
WHEREAS, the Parent Guarantor owns one hundred percent (100%) of the
issued and outstanding capital stock of Hallwood GP;
WHEREAS, the Parent Guarantor and the Borrower desire that the Lender
extend certain credit to the Borrower to be used for working capital purposes
and loaned to the Parent Guarantor;
WHEREAS, the obligations of the Borrower with respect to such credit
facility will be (i) guaranteed by the Parent Guarantor and Hallwood GP, and
(ii) secured by certain of the assets of the Borrower;
WHEREAS, the obligations of the Parent Guarantor with respect to its
guaranty will be secured by a pledge of (i) certain limited partner interests
in HEP owned by the Parent Guarantor, (ii) all of the issued and outstanding
capital stock of Hallwood GP and (iii) the entire limited partner interest of
the Borrower (being a ninety-nine percent (99%) limited partner interest); and
WHEREAS, the obligations of the Hallwood GP with respect to its
guaranty will be secured by a pledge of the entire general partner interest of
the Borrower (being a one percent (1%) general partner interest); and
WHEREAS, the Lender has agreed to provide such financing, subject to
the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, and other good and valuable consideration hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1. Certain Defined Terms. As used in this Credit
Agreement, the following terms shall have the following meanings:
7
"Accommodation Obligation," as applied to any Person, shall mean any
Contractual Obligation, contingent or otherwise, of such Person with respect to
any Debt or other obligation or liability of another, including, without
limitation, any such Debt, obligation or liability directly or indirectly
guarantied, endorsed (otherwise than for collection or deposit in the ordinary
course of business), co-made or discounted or sold with recourse by such
Person, or in respect of which such Person is otherwise directly or indirectly
liable, including Contractual Obligations (contingent or otherwise) arising
through any agreement to purchase, repurchase, or otherwise acquire such Debt,
obligation or liability or any security therefor, or to provide funds for the
payment or discharge thereof (whether in the form of loans, advances, stock
purchases, capital contributions or otherwise), or to maintain solvency,
Properties, level of income, or other financial condition, or any "keep well,"
"take-or-pay," "throughput" or other similar arrangement or to make payment
other than for value received.
"Affiliate" shall mean, when used with respect to any Person, each
other Person that directly or indirectly controls or is controlled by or is
under common control with such Person and includes any Subsidiary of such
Person and any "affiliate" of such Person within the meaning of Reg. Section
240.12b-2 of the Securities Exchange Act of 1934, as amended, with "control" as
used in this definition meaning the possession, directly or indirectly, of
power to direct or cause the direction of management, policies or action
(whether through ownership of securities or partnership or other ownership
interests, by contract or otherwise) and shall include, without limitation, any
Person who beneficially owns more than fifty percent (50%) of the equity of the
other Person and, as to any general or limited partnership, any general partner
thereof.
"Bankruptcy Code" shall mean the Bankruptcy Reform Act of 1978 as
codified under 11 U.S.C. Section 101, et seq.
"Base Rate" shall mean the per annum interest rate announced or
published by the Lender from time to time as its general reference rate of
interest, which Base Rate shall change upon each change in such announced or
published general reference interest rate and which Base Rate may not be the
lowest interest rate charged by the Lender.
"Benefit Plan" shall mean any employee benefit plan which is covered
by ERISA and in respect of which any Loan Party or any ERISA Affiliate is (or
if such Benefit Plan were terminated at such time, would under Section 4069 of
ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA.
"Board" shall mean the Board of Governors of the Federal Reserve
System of the United States.
"Borrower" shall mean HEPGP Ltd., a Colorado limited partnership whose
sole general partner is Hallwood GP and whose sole limited partner is the
Parent Guarantor.
"Business Day" shall mean any day (other than a day which is a
Saturday, Sunday or legal holiday in the State of North Carolina) on which
banks are open for business in Charlotte, North Carolina and Houston, Texas.
"Capital Lease" shall mean, when used with respect to any Person, any
lease in respect of which the obligations of such Person constitute Capitalized
Lease Obligations.
"Capitalized Lease Obligations" shall mean, when used with respect to
any Person, without duplication, all obligations of such Person to pay rent or
other amounts under any lease of (or other arrangement conveying the right to
use) real or personal property, or a combination thereof, which
8
obligations shall have been or should be, in accordance with GAAP, capitalized
on the books of such Person.
"Cash Equivalents" shall mean, when used in connection with Person,
such Person's Investments in:
(i) readily marketable direct full faith and credit
obligations of the United States or obligations unconditionally
guaranteed by the full faith and credit of the United States or by any
agency thereof to the extent such obligations are backed by the full
faith and credit of the United States ("Government Securities") due
within 180 days from the date of acquisition thereof;
(ii) readily marketable direct obligations of any State of
the United States or any political subdivision of any such State given
on the date of such investment a credit rating of at least A2 by
▇▇▇▇▇'▇ Investors Service, Inc. or A by S&P, in each case due within
180 days from the date of acquisition thereof;
(iii) certificates of deposit issued by, money market deposit
accounts with, eurodollar deposits through, bankers' acceptances of,
and repurchase and reverse repurchase agreements covering Government
Securities executed by the Lender or any other bank doing business in
and incorporated under the laws of the United States or any state
thereof whose deposits are insured through the Federal Deposit
Insurance Corporation or any successor thereto, and having (either
itself or its holding company) on the date of such Investment combined
capital, surplus and undivided profits of at least $250,000,000, or
any offshore branch of such bank, in each case maturing within 180
days from the date of acquisition thereof;
(iv) readily marketable commercial paper of the Lender or the
Lender's holding company or of any other bank or bank holding company
given on the date of such Investment a credit rating of at least P-1
by ▇▇▇▇▇'▇ Investors Service, Inc. and A-1 by S&P, or of corporations
doing business in and incorporated under the laws of the United States
or any state thereof given on the date of such Investment a credit
rating of at least P-1 by ▇▇▇▇▇'▇ Investors Service, Inc. and A-1 by
S&P, in each case, maturing within 180 days from the date of
acquisition thereof; and
(v) "money-market mutual funds" investing solely in
instruments of the types described in subparagraphs (i) through (iv)
above.
"Code" shall mean Internal Revenue Code of 1986, as amended from time
to time, and the regulations promulgated thereunder.
"Collateral" shall mean all Property which now or at any time is
subject to a Lien in favor of the Lender to secure the Obligations, or which,
under the terms of any Security Instrument, is purported to be subject to such
Lien.
"Compliance Certificate" shall mean each certificate, substantially in
the form attached hereto as Exhibit A, executed by a Responsible Officer of
each of the Loan Parties and furnished to the Lender in accordance with the
terms hereof.
"Communications" shall have the meaning specified in Section 8.2.
-3-
9
"Consolidated" shall refer to the consolidation of any Person, in
accordance with GAAP, with its properly consolidated Affiliates. Reference to
a Person's consolidated financial statements, financial position, financial
condition, liabilities, etc. refers to the consolidated financial statements,
financial position, financial condition, liabilities, etc. of such Person and
its properly consolidated Affiliates.
"Contractual Obligation" as applied to any Person, shall mean any
provision of any stock or other securities issued by that Person or any
indenture, mortgage, deed of trust, contract, undertaking, document, instrument
or other agreement or instrument to which that Person is a party or by which it
or any of its Properties is bound, or to which it or any of its Properties is
subject (including, without limitation, any restrictive covenant affecting such
Person or any of its Properties).
"Conveyance Agreement" shall mean that certain Assignment and ▇▇▇▇ of
Sale from the Parent Guarantor to the Borrower dated effective as of November
27, 1996, substantially in the form of Exhibit B hereto (with such changes as
may be approved by the Lender), pursuant to which the oil and gas properties
more particularly described therein were transferred to the Borrower.
"Credit Agreement" shall mean this Credit Agreement dated as of the
Effective Date, among the Borrower, the Parent Guarantor, Hallwood GP and the
Lender, as said agreement may be amended, modified, supplemented, and/or
extended from time to time.
"Debt" shall mean as to any Person, all obligations and liabilities of
such Person to any other Person including, without limitation, all debts,
claims and indebtedness, heretofore, now and/or from time to time hereafter
owing, due or payable, however evidenced, created, incurred, acquired or owing
and however arising, whether under written or oral agreement, operation of law,
or otherwise. Debt includes, without limiting the foregoing, (i) indebtedness
for borrowed money (including without duplication obligations to reimburse the
issuer of any letter of credit or any guarantor or surety), (ii) indebtedness
for the deferred purchase price of Property or services, except trade accounts
payable within 90 days and arising in the ordinary course of business, (iii)
indebtedness evidenced by bonds, debentures, notes or other similar instruments
(but shall not include any Debt guaranteed, or bonds posted to state and/or
federal agencies incurred in the ordinary course of business in conjunction
with Person's ongoing business operations but shall include Environmental
Liabilities or liabilities to the PBGC), (iv) obligations and liabilities
secured by a Lien upon Property owned by such Person, whether or not such
Person has assumed such obligations and liabilities and the amount of which
Debt shall not exceed the fair market value of the Property subject to such
Lien if such Person has not assumed such obligations and liabilities, (v)
obligations or liabilities created or arising under any Capital Lease, (vi) all
net payments or amounts owing by such Person in respect of interest rate
protection agreements, foreign currency exchange agreements, commodity swap
agreements or other interest, exchange rate or commodity hedging arrangements,
and (vii) liabilities in respect of unfunded vested benefits under Benefit
Plans. The Debt of a Person shall include all Debt of any partnership or joint
venture in which such Person is a general or venture partner unless the terms
of such Debt expressly state that the Debt is nonrecourse to the general
partner. The Debt of a Person shall not include trade payables and expense
accruals incurred or assumed in the ordinary course of such Person's business
(including trade payables and expense accruals of any partnership or joint
venture in which such Person is a general or venture partner), provided, such
payables have not remained unpaid for a period of ninety (90) days after the
same became due unless such Person is diligently contesting same in good faith.
-4-
10
"Debtor Relief Laws" shall mean the Bankruptcy Code and all other
applicable dissolution, liquidation, conservatorship, bankruptcy, moratorium,
readjustment of debt, compromise, rearrangement, receivership, insolvency,
reorganization, or similar debtor relief laws from time to time in effect
affecting the rights of creditors generally.
"Deed of Trust" shall mean that certain Deed of Trust, Assignment of
Production, Fixture Filing, Security Agreement and Financing Statement dated as
of the Effective Date, from the Borrower to ▇▇▇▇▇ ▇. ▇▇▇▇, Trustee for the
benefit of the Lender, substantially in the form of Exhibit C hereto, as same
may be amended, supplemented or otherwise modified from time to time.
"Default" shall mean any Event of Default and the occurrence of any
event or condition which would with the giving of any requisite notice and/or
the passage of time or both constitute an Event of Default.
"Default Rate" shall mean the interest rate described in Section 2.4.
"Distribution" shall mean any distribution payable in cash or
Property with respect to any equity interests in the Borrower, including,
without limitation, each class of partnership interest (including, without
limitation, general, limited and preference units) of the Borrower (other than
distributions payable in partnership units of the same class of general,
limited or preference units as the units upon which the distribution is being
paid), any other distribution made with respect to any equity interests of the
Borrower, or any purchase, redemption or retirement of, or other payment with
respect to, any equity interests of the Borrower.
"Dollars" and the symbol "$" shall mean the lawful currency of the
United States.
"EBITDA" shall mean, for a particular period, an amount equal to (i)
all amounts which would be included as income of the Borrower before income
taxes and extraordinary items, if any, for such period, plus (ii) the
Borrower's depreciation, depletion, amortization and other non-cash items
reducing said operating income under subclause (i) during such fiscal period
plus (iii) interest expense during such fiscal period, all determined in
accordance with GAAP applied consistently with those used in the preparation of
the financial statements referred to in Subsection 4.9(a).
"Effective Date" shall mean the date on which all of the conditions
precedent to the making of the Loan set forth in Section 3.1 are first
satisfied or waived by the Lender, and the Loan is made.
"Environmental Laws" shall mean any federal, state, local or tribal
statute, law, rule, regulation, ordinance, code, permit, consent, approval,
license, written policy or rule of common law now or hereafter in effect and in
each case as amended, and any judicial or administrative interpretation
thereof, including any judicial or administrative order, injunction, consent
decree or judgment, or other authorization or requirement whenever promulgated,
issued or modified, including the requirement to register underground storage
tanks, well plugging and abandonment requirements, and oil and gas waste
disposal requirements relating to:
(i) emissions, discharges, spills, migration, movement,
releases or threatened releases of pollutants, contaminants, Hazardous
Substances, or hazardous or toxic materials or wastes into or
-5-
11
onto soil, land, ambient air, surface water, ground water,
watercourses, publicly owned treatment works, drains, sewer systems,
wetlands or septic systems;
(ii) the use, treatment, storage, disposal, handling,
manufacturing, transportation, or shipment of Hazardous Substances or
hazardous and/or toxic wastes, material, products or by-products
containing Hazardous Substances (or of equipment or apparatus
containing Hazardous Substances); or
(iii) otherwise relating to pollution or the protection of
human health or the environment, including, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, 42 U.S.C. Sections 9601 et seq., as amended, the Resource
Conservation and Recovery Act, 42 U.S.C. Sections 6901 et seq., as
amended, the Hazardous Materials Transportation Act, 49 U.S.C.
Sections 1801 et seq., as amended, the Clean Water Act, 33 U.S.C.
Sections 1251 et seq., as amended, the Toxic Substances Control Act,
15 U.S.C. Sections 2601 et seq., as amended, the Clean Air Act, 42
U.S.C. Sections 7401 et seq., as amended, the federal Water Pollution
Control Act, 33 U.S.C. Section 1251 et seq., as amended, the Safe
Drinking Water Act, 42 U.S.C. Sections 300f et seq., as amended, the
Atomic Energy Act, 42 U.S.C. Sections 2011 et seq., as amended, the
Natural Gas Pipeline Safety Act of 1968, 49 U.S.C. Section 1671 et
seq., as amended, the Federal Insecticide, Fungicide and Rodenticide
Act, 7 U.S.C. Sections 136 et seq., as amended, and the Occupational
Safety and Health Act, 29 U.S.C. Sections 651 et seq., as amended,
and all comparable statutes of any state in which any Loan Party owns
or operates real property, and all comparable local governmental
regulations in such states, and other environmental, conservation or
protection laws in effect in any jurisdiction where any real Property
of a Loan Party or any Subsidiary of such Loan Party is located.
"Environmental Liabilities" shall mean with respect to any Person, any
and all liabilities, responsibilities, losses, sums paid in settlement of
claims, obligations, charges, actions (formal or informal), claims (including,
without limitation, claims for personal injury or for real or personal property
damage), liens, administrative proceedings, damages (including, without
limitation, loss or damage resulting from the occurrence of an Event of
Default), punitive damages, consequential damages, treble damages, penalties,
fines, monetary sanctions, interest, court costs, response and remediation
costs, stabilization costs, encapsulation costs, treatment, storage, or
disposal costs, groundwater monitoring or environmental sampling costs, other
causes of action and any other costs and expenses (including, without
limitation, reasonable attorneys', experts', and consultants' fees, costs of
investigation and feasibility studies and disbursements in connection with any
investigative, administrative or judicial proceeding), whether direct or
indirect, known or unknown, absolute or contingent, past, present or future
arising under, pursuant to or in connection with any Environmental Law, or any
other binding obligation of such Person requiring abatement of pollution or
protection of human health and the environment.
"Environmental Lien" shall mean a Lien in favor of any Governmental
Authority for (i) any liability under Environmental Laws or (ii) damages
arising from, or costs incurred by such Governmental Authority in response to,
a Release or threatened Release of a Hazardous Substance into the environment.
"ERISA" shall mean the United States Employee Retirement Income
Security Act of 1974, as amended from time to time, together with all rules and
regulations promulgated with respect thereto.
-6-
12
"ERISA Affiliate" shall mean any (i) corporation which is a member of
the same controlled group of corporations (within the meaning of Section 414(b)
of the Code) as any Loan Party, (ii) partnership or other trade or business
(whether or not incorporated) under common control (within the meaning of
Section 414(c) of the Code) with any Loan Party, (iii) member of the same
affiliated service group (within the meaning of Section 414(m) of the Code) as
any Loan Party or (iv) other Person required to be aggregated with any Loan
Party or an ERISA Affiliate thereof, as defined above, pursuant to Section
414(o) of the Code.
"Event of Default" shall have the meaning specified in Section 7.1.
"Existing Litigation" shall mean all material actions, suits,
proceedings, governmental investigations or arbitrations pending or, to the
best knowledge of the Borrower after due inquiry, threatened against any Loan
Party, which Existing Litigation is disclosed in Schedule 4.10 hereto.
"Federal Funds Rate" shall mean the rate per annum (rounded upwards,
if necessary, to the next higher 1/100 of 1%) representing the daily effective
federal funds rate as quoted by the Lender and confirmed in Federal Reserve
Board Statistical Release H.15 (519) or any successor or substitute publication
selected by the Lender. If, for any reason, such rate is not available, then
"Federal Funds Rate" shall mean a daily rate which is determined, in the
reasonable opinion of the Lender, to be the rate at which federal funds are
being offered for sale in the national federal funds market at 9:00 a.m.,
Charlotte, North Carolina time. Rates for weekends or holidays shall be the
same as the rate for the most immediate preceding Business Day.
"Fiscal Year" shall mean a twelve-month period ending on December 31
of any year.
"Floating Rate" shall mean, for any day, an interest rate per annum
equal to the greater of (i) the Base Rate and (ii) the Federal Funds Rate for
such day plus one-half percent (1/2%), but in no event shall such rate exceed
the Highest Lawful Rate.
"GAAP" shall mean generally accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession, which are consistent with those applied in the
preparation of the financial statements of the Borrower referred to in
Subsection 4.9(a).
"Governmental Approval" shall mean any authorization, consent,
approval, license, franchise, lease, ruling, permit, certification, exemption,
filing for, or registration by or with any Governmental Authority required by
any Loan Party in connection with (i) the execution, delivery and performance
of the Loan Documents by any Loan Party or the borrowing of any funds under
this Credit Agreement, (ii) the validity or enforceability of the Loan
Documents and the exercise by the Lender of its rights and remedies thereunder,
and/or (iii) the acquisition, maintenance, ownership and operation of the
Mortgaged Properties.
"Governmental Authority" shall mean any nation or government, any
federal, state, province, city, town, municipality, county, local or other
political subdivision thereof or thereto and any department,
-7-
13
commission, board, bureau, instrumentality, agency or other entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"GP Guaranty" shall mean that certain Guaranty dated as of the
Effective Date, executed by Hallwood GP in favor of the Lender, substantially
in the form of Exhibit J hereto, as same may be amended, supplemented, restated
or otherwise modified from time to time.
"GP Pledge Agreement" shall mean the Pledge Agreement dated as of the
Effective Date, executed by Hallwood GP in favor of the Lender, substantially
in the form of Exhibit K hereto, as same may be amended, supplemented, restated
or otherwise modified from time to time.
"Hallwood GP" shall mean Hallwood G.P., Inc., a Delaware corporation,
the sole general partner of the Borrower and a wholly-owned subsidiary of the
Parent Guarantor.
"Hazardous Substances" shall mean (i) hazardous materials, hazardous
wastes, and hazardous substances including, but not limited to, those
substances, materials and wastes listed in the United States Department of
Transportation Hazardous Materials Table, 49 C.F.R. Section 172.101, as
amended, or listed by the federal Environmental Protection Agency as hazardous
substances under or pursuant to 40 C.F.R. Part 302, as amended, or substances,
materials, contaminants or wastes which are or become regulated under any
Environmental Law, including without limitation, those substances, materials,
contaminants or wastes as defined in the following statutes and their
implementing regulations: the Hazardous Materials Transportation Act, 49 U.S.C.
Section 1801 et seq., as amended, the Resource Conservation and Recovery Act,
42 U.S.C. Section 6901 et seq., as amended, the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Section 9601 et seq., as
amended; the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq., as
amended; the Clean Air Act, 42 U.S.C. Section 7401 et seq., as amended, the
federal Water Pollution Control Act, 33 U.S.C. Section 1251 et seq., as
amended, the Occupational Safety and Health Act, 2 U.S.C. Section 651 et seq.,
as amended, the Safe Drinking Water Act, 42 U.S.C. Section 300f et seq., as
amended and the Natural Gas Pipeline Safety Act of 1968, 49 U.S.C. Section 1671
et seq., as amended; (ii) all substances, materials, contaminants or wastes
listed in all comparable statutes of any state in which any Loan Party owns or
operates real property, and in comparable local Requirements of Law in such
states; (iii) acid gas, sour water streams or sour water vapor streams
containing hydrogen sulfide or other forms of sulphur, sodium hydrosulfide and
ammonia; (iv) Hydrocarbons; (v) natural gas, synthetic gas, and any mixtures
thereof; (vi) asbestos and/or any material which contains 1% or more, by
weight, of any hydrated mineral silicate, including but not limited to
chrysotile, amosite, crocidolite, tremolite, anthophylite and/or actinolite,
whether friable or non-friable; (vii) PCB's, or PCB containing materials or
fluids; (viii) radon; (ix) naturally occurring radioactive material,
radioactive substances or waste; (x) salt water and other oil and gas wastes,
and (xi) any other hazardous or noxious substance, material, pollutant,
emission, or solid, liquid or gaseous waste.
"HEP" shall mean Hallwood Energy Partners, L.P., a Delaware limited
partnership, of which the Borrower is the sole general partner.
"Hedging Agreement" shall mean (a) any interest rate or currency swap,
rate cap, rate floor, rate collar, forward agreement, or other exchange or rate
protection agreement with Lender or any Affiliate of the Lender or any option
with respect to any such transaction and (b) any swap agreement, cap, floor,
collar, exchange transaction, forward agreement, or other exchange or
protection agreement with the
-8-
14
Lender or any Affiliate of the Lender relating to Hydrocarbons or any option
with respect to any such transaction.
"Highest Lawful Rate" shall mean, as of a particular date, the maximum
nonusurious interest rate that may under applicable law then be contracted for,
charged or received by the Lender in connection with its Loan.
"Hydrocarbons" shall mean oil, gas, casinghead gas, condensate,
distillate, liquid hydrocarbons, gaseous hydrocarbons and all products
separated, settled and dehydrated therefrom and all products refined therefrom,
including, without limitation, kerosene, liquified petroleum gas, refined
lubricating oils, diesel fuel, drip gasoline, natural gasoline, helium, sulphur
and all other minerals.
"Immaterial Oil and Gas Interests" shall have the meaning assigned to
that term in Subsection 4.7 hereof.
"Initial Engineering Report" shall have the meaning assigned to that
term in Section 3.1(c)(iii) hereof.
"Initial Financial Statements" shall mean (i) the audited annual
Consolidated financial statements of the Parent Guarantor and its Consolidated
Subsidiaries dated as of July 31, 1995, (ii) the unaudited Consolidated balance
sheet of the Parent Guarantor and its Consolidated Subsidiaries as September
30, 1996, and the related unaudited Consolidated statements of income and cash
flows for such quarterly period and for the portion of the Fiscal Year then
ended, and (iii) the projected pro forma balance sheet of the Borrower as of
the Effective Date, copies of which Initial Financial Statements, including all
footnotes thereto, have heretofore been delivered by the Loan Parties to the
Lender.
"Interest Rate Protection Agreement" shall mean that certain Interest
Rate Exchange Agreement substantially in the form of Exhibit I hereto, between
the Borrower and the Lender, in its capacity as the "Floating Rate Payor",
dated as of the Effective Date, as the same may be amended, supplemented,
restated or modified from time to time.
"Investment" shall mean, as to any Loan Party, any direct or indirect
purchase or other acquisition by such Loan Party of stock, partnership interest
or other equity interest, or of a beneficial interest therein, of any other
Person, and any direct or indirect loan, advance (other than deposits with
financial institutions available for withdrawal on demand, prepaid expenses,
advances to employees and similar items made or incurred in the ordinary course
of business), or capital contribution by such Loan Party to any other Person,
including all Debt and accounts owed by that other Person which are not current
assets or did not arise from sales of goods or services to such Loan Party in
the ordinary course of business. The amount of any Investment shall be
determined in conformity with GAAP.
"IRS" shall mean the Internal Revenue Service or any successor agency.
"Lien" shall mean, with respect to any Property, (i) any mortgage,
deed of trust, production payment, deposit, lien, charge, pledge, security
interest, claim or encumbrance of any kind (whether voluntary or involuntary,
affirmative or negative, and whether imposed or created by operation of law or
otherwise) upon such Property, (ii) the interest of a vendor or a lessor under
any conditional sale agreement, capital lease or other title retention
agreement relating to such Property and (iii) in the case of
-9-
15
securities, any purchase option, call or similar right of a third party with
respect to such securities but excluding any right of offset which arises
without agreement in the ordinary course of business.
"Loan" shall mean the term loan made by the Lender to or for the
benefit of the Borrower pursuant to this Credit Agreement.
"Loan Documents" shall mean this Credit Agreement, the Note, the
Parent Pledge Agreement, the Parent Guaranty, the GP Guaranty, the GP Pledge
Agreement, the Deed of Trust, the Security Agreement, the Merger Agreement, the
Conveyance Agreement, the Interest Rate Protection Agreement, all Hedging
Agreements, all Compliance Certificates, and when executed and delivered by the
parties thereto, all other agreements, certificates, instruments and documents
executed in connection with the Credit Agreement, as the same may be amended,
modified, supplemented, renewed, extended and/or restated from time to time.
"Loan Party" shall mean each of the Borrower, Hallwood GP and its
Subsidiaries, and the Parent Guarantor and its Related Energy Affiliates.
"Margin Stock" shall have the meaning given to such term under
Regulation U.
"Material Adverse Effect" shall mean (i) any material adverse effect
on the business, Properties, operations or condition (financial or otherwise)
or prospects of the Borrower, (ii) any material adverse effect on the business,
Properties, operations or condition (financial or otherwise) or prospects of
the Parent Guarantor and Related Energy Affiliates taken as a whole, (iii) any
material adverse effect on the business, Properties, operations or condition
(financial or otherwise) or prospects of Hallwood GP and its Subsidiaries taken
as a whole, (iv) any material impairment of the ability of the Borrower,
Hallwood GP or Parent Guarantor to perform timely any of its respective
Obligations under any Loan Document to which it is or will be a party, (v) any
material adverse effect upon the Collateral, taken as a whole, or (vi) material
impairment of the rights of or benefits available to the Lender under any Loan
Document.
"Maturity Date" shall mean May 31, 1998, or the earlier date of
termination or acceleration in whole of the Loan pursuant to the provisions of
Section 7.1 hereof.
"Merger" shall mean the merger of Hallwood Energy Corporation, a Texas
corporation, into the Parent Guarantor, with the Parent Guarantor surviving the
merger as the surviving entity and the separate existence of Hallwood Energy
Corporation ceasing, all as contemplated by the Merger Agreement.
"Merger Agreement" shall mean that certain Agreement and Plan of
Merger dated as of October 9, 1996, including all exhibits and schedules, if
any, attached thereto by and among the Parent Guarantor and Hallwood Energy
Corporation.
"Mortgaged Properties" shall mean all Oil and Gas Interests of the
Borrower subject to a Lien in favor of the Lender to secure the Obligations, or
which, under the terms of the Deed of Trust, are purported to be subject to
such Lien.
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate is
making or accruing an obligation to make
-10-
16
contributions, or has within any of the preceding five (5) plan years made or
accrued an obligation to make contributions.
"Note" shall mean the promissory note of the Borrower dated the
Effective Date payable to the order of the Lender, substantially in the form of
Exhibit D.
"Obligations" shall mean all obligations, liabilities and indebtedness
of every nature of the Loan Parties from time to time owing to the Lender under
any Loan Document to which such Loan Party is a party, including, without
limitation, (i) the due and punctual payment of (x) installments of principal
of and interest on the Loan when and as due, whether at maturity, by
acceleration, upon one or more dates set for prepayment or otherwise,
including, to the extent permitted by applicable law, interest that accrues
after the commencement of any proceeding by or against any of the Loan Parties
under the Bankruptcy Code and all other applicable Debtor Relief Laws, (y) all
other monetary obligations of any of the Loan Parties to the Lender under this
Credit Agreement and each of the other Loan Documents to which such Loan Party
is a party, including any and all fees, costs, expenses and indemnities, and
(z) all monetary obligations of the Loan Parties, or any of them, owing to the
Lender or Affiliate of the Lender under any Hedging Agreement permitted under
Section 6.13, including any and all fees, costs, expenses and indemnities under
such Hedging Agreement, and (ii) the due and punctual performance of all other
obligations of any of the Loan Parties under this Credit Agreement and each
other Loan Document to which such Loan Party is a party. "Obligation" shall
mean any part of the Obligations.
"Oil and Gas Interests" shall mean any and all rights, estates, titles
and fee, leasehold or other interests in or under mineral estates or oil, gas,
sulphur and other mineral leaseholds and fee interests with respect to
Properties situated in the United States or offshore from any State of the
United States, including, without limitation, all overriding royalty interests,
mineral interests, royalty interests, net profits interests, oil payments,
production payments, carried interests and any and all other interests in
Hydrocarbons, whether any of the same be real or personal, now owned or
hereafter acquired by the Borrower, directly or indirectly together with
rights, titles and interests created by or arising under the terms of any
unitization, communitization, and pooling agreements or arrangements, and all
Properties, rights and interests covered thereby, whether arising by contract,
by order, or by operation of laws, which now or hereafter include all or any
part of the foregoing.
"Opinion of the Loan Parties' Counsel" shall mean the favorable
written legal opinion of Jenkens & ▇▇▇▇▇▇▇▇▇, a Professional Corporation, legal
counsel to the Loan Parties, dated as of the Effective Date, and in form and
substance satisfactory to the Lender.
"Parent Guarantor" shall mean The Hallwood Group Incorporated, a
Delaware corporation and the owner, directly or indirectly, of 100% of the
issued and outstanding partnership interests in the Borrower.
"Parent Guaranty" shall mean that certain Parent Guaranty dated as of
the Effective Date, executed by the Parent Guarantor in favor of the Lender,
substantially in the form of Exhibit E hereto, as same may be amended,
supplemented or otherwise modified from time to time.
"Parent Pledge Agreement" shall mean the Parent Pledge Agreement dated
as of the Effective Date, executed by the Parent Guarantor in favor of the
Lender, substantially in the form of Exhibit F hereto, as same may be amended,
supplemented or otherwise modified from time to time.
-11-
17
"Partnership Agreement" shall mean for any Loan Party its governing
Partnership Agreement among its general and limited partners, as such agreement
may be amended, supplemented, restated or otherwise modified from time to time.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
entity succeeding to all or any of its functions under ERISA.
"Permitted Liens" shall mean with respect to the Borrower and the
Property of the Borrower:
(i) Liens securing the Obligations in favor of the Lender;
(ii) Inchoate Liens incident to construction or maintenance
of real property, or Liens incident to construction or maintenance of
real property now or hereafter filed of record for which adequate
reserves with respect thereto are maintained on its books in
accordance with GAAP and which are being diligently contested in good
faith by appropriate proceedings and have not proceeded to judgment,
provided that, by reason of nonpayment of the obligations secured by
such Liens, no such real property is subject to a material risk of
loss or forfeiture prior to judgment;
(iii) Liens for taxes and assessments on real property which
are not yet past due, or Liens for taxes and assessments on real
property for which adequate reserves with respect thereto are
maintained on its books in accordance with GAAP and which taxes and
assessments are being diligently contested in good faith by
appropriate proceedings and have not proceeded to judgment, provided
that, by reason of nonpayment of the obligations secured by such
Liens, no such real property is subject to a material risk of loss or
forfeiture prior to judgment;
(iv) Imperfections and irregularities in title to any
Property which in the aggregate do not materially impair the
marketability or use of such Property for the purposes for which it is
or may reasonably be expected to be held;
(v) Easements, exceptions, reservations, or other agreements
for the purpose of pipelines, conduits, cables, wire communication
lines, power lines and substations, streets, trails, walkways,
drainage, irrigation, water, and sewerage purposes, dikes, canals,
ditches, the removal of oil, gas, or other minerals, and other like
purposes affecting real property which in the aggregate do not
materially burden or impair the marketability or use of such real
property for the purposes for which it is or may reasonably be
expected to be held;
(vi) Non-consensual Liens imposed by Law, including
carrier's, mechanics', landlord's, warehousemen's or other similar
Liens, other than those described in subclauses (a) or (b) above,
arising in the ordinary course of business with respect to obligations
which are not delinquent or are being diligently contested in good
faith by appropriate proceedings, provided that, if delinquent,
adequate reserves with respect thereto are maintained on its books in
accordance with GAAP and, by reason of nonpayment, no Property is
subject to a material risk of loss or forfeiture prior to judgment;
(vii) Liens consisting of pledges or deposits made in the
ordinary course of business in compliance with workers' compensation,
unemployment insurance and other social security laws or regulations;
-12-
18
(viii) Liens consisting of deposits of Property to secure the
performance of bids, trade contracts (other than for Debt), leases
(other than Capitalized Lease Obligations), statutory obligations,
surety and appeal bonds, performance bonds and other obligations of a
like nature incurred in the ordinary course of business;
(ix) Liens securing the payment to third parties of
royalties, overriding royalties, net profits interests, production
payments or other payments out of or with respect to the production,
transportation or processing of Hydrocarbons, and which are not
delinquent and are (aa) in existence on the Effective Date and which
were deducted in the calculation of discounted present value in the
Initial Engineering Report; or (bb) reserved by the grantor in an
assignment of an oil and gas lease to Borrower after the date hereof
or reserved by the lessor in any oil and gas lease entered into with
the Borrower after the date hereof, provided, such lease burdens are
payable to third parties, have been disclosed to the Lender in
writing, and are deducted in the calculation of discounted present
value of the Mortgaged Property;
(x) Liens arising under operating agreements, pooling or
unitization agreements, farm out agreements, pooling orders or similar
agreements of a scope and nature customary in the oil and gas
industry, and that are entered into in the ordinary course of business
to the extent such Liens are limited in recourse to (x) the Properties
subject to such interests or agreements, (y) the Hydrocarbons produced
from such Properties and (z) the proceeds of such Hydrocarbons; and
(xi) All other non-consensual Liens arising in the ordinary
course of the Borrower's business or incidental to the ownership of
its Properties;
provided, that no such Lien shall secure the payment of Debt and provided,
further, that no Permitted Lien referred to in subclauses (ii) through (xi)
above shall in the aggregate materially detract from the value or marketability
of the Property subject thereto or materially impair the use or operation
thereof in the operation of the business of the Borrower.
"Person" shall mean an individual, partnership, corporation (including
a business trust), joint stock company, trust, unincorporated association,
joint venture or other entity, or a foreign state or political subdivision
thereof or any agency of such state or subdivision.
"Production Sales Contracts" shall mean all Hydrocarbon sales
agreements and Hydrocarbon or water gathering, treatment and/or transportation
agreements now existing or hereafter entered into by or on behalf of the
Borrower covering the Mortgaged Properties.
"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Regulation D" shall mean Regulation D of the Board (respecting
reserve requirements), as the same is from time to time in effect, and all
official rulings and interpretations thereunder or thereof.
"Regulation G" shall mean Regulation G of the Board (respecting margin
credit extended by Persons other than banks, brokers and dealers), as the same
is from time to time in effect, and all official rulings and interpretations
thereunder or thereof.
-13-
19
"Regulation U" shall mean Regulation U of the Board (respecting margin
credit extended by banks), as the same is from time to time in effect, and all
official rulings and interpretations thereunder or thereof.
"Regulation X" shall mean Regulation X of the Board (respecting
borrowers who obtain margin credit), as the same is from time to time in
effect, and all official rulings and interpretations thereunder or thereof.
"Related Energy Affiliates" shall mean HEP, EDP Operating, Ltd., a
Colorado limited partnership, HEP Operating Partners, L.P., a Delaware limited
partnership, EM Nominee Partnership Company, a Colorado general partnership,
Concise Oil and Gas Partnership, a Colorado general partnership, and May Energy
Partners Operating Partnership Ltd., a Texas limited partnership.
"Release" shall mean any release, spill, emission, leak, injection,
deposit, disposal, discharge, dispersal, leaching or migration of any Hazardous
Substance into the environment, including without limitation the movement of
Hazardous Substances through or in the air, soil, surface water, groundwater
and/or land in violation of Environmental Laws.
"Remedial Action" shall mean actions required by a Governmental Agency
to (i) clean up, remove, treat or in any other way address Hazardous Substances
in the environment, (ii) prevent the Release or threat of Release or minimize
the further Release of Hazardous Substances so they do not migrate or endanger
or threaten to endanger public health or welfare or the environment or (iii)
perform pre-remedial studies and investigations and post-remedial monitoring
and care.
"Reportable Event" shall mean any of the events described in Section
4043 or Section 4068(f) of ERISA for which the thirty (30) day notice
requirement of 29 C.F.R. Section 2615.3 has not been waived.
"Requirements of Law" shall mean, as to any Person, any applicable
law, treaty, ordinance, order, judgment, rule, decree, regulation or
determination of an arbitrator, court, or other Governmental Authority,
including, without limitation, rules, regulations, orders, and requirements for
Governmental Approvals, in each case as such now exist or may be hereafter
amended and are applicable to or binding upon such Person or any of its
Property or to which such Person or any of its Property is subject.
"Responsible Officer" shall mean (i) with respect to the Borrower, the
President, any Vice President, or the Chief Financial Officer of Hallwood GP
acting in its capacity as the general partner of the Borrower, and (ii) with
respect to the Parent Guarantor or Hallwood GP, the President, any Vice
President or the Chief Financial Officer of such Loan Party.
"S&P" shall mean Standard & Poor's Corporation.
"Security Agreement" shall mean the Security Agreement dated as of the
Effective Date, executed by the Borrower in favor of the Lender, substantially
in the form of Exhibit G hereto, as same may be amended, supplemented or
otherwise modified from time to time.
"Security Instruments" shall mean the Deed of Trust, the Security
Agreement, the Parent Pledge Agreement, the GP Pledge Agreement, and all other
documents and instruments at any time executed as
-14-
20
security for all or any portion of the Obligations, as such instruments may be
amended, restated, or supplemented from time to time.
"Subsidiary" shall mean as of any date of determination and with
respect to any Person, any corporation, partnership, joint venture or other
entity whether now existing or hereafter organized or acquired of which the
securities, partnership units or other ownership interests having ordinary
voting power, in the absence of contingencies, to elect a majority of the board
of directors or other persons performing similar functions are at the time
directly or indirectly owned by such Person and/or one or more Subsidiaries of
such Person.
"Termination Event" shall mean (i) a Reportable Event with respect to
any Benefit Plan (other than a "reportable event" that is not subject to the
provision for 30 days notice to the PBGC); (ii) the withdrawal of the Borrower
from a Benefit Plan during a plan year in which the Borrower was a "substantial
employer" as defined in Section 4001(a)(2) of ERISA; (iii) the imposition of an
obligation on the Borrower under Section 4041 of ERISA to provide affected
parties written notice of intent to terminate a Benefit Plan in a distress
termination described in Section 4041(c) of ERISA; (iv) the institution by the
PBGC of proceedings to terminate a Benefit Plan; (v) any other event or
condition which would constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Benefit
Plan; or (vi) the occurrence of an event described in Section 4068(f) of ERISA
with respect to a Benefit Plan.
"United States" and "U.S." each shall mean United States of America.
SECTION 1.2. Accounting Terms. All terms of an accounting or
financial nature shall be construed in accordance with GAAP, as in effect from
time to time; provided, however, that, for purposes of determining compliance
with any covenant set forth in Article VI, such terms shall be construed in
accordance with GAAP as in effect on the date of this Credit Agreement, applied
on a basis consistent with the application used in the audited financial
statements referred to in Subsection 4.9(a).
SECTION 1.3. Interpretation.
(a) In this Credit Agreement, unless a clear contrary intention
appears:
(i) the singular number includes the plural number and vice
versa;
(ii) reference to any gender includes each other gender;
(iii) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Credit Agreement as a whole and
not to any particular Article, Section or other subdivision;
(iv) reference to any Person includes such Person's
successors and assigns but, if applicable, only if such successors and
assigns are permitted by this Credit Agreement, and reference to a
Person in a particular capacity excludes such Person in any other
capacity or individually, provided that nothing in this subclause (iv)
is intended to authorize any assignment not otherwise permitted by
this Credit Agreement;
-15-
21
(v) reference to any agreement, document or instrument means
such agreement, document or instrument as amended, supplemented or
modified and in effect from time to time in accordance with the terms
thereof and, if applicable, the terms hereof, and reference to any
Note includes any Note issued pursuant hereto in extension or renewal
thereof and in substitution or replacement therefor;
(vi) unless the context indicates otherwise, reference to any
Article, Section, Schedule or Exhibit means such Article or Section
hereof or such Schedule or Exhibit hereto;
(vii) the words "including" (and with correlative meaning
"include") means including, without limiting the generality of any
description preceding such term;
(viii) with respect to the determination of any period of
time, the word "from" means "from and including" and the word "to"
means "to but excluding;" and
(ix) reference to any law means such as amended, modified,
codified or reenacted, in whole or in part, and in effect from time to
time.
(b) The Article and Section headings herein and the Table of
Contents are for convenience only and shall not affect the construction of this
Credit Agreement.
(c) The Schedules and Exhibits attached to this Credit Agreement
are incorporated herein and shall be considered a part of this Credit Agreement
for all purposes.
(d) No provision of this Credit Agreement shall be interpreted or
construed against any Person solely because that Person or its legal
representative drafted such provision.
ARTICLE II
TERMS OF FACILITY
SECTION 2.1. Term Loan. Subject to the terms and conditions and
relying upon the representations and warranties set forth herein and in the
other Loan Documents, the Lender agrees to make a term loan to the Borrower in
the principal sum of $2,500,000 (the "Loan"), on the Effective Date. Except as
otherwise provided in this Credit Agreement, the Loan shall mature and be due
and payable in full on the Maturity Date. The Loan is not revolving in nature,
and amounts repaid or prepaid may not be reborrowed.
SECTION 2.2. The Note. The Loan made by the Lender shall be
evidenced by a single promissory note of the Borrower duly executed and
delivered by the Borrower, dated the Effective Date, with the blanks
appropriately completed, payable to the order of the Lender in the principal
sum of $2,500,000. The Lender is hereby authorized by the Borrower, at its
option, to endorse on the schedule attached to its Note (or on a continuation
of such schedule attached to its Note and made a part thereof) or in its
internal records relating to its Note an appropriate notation evidencing the
date and amount of each payment of principal or interest in respect thereof and
such other information provided for on such schedule. The aggregate unpaid
principal amount so recorded shall be presumptive evidence of the principal
amount owing by the Borrower to the Lender and unpaid under the Note. The
failure of the
-16-
22
Lender to make such a notation or any error therein shall not in any manner
affect the obligation of the Borrower to repay the Loan in accordance with the
terms of the Note and this Credit Agreement.
SECTION 2.3. Interest on the Loan and Payment Dates.
(a) Subject to the provisions of Section 2.4, the unpaid principal
amount of the Loan shall bear interest at a rate per annum equal to the lesser
of (i) the Highest Lawful Rate, and (ii) the Floating Rate plus one percent
(1%) (if the Floating Rate is based on the Base Rate, computed on the basis of
the actual number of days elapsed over a year of 365 or 366 days, as the case
may be; if the Floating Rate is based on the Federal Funds Rate, computed on
the basis of the actual number of days elapsed over a year of 360 days).
(b) Accrued and unpaid interest on the Loan shall be due and
payable by the Borrower monthly on the last Business Day of each calendar
month, provided, that after maturity, whether by acceleration or otherwise,
accrued interest on the Loan shall be payable on demand.
(c) Interest in respect of the unpaid principal amount of the Loan
shall accrue from (and including) the date of the making of the Loan to (but
not including) maturity (whether by acceleration or otherwise).
SECTION 2.4. Interest on Overdue Amounts. If the Borrower shall
fail to pay any installment of principal of or interest on the Loan or any
other amount when due hereunder (after the expiration of any applicable grace
period), the Borrower shall on demand from time to time pay interest, to the
extent permitted by law, on such defaulted amount from the date of such Event
of Default up to (but not including) the date of actual payment (after as well
as before judgment) at a rate per annum (the "Default Rate") equal to the
lesser of (i) the Highest Lawful Rate and (ii) the Floating Rate plus five
percent (5%) per annum computed on the basis of the actual number of days
elapsed over a year of 365 or 366 days, as the case may be.
SECTION 2.5. Principal Payments on the Loan.
(a) If not sooner paid, the principal indebtedness of the Loan
evidenced by the Note shall be repaid in eighteen (18) monthly installments on
the last Business Day of each calendar month during the term of this Credit
Agreement as follows:
(i) $139,000 on December 31, 1996 and on the last
Business Day of each successive calendar month thereafter to and
including April 30, 1998; and
(ii) a final payment of all outstanding principal on the
Note shall be due in full on the Maturity Date.
SECTION 2.6. Voluntary Prepayment of the Loan.
(a) The Borrower shall have the right at any time and from time to
time to prepay the Loan, in whole or in part, upon at least two (2) Business
Day's prior written or telecopy notice or telephone notice promptly confirmed
in writing) to the Lender; provided, however, that each such partial prepayment
shall be in a minimum principal amount of $100,000 and in integral multiples of
$50,000.
-17-
23
(b) Each notice of prepayment under subsection (a) above shall (i)
specify the prepayment date and the principal amount of such prepayment, (ii)
be irrevocable and (iii) commit the Borrower to prepay the Loan by the amount
stated therein on the date stated therein. All prepayments under this Section
2.6 shall be without premium or penalty. All prepayments under this Section
2.6 shall be accompanied by accrued interest on the principal amount being
prepaid to the date of payment. Such voluntary prepayments shall be applied to
reduce the remaining installments of principal in the inverse order of their
maturity.
SECTION 2.7. Facility Fee. The Borrower will pay to the Lender on
the Effective Date in immediately available funds a facility fee in the amount
of $125,000.
SECTION 2.8. Change in Circumstances.
(a) If the Lender shall have determined that the applicability of
any law, rule, regulation or guideline adopted pursuant to or arising out of
the July 1988 report of the Basle Committee on Banking Regulations and
Supervisory Practices entitled "International Convergence of Capital
Measurement and Capital Standards" or the adoption or effectiveness after the
date hereof of any law, rule, regulation or guideline regarding capital
adequacy, or any change in any of the foregoing, or any change in the
interpretation or administration in any of the foregoing by any Governmental
Authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by the Lender with any request or
directive regarding capital adequacy (whether or not having the force of law)
of any such Governmental Authority, central bank or comparable agency, has or
would have the effect of reducing the rate of return on the Lender's capital,
as a consequence of its obligations under this Credit Agreement to a level
below that which the Lender could have achieved but for such adoption, change
or compliance (taking into consideration the Lender's policies with respect to
capital adequacy) by an amount deemed in good faith by the Lender to be
material, then the Lender shall give the Borrower written notice thereof.
Within thirty (30) days of the date on which the Borrower receives such notice,
the Borrower shall pay to the Lender an amount that will, in Lender's
reasonable determination, provide adequate compensation to the Lender for any
such reduction in accordance with subparagraph (b) below. Notwithstanding the
foregoing, in no event shall the Lender be permitted to receive any
compensation hereunder constituting interest in excess of the Highest Lawful
Rate.
(b) The Lender shall deliver to the Borrower a written statement
setting forth such amount or amounts as shall be necessary to compensate the
Lender as specified in subparagraph (a) above, and such statement shall be
prima facie evidence that such amount(s) are due and owing. In preparing such
statement, the Lender may employ such assumptions and allocations of costs and
expenses as it shall in good ▇▇▇▇▇ ▇▇▇▇ reasonable and may be determined by any
reasonable averaging and attribution method. The Borrower shall pay to the
Lender the amount shown as due on any such statement within thirty (30)
calendar days after the Borrower's receipt of the same.
SECTION 2.9. Time, Place and Method of Payments.
(a) The Borrower shall make each payment hereunder and under the
Note delivered hereunder not later than 2:00 p.m., Charlotte, North Carolina
time, on the day when due in lawful money of the United States (in freely
transferable Dollars) to the Lender at the Principal Office in immediately
available funds and any funds received by the Lender after such time shall, for
all purposes hereof (including the following sentence), be deemed to have been
paid on the next succeeding Business Day.
-18-
24
(b) Whenever any payment hereunder or under the Note (including
principal of or interest on the Loan or any fees or other amounts), shall be
stated to be due on a day other than a Business Day, such payment shall be made
on the next succeeding Business Day, and such extension of time shall in such
case be included in the computation of payment of interest, fee or other
amount, as the case may be.
SECTION 2.10. Use of Proceeds.
(a) The proceeds of the Loan shall be used for working capital
purposes and to make loans or advances to the Parent Guarantor. In no event
shall the funds from the Loan be used directly or indirectly by any Person for
personal, family, household or agricultural purposes.
(b) No portion of the proceeds of the Loan under this Credit
Agreement shall be used by the Borrower in any manner that might cause the
borrowing or the application of such proceeds to violate Regulation G,
Regulation U, Regulation T, or Regulation X or any other regulation of the
Board or to violate the Securities Exchange Act of 1934, in each case as in
effect on the date or dates of such borrowing and such use of proceeds.
ARTICLE III
CONDITIONS PRECEDENT
SECTION 3.1. Conditions Precedent to the Loan. The obligation of
the Lender to make the Loan on the Effective Date is subject to the
satisfaction of the following conditions precedent:
(a) The Lender shall have received, duly authorized, executed and
delivered by each Person that is a party thereto, in form and substance
satisfactory to the Lender, each of the following:
(i) each of the following Loan Documents (together with all
schedules and exhibits thereto) dated on or as of the Effective Date:
(aa) this Credit Agreement,
(bb) the Note,
(cc) the Parent Guaranty,
(dd) the Parent Pledge Agreement, together with
(1) a letter duly executed by the Parent
Guarantor addressed to the transfer agent
requesting that (and enclosing) the
certificates evidencing the units (Class A
and C) of limited partnership interests in
HEP be transferred to and registered in the
name of the Parent Guarantor and, upon such
transfer, that said certificates be delivered
directly to the Lender together with the
associated assignments executed in blank, (2)
the certificates evidencing all of the issued
and outstanding capital stock of Hallwood GP
together with the associated stock powers
executed in blank,
-19-
25
(ee) in multiple counterparts as requested by the
Lender, Financing Statements from the Parent
Guarantor, as debtor constituent to the
instrument described in subclause (dd) above,
(ff) the GP Guaranty,
(gg) the GP Pledge Agreement,
(hh) in multiple counterparts as requested by the
Lender, Financing Statements from Hallwood
GP, as debtor constituent to the instrument
described in subclause (gg) above,
(ii) in multiple counterparts as requested by the
Lender, the Deed of Trust,
(jj) in multiple counterparts as requested by the
Lender, Financing Statements from the
Borrower, as debtor constituent to the
instrument described in subclause (ii) above,
(kk) the Security Agreement,
(ll) in multiple counterparts as requested by the
Lender, Financing Statements from the
Borrower, as debtor constituent to the
instrument described in subclause (kk) above,
(mm) the Interest Rate Protection Agreement, and
(nn) in multiple counterparts as requested by the
Lender, the Conveyance Agreement;
(ii) a certificate of the Borrower, dated the Effective Date,
substantially in the form of Exhibit H hereto, duly executed and
delivered by its sole general partner, Hallwood GP;
(iii) a certificate of the Secretary of Hallwood GP, dated
the Effective Date and certifying as to (aa) the adoption and
continuing effect of resolutions of the board of directors of Hallwood
GP authorizing, individually and in its capacity as the sole general
partner of the Borrower, the transactions contemplated hereby and by
the other Loan Documents to which the Borrower or Hallwood GP is a
party, (bb) the Certificate of Incorporation of Hallwood GP and all
amendments thereto, (cc) the Bylaws of Hallwood GP and all amendments
thereto, and (dd) the incumbency of all officers of Hallwood GP who
will execute or have executed on behalf of Hallwood GP individually
and in its capacity as general partner of the Borrower any document or
instrument required to be delivered hereunder, containing the
signature of same;
(iv) a certificate of the Secretary of the Parent Guarantor,
dated the Effective Date and certifying as to (aa) the adoption and
continuing effect of resolutions of the board of directors of the
Parent Guarantor authorizing the transactions contemplated hereby and
by the other Loan Documents to which the Parent Guarantor is a party,
(bb) the Certificate of Incorporation of the Parent Guarantor and all
amendments thereto, (cc) the Bylaws of the Parent Guarantor and all
-20-
26
amendments thereto, and (dd) the incumbency of all officers of the
Parent Guarantor who will execute or have executed any document or
instrument required to be delivered hereunder by the Parent Guarantor,
containing the signature of same;
(v) a copy of the filed stamped Certificate of Limited
Partnership filed with the Office of the Secretary of State for the
State of Colorado with respect to the Borrower;
(vi) with respect to Hallwood GP, a certificate of existence
and good standing from the Secretary of State of Delaware dated no
more than fifteen (15) calendar days prior to the Effective Date and
certificates of authorization to do business and good standing in the
States of Colorado and Texas;
(vii) with respect to the Parent Guarantor, a certificate of
existence and good standing from the Secretary of State of Delaware
dated no more than fifteen (15) calendar days prior to the Effective
Date and certificates of authorization to do business and good
standing in the State of Texas;
(viii) the Opinion of the Loan Parties' Counsel;
(ix) certificates of insurance coverage or insurance binders
evidencing that all insurance required to be obtained and/or
maintained by the Loan Parties as of the Effective Date pursuant to
any of the Loan Documents is in full force and effect;
(x) (aa) the Initial Financial Statements and (bb) such other
financial information, regarding the Loan Parties as the Lender may
reasonably request. All of such financial statements and financial
information shall be satisfactory to the Lender;
(xi) duly executed and delivered copies of the Merger
Agreement and all other agreements, certificates, documents,
instruments and writings executed in connection therewith consummating
the Merger;
(xii) all fees and expenses due and payable hereunder on or
before the Effective Date and invoiced to the Loan Parties in writing
prior to the Effective Date; and
(xii) such other certificates, opinions, documents and
instruments relating to the transactions contemplated hereby as may
have been reasonably requested by the Lender.
(b) The Merger contemplated by the Merger Agreement shall have
been consummated (and, except as set forth in Schedule 4.10, not subject to any
challenge in any proceeding) pursuant to the terms thereof.
(c) The Lender shall have received the following, in form and
substance satisfactory to the Lender:
(i) favorable title opinions and/or due diligence reviews and
lien and judgment searches prepared by special counsel acceptable to
the Lender showing acceptable title in the Borrower to at least 80% by
reserve value of the Mortgaged Properties;
-21-
27
(ii) if available, sufficient counterparts of the
Certificate of Merger and the Articles of Merger to be filed in each
county in which Mortgaged Property is situated; and
(iii) an engineering report prepared by personnel of the Loan
Parties, which report (aa) reviews the Mortgaged Properties, (bb) sets
forth and evaluates the proven and producing, shut-in, behind-pipe and
undeveloped oil and gas reserves (separately classified as such)
attributable to the Mortgaged Properties as of July 1, 1996, (cc)
evaluates the productivity and the economic life of all ▇▇▇▇▇ included
in the Mortgaged Properties; the quantity of the proved reserves
recoverable therefrom; the projected rate of production, net income
and expenses attributable to such proved reserves; the minimum
development costs which are needed to develop the proved reserves to
their economic life; and the expediency of any change in methods of
treatment or operation of any well included in the Mortgaged
Properties, and (dd) contains such additional information as the
Lender may reasonably require, as of the date of such engineering
report (the "Initial Engineering Report").
(d) Evidence satisfactory to the Lender that all Liens covering
any of the Collateral have been released and appropriate termination statements
have been recorded or delivered to the Lender, including without limitation,
Liens in favor of The First National Bank of Chicago and Liens in favor of
▇▇▇▇▇ ▇▇▇▇▇▇.
(e) The Lender shall have received a certificate of a Responsible
Officer of Hallwood GP, dated the Effective Date, certifying on behalf of the
Borrower that (i) the representations and warranties of the Borrower contained
in Article IV hereof and, in all material respects, in each of the other Loan
Documents to which the Borrower is a party are true, correct and complete on
the Effective Date both before and after giving effect to the making of the
Loan, (ii) no Default or Event of Default has occurred and is continuing on the
Effective Date either before or after giving effect to the making of the Loan,
(iii) no material litigation (other than Existing Litigation) is pending or, to
the best knowledge of the Borrower after due inquiry, threatened against the
Borrower and no material adverse development has occurred in any Existing
Litigation, as of the Effective Date, and (iv) no events or state of affairs
which could reasonably be expected to result in a Material Adverse Effect have
occurred since July 31, 1995;
(f) The Lender shall have received a certificate of a Responsible
Officer of the Parent Guarantor, dated the Effective Date, certifying on behalf
of the Parent Guarantor that (i) the representations and warranties of the Loan
Parties contained herein, and, in all material respects, in each of the other
Loan Documents are true, correct and complete on the Effective Date both before
and after giving effect to the making of the Loan, (ii) no Default or Event of
Default has occurred and is continuing on the Effective Date either before or
after giving effect to the making of the Loan, (iii) no material litigation
(other than Existing Litigation) is pending or, to the best knowledge of the
Parent Guarantor after due inquiry, threatened against any Loan Party and no
material adverse development has occurred in any Existing Litigation, as of the
Effective Date, and (iv) no events or state of affairs which could reasonably
be expected to result in a Material Adverse Effect have occurred since July 31,
1995;
(g) A search, made no more than 30 days prior to the Effective
Date, of the Uniform Commercial Code filing offices in each relevant
jurisdiction shall have revealed no filings or recordings with respect to the
Collateral (except, with respect to the Mortgaged Properties, Permitted Liens,
and Liens in favor of The First National Bank of Chicago, which Liens are being
released and immaterial Liens described on Schedule 3.1(g)) in favor of any
Person. The Lender shall have received a copy of the search
-22-
28
reports received as a result of such search and fully executed releases
effectuating the termination of any and all Liens (other than Permitted Liens)
pertaining to any of the Collateral;
(h) The Lender shall have received payment in full of the facility
fee pursuant to the provisions of Section 2.7 hereof; and
(i) Such other conditions precedent which the Lender may
reasonably have requested or required.
SECTION 3.2. Certain Post-Closing Requirements.
(a) The Loan Parties shall cause the transfer agent to deliver the
certificates evidencing the units (Class A and C) of limited partnership
interests in HEP owned by the Parent Guarantor to the Lender within fifteen
(15) Business Days of the Effective Date.
(b) With respect to the Borrower, the Loan Parties shall cause to
be delivered to the Lender within thirty (30) Business Days of the Effective
Date a certificate of existence and good standing from the Secretary of State
of the State of Colorado and certificates of authorization to do business and
good standing in the State of Texas.
(c) With respect to Hallwood GP, the Loan Parties shall cause to
be delivered to the Lender within fifteen (15) Business Days of the Effective
Date certificates of authorization to do business and good standing in the
States of Colorado, Delaware, Kansas, Louisiana, Mississippi, Montana, New
Mexico, North Dakota, Oklahoma, Texas, Utah, and Wyoming.
(d) With respect to the Parent Guarantor, the Loan Parties shall
cause to be delivered to the Lender within fifteen (15) Business Days of the
Effective Date certificates of authorization to do business and good standing
in the States of California, Florida, New York and Texas.
(e) Within thirty (30) calendar days of the Effective Date, the
Loan Parties shall have delivered to the Lender evidence that the Borrower has
been added as an additional insured to the insurance policies described in the
certificates or binders of insurance coverage delivered to the Lender on the
Effective Date.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
In order to induce the Lender to enter into this Credit Agreement and
to make the Loan, the Parent Guarantor represents and warrants as to itself and
its Related Energy Affiliates, Hallwood GP represents as to itself and its
Subsidiaries and the Borrower represents and warrants as to itself, to the
Lender that the following statements are true, correct and complete.
SECTION 4.1. Organization. (a) The Parent Guarantor is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware, and has all corporate powers and all material Governmental
Approvals required to carry on its business as now conducted.
-23-
29
(b) The Borrower is a limited partnership duly formed pursuant to
the Colorado Uniform Limited Partnership Act of 1981, and has full power and
all material Governmental Approvals required to carry on its business as now
conducted. Hallwood GP is the sole general partner of the Borrower and the
Parent Guarantor is the sole limited partner of the Borrower.
(c) HEP is a limited partnership duly formed pursuant to the
Uniform Limited Partnership Act of the State of Delaware, and has full power
and all material Governmental Approvals required to carry on its business as
now conducted. The Borrower is the sole general partner of HEP.
(d) Hallwood GP is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware, and has
all corporate powers and all material Governmental Approvals required to carry
on its business as now conducted.
(e) Each Loan Party is duly authorized to do business as a foreign
partnership or corporation, as the case may be, wherever the nature of its
Properties or of its activities requires such authorization, except where the
failure to so qualify would not result in a Material Adverse Effect.
SECTION 4.2. Organization; Powers (Related Energy Affiliates). Each
Related Energy Affiliate of the Parent Guarantor and each Subsidiary of
Borrower and each general partner of each such Person which is a partnership
(i) is a corporation, limited liability company, or partnership duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, (ii) is duly qualified to conduct business as a
foreign corporation, foreign limited liability company, or foreign limited
partnership (as applicable), and is in good standing, in each other
jurisdiction in which such qualification and good standing are reasonably
necessary in order for it to conduct its business and own or lease its
Properties as conducted and owned except where the failure to so qualify would
not result in a Material Adverse Effect and (iii) has all corporate, limited
liability company or partnership power (as applicable) and all material
Governmental Approvals required to own or lease its Properties and to carry on
its business as now conducted and as proposed to be conducted.
SECTION 4.3. Authority. Each of the Loan Parties has the corporate
or partnership power and authority (as applicable) and legal right under its
respective certificate of incorporation, by-laws, Partnership Agreement and the
laws of the jurisdiction of its organization to execute, deliver and perform
each of the Loan Documents executed by, or to be executed by, such Loan Party
and each other agreement or instrument contemplated thereby to which it is or
will be a party and, with respect to the Borrower, to borrow hereunder. The
execution, delivery and performance of each of the Loan Documents to which any
Loan Party is or will be a party and the consummation of the transactions
contemplated thereby, and, with respect to the Borrower, the borrowing of funds
under this Credit Agreement, have been duly authorized by all necessary
corporate or partnership action (as applicable) on the part of each Loan Party
and each general partner of each Loan Party (as applicable) and require no
action by or in respect of, or filing with, any Governmental Authority which
has not been made or obtained. No action or consent is required of the limited
partners, if any, of any Loan Party in connection with the due execution,
delivery and performance of the Loan Documents, including this Credit
Agreement. This Credit Agreement constitutes, and each of the other Loan
Documents to which any Loan Party is a party when executed and delivered by
such Loan Party, will constitute the legal, valid and binding obligation of
such Loan Party, enforceable against such Loan Party in accordance with its
terms, except as enforceability thereof may be limited by Debtor Relief Laws
and by general principles of equity which may limit the right to obtain
equitable remedies (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
-24-
30
SECTION 4.4. Use of Proceeds. The Borrower's uses of the proceeds
of the Loan shall be as set forth in Section 2.10. No Loan Party is engaged
principally, or as one of such Loan Party's important activities, in the
business of extending credit to others for the purpose of purchasing or
carrying such Margin Stock, and no part of the proceeds of the Loan will be
used to purchase or carry any Margin Stock or to extend credit to others for
the purpose of purchasing or carrying any Margin Stock. None of the assets of
the Borrower are Margin Stock. None of the Loan Parties nor any agent acting on
their behalf, have taken or will knowingly take any action which would cause
this Credit Agreement or any other Loan Document to violate Regulation U or
Regulation X or to violate the Securities Exchange Act of 1934, as amended.
SECTION 4.5. No Conflict. The execution, delivery and performance
by each Loan Party of the Loan Documents to which such Loan Party is a party,
the compliance by any Loan Party with the terms and provisions thereof and the
consummation of each of the transactions contemplated thereby, do not and will
not (i) require any consent or approval of the stockholders or partners of any
Loan Party, or any Governmental Approval or any other Person which has not been
obtained, (ii) by the lapse of time, the giving of notice or otherwise, (aa)
constitute a violation of any Requirement of Law binding on any Loan Party or a
breach of any provision contained in the certificate of incorporation, bylaws
or Partnership Agreement of any Loan Party, (bb) constitute a breach of any
material provision contained in any material contract to which such Loan Party
is a party or by which such Loan Party is bound, or (cc) result in or require
the creation or imposition of any Lien whatsoever upon any of the Properties of
such Loan Party (other than Liens permitted pursuant to the Loan Documents).
SECTION 4.6. Ownership of Properties; Liens. (a) Except as
disclosed on Schedule 4.6 attached hereto, the Borrower has good and marketable
title to all material Properties purported to be owned by the Borrower,
including, without limitation, all Mortgaged Properties and all other Property
reflected in the pro forma balance sheet referred to in Subsection 4.9(b) and
all Properties which are used by the Borrower in the operation of its business,
and none of such Properties is subject to any Lien other than Permitted Liens.
(b) The Parent Guarantor has good and marketable title to all material
Properties purported to be owned by the Parent Guarantor, including, without
limitation, all Property reflected in the financial statements referred to in
Subsection 4.9(a) and all Collateral described in the Parent Pledge Agreement,
and none of such Collateral is subject to any Lien.
SECTION 4.7. Mortgaged Properties. Except as disclosed on Schedule
4.6 attached hereto, the Borrower has good, marketable, and record title to all
of the Oil and Gas Interests described in the Initial Engineering Report other
than Immaterial Oil and Gas Interests, free and clear of all Liens except
Permitted Liens. With the exception of Immaterial Oil and Gas Interests, all
oil, gas, and other mineral leaseholds and fee interests comprising or
affecting the Oil and Gas Interests described in the Initial Engineering Report
are valid, subsisting, and in full force and effect, and all rentals,
royalties, and other amounts due and payable in respect thereof have been duly
paid. Except with respect to Immaterial Oil and Gas Interests, but without
regard to any consent or non-consent provisions of any joint operating
agreement covering any of the Proved Reserves of the Borrower, the Borrower's
share of (i) the costs for each of the Proved Reserves described in the Initial
Engineering Report is not greater than the decimal fraction set forth in the
Initial Engineering Report, before and after payout, as the case may be, and
described therein by the respective designations "working interests", "WI",
"gross working interest", "GWI", or similar terms, and (ii) production from,
allocated to, or attributed to each such Proved Reserves
-25-
31
is not less than the decimal fraction set forth in the Initial Engineering
Report, before and after payout, as the case may be, and described therein by
the designations "net revenue interest", "NRI", or similar terms. Except with
respect to Immaterial Oil and Gas Interests, each well drilled in respect of
Oil and Gas Interests described in the Initial Engineering Report (i) is
capable of, and is presently, producing Hydrocarbons in commercially profitable
quantities, and the Borrower is currently receiving payments for its share of
production, with no material funds in respect of any thereof being presently
held in suspense, other than any such funds being held in suspense pending
delivery of appropriate division orders, and (ii) has been drilled, bottomed,
completed, and operated in compliance with all applicable Requirements of Law
and no such well which is currently producing Hydrocarbons is subject to any
penalty in production by reason of such well having produced in excess of its
allowable production. For purposes of this Subsection 4.7, "Immaterial Oil &
Gas Interests" means Oil and Gas Interests which, in the aggregate, do not
represent more than two percent (2%) of the discounted present value of all Oil
and Gas Interests as set forth in the Initial Engineering Report delivered to
the Lender pursuant to Section 3.1(c)(iii).
SECTION 4.8. No Defaults.
(a) None of the Loan Parties is a party to any material
Contractual Obligation that has resulted or could reasonably be expected to
result in a Material Adverse Effect.
(b) (i) No Default or Event of Default exists, and (ii) none of
the Loan Parties is in default in any material respect under any material
Contractual Obligation.
SECTION 4.9. Financial Position; No Material Adverse Change.
(a) The Parent Guarantor has heretofore furnished to the Lender
its (i) Consolidated balance sheet, and the related consolidated statements of
income, cash flows and shareholders' equity as of and for the Fiscal Year ended
July 31, 1995, audited by and accompanied by the unqualified opinion of
Deloitte Touche and (ii) the unaudited Consolidated balance sheet of the Parent
Guarantor and its Consolidated Subsidiaries as September 30, 1996, and the
related unaudited Consolidated statements of income and cash flows for such
quarterly period and for the portion of the Fiscal Year then ended. Such
financial statements present fairly the Consolidated financial condition and
results of operations and cash flows of the Parent Guarantor and its
Consolidated Subsidiaries as of such dates. Such financial statements were
prepared in accordance with GAAP applied on a consistent basis.
(b) The Borrower has heretofore furnished to the Lender its
projected pro forma balance sheet (together with all footnotes thereto) as of
the Effective Date. Such projected pro forma balance sheet of the Borrower
accurately reflects the best available projections of the financial position of
the Borrower (after giving effect to the Merger, the Conveyance and the Loan),
which projections were made after reasonable investigations, were made in good
faith, were believed to be reasonable when made and were based upon assumptions
which were believed to be reasonable when made. The principal assumptions used
in preparing such projected financial statements are as stated in the footnotes
accompanying such statements.
(c) No Loan Party has any material contingent liabilities,
material liabilities for taxes, unusual and material forward or long-term
commitments or material unrealized or anticipated losses from any unfavorable
commitments, except as referred to or reflected or provided for in the
Consolidated balance sheet of the Parent Guarantor or as otherwise disclosed to
the Lender in writing.
-26-
32
(d) The Loan Parties have disclosed to the Lender in writing any
and all facts which, in the reasonable good faith judgment of such Loan
Parties, could result in a Material Adverse Effect.
SECTION 4.10. Litigation; Adverse Effects.
(a) Except for Existing Litigation, there are no actions, suits,
proceedings, governmental investigations or arbitrations, at law or in equity,
before or by any Governmental Authority, pending or, to the best knowledge of
the Parent Guarantor, threatened against the Parent Guarantor or any Subsidiary
of the Parent Guarantor or any material Property of the Parent Guarantor or any
Subsidiary of the Parent Guarantor, which could reasonably be expected to
result in a Material Adverse Effect. There are no outstanding judgments,
injunctions, writs, rulings or orders by any Governmental Authority against any
Loan Party or any such Loan Party's stockholders, partners, directors or
officers which have or could reasonably be expected to result in a Material
Adverse Effect.
(b) Except Existing Litigation, there are no actions, suits,
proceedings, governmental investigations or arbitrations, at law or in equity,
before or by any Governmental Authority, pending or, to the best knowledge of
the Borrower, threatened against the Borrower or any material Property of the
Borrower.
(c) None of the business, Properties, or operations of any Loan
Party are materially and adversely affected by any fire, explosion, accident,
strike, lockout or other labor dispute, drought, storm, hail, earthquake,
embargo, act of God, or of the public enemy or other casualty (whether or not
covered by insurance).
SECTION 4.11. ERISA. Each Loan Party is in compliance in all
material respects with the applicable provisions of ERISA and the regulations
and published interpretations thereunder. No Reportable Event has occurred as
to which such Loan Party was required to file a report with the PBGC, and the
present value of all benefit liabilities under each Benefit Plan (based on
those assumptions used to fund such Benefit Plan) did not, as of the last
annual valuation date applicable thereto, exceed the value of the Properties of
such Benefit Plans. No Loan Party has any ERISA Affiliates (other than the
Loan Parties) or Multiemployer Plans. The Borrower has no Benefit Plans.
SECTION 4.12. Payment of Taxes. Each Loan Party has filed all
federal, state and local tax returns and other reports required by Requirements
of Law to have been filed by such Loan Party and has paid (prior to
delinquency) all taxes and other similar charges and assessments that are due
and payable, including extensions, except taxes, charges and assessments which
are being diligently contested in good faith by appropriate proceedings and any
Lien arising thereunder constitutes a Permitted Lien. No Responsible Officer
of the Parent Guarantor has knowledge of any proposed tax assessment against
any Loan Party that is likely to result in a Material Adverse Effect.
SECTION 4.13. Environmental Matters. Except as disclosed on Schedule
4.13 or as could not reasonably be expected to result in a liability in excess
of $50,000:
(a) Each Loan Party and each operator of the Mortgaged Properties
is in compliance with all applicable Environmental Laws;
-27-
33
(b) Each Loan Party has obtained, all Governmental Approvals
required under applicable Environmental Laws to operate its business as
presently conducted or as proposed to be conducted and all such Governmental
Approvals are in full force and effect and each Loan Party is in compliance
with all terms and conditions of such Governmental Approvals;
(c) None of the Loan Parties nor any of the present Property or
operations (including without limitation, the Mortgaged Properties) or the past
Property or operations of any Loan Party is subject to any order from or
agreement with any Governmental Authority or private party respecting (i)
failure to comply with any Environmental Law or any Remedial Action, or (ii)
any Environmental Liabilities arising from the Release or threatened Release of
a Hazardous Substance into the environment except those orders and agreements
with which such Loan Party has complied;
(d) None of the operations of any Loan Party is subject to any
judicial or administrative proceeding alleging a violation of, or liability
under, any Environmental Law;
(e) To the knowledge and belief of the Loan Parties after
reasonable and good faith inquiry with respect thereto, none of the operations
of any Loan Party is the subject of any investigation by any Governmental
Authority evaluating whether any Remedial Action is needed to respond to a
Release or threatened Release of a Hazardous Substance into the environment;
(f) No Loan Party has filed any notice under any Environmental Law
indicating past or present treatment, storage or disposal of a Hazardous
Substance under 40 CFR Part 261 or any state or local equivalent;
(g) No Loan Party has filed any notice under any applicable
Environmental Law reporting a Release of a Hazardous Substance (other than
minor or de minimis emissions or releases) into the environment;
(h) There is not now, nor, to the knowledge and belief of the Loan
Parties (after reasonable and good faith inquiry with respect thereto) has
there ever been, on or in any Property of any Loan Party (including without
limitation, the Mortgaged Properties):
(i) any generation, treatment, recycling, storage or disposal
of any Hazardous Substance under 40 CFR Part 261 or any state or local
equivalent, except the storage of Hazardous Substances in compliance
with all applicable Environmental Laws,
(ii) any underground storage tanks or surface impoundments,
except pits incidental to oil and gas ▇▇▇▇▇ which are in compliance
with all applicable Environmental Laws,
(iii) any asbestos-containing material, or
(iv) any polychlorinated biphenyls (PCBs) used in hydraulic
oils, electrical transformers or other equipment;
(i) There have been no written commitments or agreements involving
a Loan Party from or with any Governmental Authority or any private entity
(including, without limitation, the owner of the Property or any portion
thereof) relating to the generation, storage, treatment, presence, Release, or
-28-
34
threatened Release of any Hazardous Substance on or into any of the Properties
of the such Loan Party (including without limitation, the Mortgaged Properties)
or the environment (including off-site disposal of toxic wastes or Hazardous
Substances) or any Remedial Action with respect thereto;
(j) No Loan Party has received any written notice or claim to the
effect that it is or may be liable to any Person as a result of the Release or
threatened Release of a Hazardous Substance into the environment;
(k) No Loan Party has any known liability in connection with any
material Release or material threatened Release of any Hazardous Substances
into the environment; and
(l) After due inquiry, no Environmental Lien has attached to any
Properties of any Loan Party (including without limitation, the Mortgaged
Properties).
SECTION 4.14. Governmental Regulation. No Loan Party is subject to
regulation under the Interstate Commerce Act, as amended, the Investment
Company Act of 1940, as amended, the Public Utility Holding Company Act of
1935, as amended, the Federal Power Act, as amended, or any other Requirements
of Law such that its ability to incur indebtedness is limited or its ability to
consummate the transactions contemplated by this Credit Agreement and the other
Loan Documents or any document executed in connection therewith is impaired.
SECTION 4.15. Disclosure.
(a) All information contained in any financial statements,
certificates, exhibits, schedules, operating statements and any other
statements and written information (excluding estimates and forecasts)
furnished by or on behalf of any Loan Party to the Lender, (taken as a whole)
in connection with any transaction contemplated hereby or by any other Loan
Document on or prior to the date this representation is made or deemed made,
were, and will be, true, complete and correct in all material respects and do
not, and will not, contain any material misstatement of fact or omit to state a
material fact necessary in order to make the statements contained therein, in
light of the circumstances under which they were made, not misleading.
(b) The Initial Engineering Report accurately reflects in all
material respects, the ownership interests in the oil and gas properties
referred to therein (including all before and after payout calculations).
SECTION 4.16. Subsidiaries; Partnerships. The Borrower has no
Subsidiaries. Except as disclosed on Schedule 4.16, the Borrower is not a
partner or member in any limited liability company, joint venture, partnership
or unincorporated association. For purposes of this Section, it is understood
and agreed that the Borrower's participation in joint ownership and development
of Oil and Gas Interests as an undivided interest owner pursuant to the terms
of a joint operating agreement or other similar agreement entered into in the
ordinary course of business of the Borrower shall not constitute the Borrower
being a venturer or partner in any joint venture or partnership, provided that
each such operating agreement or similar agreement specifically states that no
partnership or joint venture is created or intended to be created pursuant to
such agreement.
SECTION 4.17. Security. (a) The Security Agreement contains a
description of all of the material assets and properties of the Borrower (other
than the general partner interest owned by the Borrower in
-29-
35
HEP) sufficient to grant to the Lender, a legal, valid, and enforceable Lien in
all right, title and interest of the Borrower in said Collateral pursuant to
applicable law.
(b) The provisions of the Parent Pledge Agreement are effective to
grant to the Lender, a legal, valid, and enforceable Lien in all right, title
and interest of the Parent Guarantor in the Collateral described therein.
(c) The provisions of the GP Pledge Agreement are effective to grant
to the Lender, a legal, valid, and enforceable Lien in all right, title and
interest of Hallwood GP in the Collateral described therein.
SECTION 4.18. Solvency. No Loan Party (i) is "insolvent" (within the
meaning of Section 101(32) of the Bankruptcy Code, Section 2 of the Uniform
Fraudulent Conveyance Act or Section 2 of the Uniform Fraudulent Transfer Act)
or will become insolvent as a result of the incurrence of any obligation under
any Loan Document to which it is a party; (ii) has unreasonably small capital
(after giving effect to the transactions contemplated in any Loan Document to
which it is a party) for the conduct of its existing and contemplated business;
or (iii) is able to perform its contingent obligations and other commitments as
they mature in the normal course of business.
SECTION 4.19. Business; Compliance with Laws. None of the Borrower,
Hallwood Energy Corporation, HEP and Hallwood GP has conducted and is now
conducting any business other than business relating to the exploration,
development, financing, acquisition, ownership, operation, maintenance,
storage, transporting, processing and marketing of Hydrocarbons and other Oil
and Gas Interests as currently conducted. Each Loan Party has conducted its
business and affairs in compliance with all Requirements of Law applicable
thereto.
SECTION 4.20. Licenses, Permits, Etc. Each Loan Party possess such
Governmental Approvals as are necessary to carry on their respective businesses
as now conducted and as proposed to be conducted, except to the extent a
failure to obtain any such item would not result in a Material Adverse Effect.
SECTION 4.21. Location of the Loan Parties. The principal place of
business of each of the Borrower and Hallwood GP is Denver, Colorado and the
Borrower's chief executive office is located at ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇. The Parent Guarantor's principal place of
business Dallas, Texas and the chief executive office of Hallwood GP and the
Parent Guarantor is located at ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇▇▇-▇▇▇▇.
SECTION 4.22. Gas Imbalances. Except as set forth on Schedule 4.22
or specifically disclosed in the consolidated financial statements of the
Parent Guarantor and its Consolidated Subsidiaries or the Initial Engineering
Report, there are no gas imbalances, take or pay or other prepayments with
respect to the Borrower's Oil and Gas Interests which would require the
Borrower to deliver Hydrocarbons produced from any of the Borrower's Oil and
Gas Interests at some future time without then or thereafter receiving full
payment therefor which would exceed $25,000 in the aggregate.
SECTION 4.23. Fiscal Year. The Borrower's Fiscal Year is January 1
through December 31.
ARTICLE V
AFFIRMATIVE COVENANTS
-30-
36
So long as this Credit Agreement shall remain in effect or the
principal of or interest on the Loan, or any fee, expense, compensation or any
other amount payable under any Loan Document shall remain unpaid or
outstanding, unless the Lender shall otherwise consent in writing, each of the
Loan Parties covenants and agrees that:
SECTION 5.1. Information. The Loan Parties shall deliver, or cause
to be delivered, to the Lender:
(i) as soon as available, and in any event within sixty (60)
days after the end of the first three (3) fiscal quarters in each
Fiscal Year of the Parent Guarantor, the unaudited Consolidated and
consolidating balance sheet of the Parent Guarantor and its
Consolidated Subsidiaries as at the end of such quarterly period and
year to date period then ended, and the related unaudited Consolidated
and consolidating statements of income and cash flows for such
quarterly period and for the portion of the Fiscal Year ended with the
last day of such quarterly period, and in each case setting forth
comparative figures for the related periods in the prior Fiscal Year,
all in reasonable detail prepared in a manner satisfactory to the
Lender, and certified by a Responsible Officer of the Parent Guarantor
responsible for the administration of the finances and accounting
practices of the Parent Guarantor that such financial statements
fairly present the Consolidated financial condition and results of
operations of, respectively, the Parent Guarantor and its Consolidated
Subsidiaries in accordance with GAAP for the Fiscal Quarter and year
to date period then ended, subject to changes resulting from normal
year-end audit adjustments.
(ii) as soon as available, and in any event within one hundred
twenty (120) days after the close of each Fiscal Year of the Parent
Guarantor, the audited Consolidated balance sheet of the Parent
Guarantor as of the end of such Fiscal Year and the related audited
Consolidated statements of income, cash flows and shareholders' equity
of the Parent Guarantor for such Fiscal Year, setting forth the
comparative figures for the preceding Fiscal Year all audited by
Deloitte Touche or other independent certified public accountants of
recognized national standing satisfactory to the Lender and
accompanied by an unqualified opinion of such accountants to the
effect that such Consolidated financial statements present fairly, in
all material respects, the financial position and results of
operations and cash flows of the Parent Guarantor and its Consolidated
Subsidiaries, on a Consolidated basis, in accordance with GAAP.
(iii) as soon as practicable, and in any event within sixty
(60) days after the end of each Fiscal Quarter in each Fiscal Year of
the Borrower, the unaudited balance sheet of the Borrower as at the
end of such quarterly period and year to date period then ended, and
the related unaudited statements of income and cash flows for such
quarterly period and for the portion of the Fiscal Year ended with the
last day of such quarterly period, and in each case setting forth
comparative figures for the related periods in the prior Fiscal Year,
all in reasonable detail prepared in a manner satisfactory to the
Lender, and certified by a Responsible Officer of the Borrower
responsible for the administration of the finances and accounting
practices of the Borrower that such financial statements fairly
present the financial condition and results of operations of the
Borrower in accordance with GAAP for the Fiscal Quarter and year to
date period then ended, subject to changes resulting from normal
year-end audit adjustments.
(iv) together with the delivery of statements referred to in
subclauses (i), (ii), and (iii) above, a Compliance Certificate, in
form and substance satisfactory to the Lender, signed by a
-31-
37
Responsible Officer of the Parent Guarantor responsible for the
administration of the finances and accounting practices of the Parent
Guarantor, stating that the signer has reviewed the terms of this
Credit Agreement and the other Loan Documents and stating whether or
not he has knowledge of any such Default or Event of Default and, if
so, specifying each such condition or event of which he has knowledge
and the nature thereof and any corrective action taken or proposed to
be taken with respect thereto. Such Compliance Certificate shall set
forth the calculations required to establish compliance with the
financial covenants set forth in Section 6.14 for the fiscal period
covered by such financial statements.
(v) promptly and in any event within five (5) Business Days
after any Responsible Officer of any Loan Party obtains knowledge
thereof, notice of (aa) the institution of or threat in writing of,
any material action, suit, proceeding, governmental investigation or
arbitration against or affecting any Loan Party not previously
disclosed in writing to the Lender, which if adversely determined,
could reasonably be expected to result in a Material Adverse Effect,
or any material adverse development in any Existing Litigation, or
(bb) the occurrence of any event which constitutes a Default or Event
of Default, such notice to specify the nature and period of existence
of such Default or Event of Default, and what action the Loan Parties
have taken, are taking or propose to take with respect thereto.
(vi) promptly upon receipt thereof, one copy of each other
report submitted to the Parent Guarantor or to the Borrower by
independent accountants in connection with any annual, interim or
special audit made by them of the books of such Person.
(vii) promptly upon their becoming available, one copy of
each financial statement and proxy statement sent or made available by
any Loan Party to its security holders, of each regular or periodic
report and any registration statement, prospectus or written
communication (other than transmittal letters) in respect thereof
filed by such Loan Party with any securities exchange or the
Securities and Exchange Commission or any successor agency, and of all
press releases and other statements made available generally by each
Loan Party to the public concerning material developments in the
business of such Loan Party.
(viii) promptly upon request therefor by the Lender, copies
of such title opinions and other information in the Borrower's
possession, control or direction regarding title to the Mortgaged
Properties as are appropriate to determine the status of title with
respect thereto.
(ix) promptly upon receipt of same, copies of any notice or
other information received by any Loan Party indicating any potential,
actual or alleged (aa) non-compliance with or violation of the
requirements of any Environmental Law which could reasonably be
expected to result in liability to such Loan Party for fines, clean up
or any other remediation obligations or any other liability in excess
of $50,000, individually or in the aggregate; (bb) release or
threatened release of any toxic or hazardous waste, substance, or
constituent, or other substance into the environment which release
would impose on such Loan Party a duty to report to a Governmental
Authority or to pay cleanup costs or to take remedial action under any
Environmental Law which is likely to result in liability to such Loan
Party for fines, clean up and other remediation obligations or any
other liability in excess of $50,000 in the aggregate; or (cc) the
existence of any Lien arising under any Environmental Law securing any
obligation to pay fines, clean up or other remediation costs or any
other liability in excess of $50,000 in the aggregate.
-32-
38
(x) promptly (but in all events within five (5) Business
Days) after any Responsible Officer of any Loan Party becomes aware of
the occurrence of any Default, a certificate of such Responsible
Officer setting forth the details thereof and the action which the
Loan Parties are taking or propose to take with respect thereto.
(xi) by April 1 and August 1 of each year, an engineering
report in form and substance reasonably satisfactory to the Lenders
which may be prepared by or under the supervision of a petroleum
engineer who may be an employee of the Loan Parties, which shall
evaluate the Mortgaged Property as of the preceding December 31 or
June 30, respectively, together with reports prepared by the personnel
of the Loan Parties setting forth the production volumes, revenue,
prices received, and expenses for all Oil and Gas Interests owned by
the Borrower for the most recent six (6) month period ending December
31 or June 30, as the case may be. Such reports shall be prepared on a
cash basis and shall be reported on a well by well, lease by lease or
field by field basis or on such other basis for which such Properties
are normally reported in the Borrower's ordinary course of business.
(xii) promptly notify the Lender of any material adverse
change in the business, financial condition, operations or prospects
of the any Loan Party.
(xiii) from time to time promptly furnish such additional
information regarding the financial position or business of the Loan
Parties as the Lender may reasonably request.
SECTION 5.2. Payment and Performance. Each of the Loan Parties will
pay all amounts due under each Loan Document to which it is a party in
accordance with the terms thereof and will observe, perform and comply with
every covenant, term and condition expressed or implied therein.
SECTION 5.3. Business of the Borrower. The primary business of the
Borrower is and will continue to be the acquisition, exploration for,
development, production, transportation, processing and marketing of
Hydrocarbons and accompanying elements and serving as the general partner of
HEP.
SECTION 5.4. Existence. Each Loan Party shall maintain its (i)
partnership or corporate, as applicable, existence, rights and franchises and
good standing in the jurisdiction of its organization or incorporation, and
(ii) qualification and good standing in all jurisdictions in which such
qualification and good standing are necessary in order for the such Loan Party
or such Subsidiary to conduct its business and own its Property as conducted
and owned in such jurisdiction except where the failure to be so qualified or
in good standing would not, individually or in the aggregate, result in a
Material Adverse Effect.
SECTION 5.5. Right of Inspection. Each Loan Party will permit, and
will cause each Subsidiary of such Loan Party to permit, any officer, employee
or agent of the Lender to visit and inspect any of the Properties of such Loan
Party (including without limitation, the Mortgaged Properties), examine such
Loan Party's books of record and accounts, take copies and extracts therefrom,
and discuss the affairs, finances and accounts of such Loan Party with such
Loan Party's officers, accountants and auditors, all at such reasonable times
and during normal business hours and as often as the Lender may reasonably
desire.
SECTION 5.6. Maintenance of Insurance. Each Loan Party maintains
and will cause to be maintained with financially sound and reputable insurers,
insurance with respect to the Property and
-33-
39
business of such Loan Party against such liabilities, casualties, risks and
contingencies and in such types and amounts as is customary in the case of
Persons engaged in the same or similar businesses and similarly situated. Upon
request of the Lender, the Loan Parties will furnish or cause to be furnished
to the Lender from time to time a summary of such insurance in form and
substance satisfactory to the Lender. In the case of any fire, accident or
other casualty causing loss or damage to any Collateral, the proceeds of such
policies shall be used (i) to repair or replace the damaged Collateral, or (ii)
to prepay the Obligations.
SECTION 5.7. Payment of Taxes and Claims. Each Loan Party will pay
(i) all taxes imposed upon it or any of its Properties or with respect to any
of its franchises, business, income or profits before any material penalty or
interest accrues thereon and (ii) all material claims (including, without
limitation, claims for labor, services, materials and supplies) for sums which
have become due and payable and which by law have or might become a Lien (other
than a Permitted Lien) on any of its Properties; provided, however, no payment
of taxes or claims shall be required if (i) the amount, applicability or
validity thereof is currently being contested in good faith by appropriate
action promptly initiated and diligently conducted in accordance with good
business practices and no material part of the Properties of such Loan Party
are subject to levy or execution, (ii) such Loan Party as and to the extent
required in accordance with GAAP, shall have set aside on its books reserves
(segregated to the extent required by GAAP) deemed by it to be adequate with
respect thereto, and (iii) to the extent the amount of the contested taxes or
claims are in excess of $50,000 (in the aggregate), such Loan Party has
notified the Lender of such circumstances, in detail satisfactory to the
Lender.
SECTION 5.8. Compliance with Laws and Documents. Each Loan Party
will comply with all Requirements of Law, its certificate (or articles) of
incorporation, bylaws, certificate of limited partnership, Partnership
Agreement and similar organizational documents and all material Contractual
Obligations to which such Loan Party is a party, if a violation, alone or when
combined with all other such violations, could reasonably be expected to result
in a Material Adverse Effect.
SECTION 5.9. Maintenance of Ownership of Oil and Gas Interests.
Except as expressly permitted by the terms of this Credit Agreement and except
for Immaterial Oil and Gas Interests, the Borrower shall maintain at all times
(i) a net revenue interest in the Mortgaged Properties not less than the net
revenue interest set forth in Initial Engineering Report, and (ii) a working
interest in the Mortgaged Properties not greater than the working interest set
forth in the Initial Engineering Report.
SECTION 5.10. Operation of Properties and Equipment.
(a) Each Loan Party will maintain and operate its Properties
(including without limitation, the Mortgaged Properties) in a good and
workmanlike manner, and, with respect to the Mortgaged Properties, observe and
comply, in all material respects, with all of the terms and provisions, express
or implied, of all oil and gas leases relating to such Mortgaged Properties so
long as such Mortgaged Properties are capable of producing Hydrocarbons and
accompanying elements in paying quantities.
(b) The Borrower will comply, and will use its best efforts to
cause the operator of the Mortgaged Properties to comply, in all material
respects with all material Contractual Obligations applicable to or relating to
the Mortgaged Properties.
(c) Each Loan Party will maintain, preserve and keep at all times,
all equipment used with respect to their respective businesses in proper
repair, working order and condition, and make all necessary
-34-
40
or appropriate repairs, renewals, replacements, additions and improvements
thereto so that the efficiency of such operating equipment shall at all times
be properly preserved and maintained; provided that no item of operating
equipment need be so repaired, renewed, replaced, added to or improved, if the
Borrower shall in good faith determine that such action is not necessary or
desirable for the continued efficient and profitable operation of the business
of such Loan Party.
(d) The Loan Parties shall make all reasonable efforts to provide
to Lender within ninety days after the Effective Date the information or
documentation set forth in that certain Memorandum dated December 2, 1996 from
D. ▇▇▇▇ ▇▇▇▇▇▇▇▇ to Lender, all in form and substance satisfactory to Lender
and its counsel.
SECTION 5.11. Environmental Law Compliance and Indemnity. Each Loan
Party will comply in all material respects with all Environmental Laws binding
on such Loan Party or such Subsidiary, including, without limitation, (i) all
licensing, permitting, notification and similar requirements of Environmental
Laws, and (ii) all provisions of all Environmental Laws regarding storage,
discharge, release, transportation, treatment and disposal of Hazardous
Substances. Each Loan Party will promptly pay and discharge when due, all
debts, claims, liabilities and obligations with respect to any clean-up or
remediation measures necessary to comply with Environmental Laws binding on
such Loan Party. Each Loan Party hereby indemnifies, and agrees to defend and
hold harmless the Lender and its agents, affiliates, officers, directors, and
employees from and against any and all claims, losses, demands, actions, causes
of action, and liabilities whatsoever (including without limitation reasonable
attorney's fees and expenses, and costs and expenses reasonably incurred in
investigating, preparing or defending against any litigation or claim, action,
suit, proceeding or demand of any kind or character) arising out of or
resulting from the contamination by any Hazardous Substance or environmental
pollutant in violation of any federal, state or local Environmental Laws,
including without limitation violation of the Comprehensive Environmental
Response, Compensation and Liability Act, as amended from time to time, or of
the Resource Conservation and Recovery Act, as amended from time to time; but
excluding any such losses, liabilities, claims, damages, expenses, penalties,
actions, judgments, suits, costs or disbursements resulting from the gross
negligence or willful misconduct of such indemnitee.
SECTION 5.12. ERISA Reporting Requirements. Each Loan Party shall
furnish or cause to be furnished to Lender:
(a) Promptly and in any event (i) within fifteen (15) days after
such Loan Party or any ERISA Affiliate knows or has reason to know that any
Reportable Event described in clause (a) of the definition of Reportable Event
or any event described in section 4063(a) of ERISA with respect to any Benefit
Plan of such Loan Party or any ERISA Affiliate has occurred, and (ii) within
ten (10) days after such Loan Party or any ERISA Affiliate knows or has reason
to know that any other Reportable Event with respect to any Benefit Plan of
such Loan Party or any ERISA Affiliate has occurred or a request for minimum
funding waiver under section 412 of the Code with respect to any Benefit Plan
of such Loan Party or any ERISA Affiliate has been made, a written notice
describing such event and describing what action is being taken or is proposed
to be taken with respect thereto, together with a copy of any notice of event
that is given to the PBGC;
(b) Promptly and in any event within five (5) Business Days after
receipt thereof by any Loan Party or any ERISA Affiliate from the PBGC, copies
of each notice received by such Loan Party or any
-35-
41
ERISA Affiliate of the PBGC's intention to terminate any Benefit Plan or to
have a trustee appointed to administer any Benefit Plan;
(c) Promptly and in any event within fifteen (15) days after the
receipt by any Loan Party of a request therefor by the Lender, copies of any
annual and other report (including Schedule B thereto) with respect to a
Benefit Plan filed by such Loan Party or any ERISA Affiliate with the United
States Department of Labor, the IRS or the PBGC;
(d) Promptly, and in any event within ten (10) Business Days after
receipt thereof, a copy of any correspondence any Loan Party or any ERISA
Affiliate receives from the Plan Sponsor (as defined by section 4001(a)(10) of
ERISA) of any Benefit Plan asserting withdrawal liability pursuant to section
4219 or 4202 of ERISA upon such Loan Party or any ERISA Affiliate, and a
statement from a Responsible Officer of such Loan Party or such ERISA Affiliate
setting forth details as to the events giving rise to such withdrawal liability
and the action which such Loan Party or such ERISA Affiliate is taking or
proposes to take with respect thereto;
(e) Notification within three (3) Business Days after any Loan
Party or any ERISA Affiliate knows or has reason to know that such Loan Party
or any such ERISA Affiliate has or intends to file a notice of intent to
terminate any Benefit Plan under a distress termination within the meaning of
section 4041(c) of ERISA and a copy of such notice; and
(f) Promptly after receipt of written notice of commencement
thereof, notice of all (i) claims made by participants or beneficiaries with
respect to any Benefit Plan and (ii) actions, suits and proceedings before any
Governmental Authority affecting any Loan Party or any ERISA Affiliate with
respect to any Benefit Plan, except those which, in the aggregate, if adversely
determined could not result in a Material Adverse Effect.
SECTION 5.13. Security.
(a) The Obligations will be secured by the Security Instruments
and any additional Security Instruments hereafter delivered by any Loan Party
and accepted by Lender. The Loan Parties will at all times cause (i) all of the
Oil and Gas Interests of the Borrower, (ii) all of the outstanding capital
stock of Hallwood GP, (iii) all of the outstanding partnership interests in the
Borrower, (iii) all of issued and outstanding Class A and Class C limited
partnership interests in HEP owned by any Loan Party, to be subject to valid
first-priority Liens in favor of the Lender pursuant to the Security
Instruments.
(b) The Loan Parties will from time to time deliver to the Lender
any financing statements, continuation statements, extension agreements and
other documents, properly completed and executed (and acknowledged when
required) by such Loan Party in form and substance satisfactory to the Lender,
which the Lender reasonably requests for the purpose of perfecting, confirming,
or protecting any Liens or other rights in Collateral securing any Obligations.
(c) Notwithstanding that, by the terms of the Deed of Trust, the
Borrower is and will be assigning to the Lender all of the "Production
Proceeds" (as defined therein) accruing to the property covered thereby, so
long as no Default has occurred the Borrower may continue to receive from the
purchasers of production all such Production Proceeds, subject, however, to the
Liens created under the Deed of Trust, which Liens are hereby affirmed and
ratified. Upon the occurrence of a Default, the Lender
-36-
42
may exercise all rights and remedies granted under the Deed of Trust, including
the right to obtain possession of all Production Proceeds then held by the
Borrower or to receive directly from the purchaser of production all other
Production Proceeds. In no case shall any failure, whether purposed or
inadvertent, by the Lender to collect directly any such Production Proceeds
constitute in any way a waiver, remission or release of any of its rights under
the Deed of Trust, nor shall any release of any Production Proceeds by the
Lender to the Borrower constitute a waiver, remission, or release of any other
Production Proceeds or of any rights of the Lender to collect other Production
Proceeds thereafter.
(d) Upon the request of the Lender at any time after the Parent
Guarantor has repaid its existing $4,000,000 promissory note issued payable to
the order of the Integra Unsecured Creditors' Trust (the "Trust") and such
Trust has returned the 517,242 shares of the common stock of ShowBiz Pizza
Time, Inc. ("ShowBiz"), or any part thereof, to the Parent Guarantor, the
Parent Guarantor shall amend the Parent Pledge Agreement to include such of the
shares of ShowBiz stock returned to the Parent Guarantor by the Trust having a
market value on the date of such amendment of $1,000,000, and subject such
shares to a valid first-priority Lien in favor of the Lender pursuant to the
provisions of the Parent Pledge Agreement.
SECTION 5.14. Permits, Licenses. Each Loan Party shall maintain all
material Properties, Governmental Approvals, and other third party consents,
licenses, patents, copyrights, trademarks, service marks, trade names, permits
and other approvals and authorizations necessary to conduct its business,
including, without limitation all Governmental Approvals and third party
consents, permits, licensees and agreements relating to the Mortgaged
Properties.
SECTION 5.15. Further Assurances. Each Loan Party will promptly cure
any defects in the execution and delivery of the Loan Documents. Each Loan
Party at its expense will promptly execute and deliver to the Lender all such
other and further documents, agreements and instruments in compliance with or
accomplishment of the covenants and agreements of such Loan Party in the Loan
Documents, or to further evidence and more fully describe the Collateral
intended as security for the Obligations, or to correct any omissions in the
Security Instruments, or more fully to state the security obligations set out
herein or in any of the Security Instruments, or to perfect, protect or
preserve any Liens created pursuant to any of the Security Instruments, or to
make any recordings, to file any notices, or obtain any consents, all as may be
necessary or appropriate in connection therewith.
SECTION 5.16. Title Assurances. The Borrower shall furnish or cause
to be furnished to the Lender such information in its possession or reasonably
available to it with respect to title to the Mortgaged Properties as the Lender
may reasonably request and shall cooperate with the Lender and its counsel in
analyzing and, where appropriate in the reasonable opinion of the Lender,
correcting defects in such title.
SECTION 5.17. Performance of Partnership Agreement. The Borrower will
perform and observe in all material respects the provisions of its Partnership
Agreement on its part to be performed or observed prior to the termination
thereof. The Parent Guarantor will cause HEP to perform and observe in all
material respects the provisions of its Partnership Agreement on its part to be
performed or observed prior to the termination thereof, unless and to the
extent only that the same shall be contested in good faith by appropriate
action by or on behalf of HEP.
ARTICLE VI
-37-
43
NEGATIVE COVENANTS OF THE BORROWER
So long as this Credit Agreement shall remain in effect or the
principal of or interest on the Loan, or any fee, expense, compensation or any
other amount payable under any Loan Document shall remain unpaid or
outstanding, unless the Lender shall otherwise consent in writing, each of the
Loan Parties covenants and agrees that:
SECTION 6.1. Debt. The Borrower will not create, incur, assume,
suffer to exist or otherwise become or remain liable with respect to, any Debt
or Accommodation Obligation, except for:
(a) Debt and Accommodation Obligations arising hereunder and under
the other Loan Documents;
(b) Endorsements of negotiable instruments for collection in the
ordinary course of business;
(c) Unsecured accounts payable and expense accruals incurred or
assumed in the ordinary course of business, provided such accounts payable have
not remained unpaid for a period of thirty (30) days after the same became due
unless currently being contested in good faith or by appropriate proceedings
and as to which such reserve as is required by GAAP has been made;
(d) Liabilities for taxes, assessments, governmental charges or
levies;
(e) Obligations under the Interest Rate Protection Agreement; and
(f) General Partner liability of the Borrower for the Debt of HEP
or HEP Operating Partners, L.P. arising solely as a result of its being the
general partner of HEP and of HEP Operating Partners, L.P.
SECTION 6.2. Restrictions on Distributions. The Borrower will not
directly or indirectly declare or make or incur any liability to make
Distributions, nor will the Borrower directly or indirectly make any capital
contribution to or purchase, redeem, acquire or retire any partnership
interests in the Borrower (whether such interests are now or hereafter issued,
outstanding or created), or cause or permit any reduction or retirement of the
partnership interests of Borrower.
SECTION 6.3. Liens; Negative Pledge. The Borrower will not create,
incur, assume or suffer to exist any Lien on any Property of the Borrower
(including without limitation, the Mortgaged Properties), other than Permitted
Liens. The Borrower will not enter into or become subject to any agreement
(other than this Credit Agreement) that prohibits or otherwise restricts the
right of the Borrower to create, incur, assume or suffer to exist Liens on any
of its Property. The Parent Guarantor will not create, incur, assume or suffer
to exist any Lien on any Collateral of the Parent Guarantor. The Parent
Guarantor will not create, incur, assume or suffer to exist any Lien on 413,794
shares of ShowBiz stock pledged as of the Effective Date to the Trust (the
"Designated Showbiz Stock") other than the Lien in favor of the Trust or Liens
in favor of the Lender. Neither Hallwood GP nor the Parent Guarantor will enter
into or become subject to any agreement (other than Contractual Obligations in
existence on the Effective Date and this Credit Agreement) that prohibits or
otherwise restricts the right of Hallwood GP or the Parent Guarantor to create,
incur, assume or suffer to exist Liens on any of its Property.
-38-
44
SECTION 6.4. Consolidation, Mergers and Acquisitions; Fundamental
Changes. The Borrower shall not merge or consolidate with or acquire
substantially all of the outstanding capital stock or Properties of any other
Person or liquidate, wind up or dissolve (or suffer any liquidation or
dissolution), or convey, lease, sell, transfer or otherwise dispose of, in one
transaction or series of transactions, all or any substantial part of its
business, Properties, whether now or hereafter acquired, except for
transactions in the nature of a consolidation and/or merger involving the
Borrower in which the Borrower is the surviving entity, subject to the
condition that immediately after such merger or consolidation and after giving
effect and pro forma effect thereto for the immediately preceding twelve-month
period, no Event of Default or Default shall have occurred, exist or be
continuing. The Borrower shall not purchase, redeem, retire or otherwise
acquire for value any of its partnership interests now or hereafter
outstanding.
SECTION 6.5. Investments. The Borrower shall not make, directly or
indirectly, any Investments, except:
(a) Investments existing on the date hereof and disclosed on
Schedule 6.5;
(b) Investments consisting of Cash Equivalents;
(c) Loans made to the Parent Guarantor, provided (i) no payment of
principal, interest, or other amounts required hereunder or under the Loan
Documents has become due and has not been paid, (ii) no Default or Event of
Default has occurred, is continuing and has not been waived by the Lender or
would occur as a result of the making of such loan, and (iii) after giving
effect to the proposed loan the Borrower is in compliance with covenants
contained in Section 6.15 as of (and as if the most recently ended fiscal
quarter of the Borrower had ended on) the date such loan made;
(d) Accounts receivable from customers in the ordinary course of
business;
(e) Investments in connection with or related to farm-out,
farm-in, joint operating, joint venture or area of mutual interest agreements,
gathering systems, pipelines or other similar or customary arrangements, and
the performance of Borrower's obligations thereunder in accordance with prudent
operating standards and in the ordinary course of business, but only insofar as
they do not (i) reduce the net revenue interest of the Borrower in any
Mortgaged Property below the undivided net revenue interest specified for the
Borrower in Exhibit A to the Deed of Trust, and/or (ii) increase the undivided
working interest specified for the Borrower in Exhibit A to the Deed of Trust.
SECTION 6.6. Transactions with Affiliates. The Borrower shall not
enter into, or be a party to any transaction with any of Affiliate or partner,
except for (i) the transactions provided for in the Loan Documents, (ii)
Investments permitted pursuant to Section 6.5(c), or (iii) transactions entered
into in the ordinary course of business and pursuant to the reasonable
requirements of the Borrower's business and upon such fair and reasonable terms
as could reasonably be obtained in a arm's length transaction with an
unaffiliated Person in accordance with prevailing industry customs and
practices.
SECTION 6.7. Certain Contracts; Amendments. The Borrower shall not
enter into any "take-or-pay" contract or other contract or arrangement for the
purchase of goods or services which is a material Contractual Obligation and
obligates it to pay for such goods or service regardless of whether they are
delivered or furnished to it. The Borrower shall not amend or permit any
amendment to any material
-39-
45
Contractual Obligation or lease which releases, qualifies, limits, makes
contingent or otherwise detrimentally affects any material right or benefit of
the Lender under or acquired pursuant to any Loan Document. The Borrower shall
not enter into any contract, agreement or transaction which at the time such
contract, agreement or transaction was entered into could reasonably be
expected to result in a Material Adverse Effect.
SECTION 6.8 Amendments to Organizational Documents. The Borrower
shall not enter into or permit any modification or amendment of, or waive any
material right or obligation of any Person under, or terminate its Certificate
of Limited Partnership, Partnership Agreement, or other organizational document
other than amendments, modifications and waivers which are not, individually or
in the aggregate, material. The Parent Guarantor shall not enter into or permit
any modification or amendment of, or waive any material right or obligation of
any Person under, or terminate the Certificate of Limited Partnership,
Partnership Agreement, or other organizational documents of HEP other than
amendments, modifications and waivers which are not, individually or in the
aggregate, material.
SECTION 6.9. Subsidiaries, Partnerships. (a) The Borrower will not
form, create or otherwise have any Subsidiaries or become a general partner in
any partnership or joint venture other than those set forth on Schedule 4.16.
(b) The Borrower will at all times remain the sole general partner
of HEP and HEP Operating Partners, L.P.
SECTION 6.10. Sales of Properties. (a) The Borrower shall not sell,
assign, transfer, lease, convey or otherwise dispose of any of its Properties,
whether now owned or hereafter acquired, or any income or profits therefrom, or
enter into any agreement to do so, except:
(i) Sales of Hydrocarbons or inventory in the ordinary course of
its business provided that no contract for the sale of Hydrocarbons shall
obligate the Borrower to deliver Hydrocarbons produced from any of the
Mortgaged Properties at some future date without receiving full payment
therefor within 90 days of delivery; or
(ii) Sales or dispositions of worn out or obsolete tools or
equipment no longer used or useful in the business of the Borrower; or
(iii) Oil and Gas Interests not constituting, individually or in the
aggregate, all or substantially all of its Property for consideration not less
than the fair market value of such Oil and Gas Interests so long as the
aggregate net proceeds of all such sales by the Borrower do not exceed $50,000.
The Borrower shall not discount, sell, pledge or assign any notes payable to
it, accounts receivable or future income except to the extent expressly
permitted under the Loan Documents.
(b) The Parent Guarantor shall not sell, assign, transfer, lease,
convey or otherwise dispose of any of the Designated Showbiz Stock, whether now
owned or hereafter acquired, or any income or profits therefrom, or enter into
any agreement to do so.
SECTION 6.11. ERISA Compliance. The Borrower shall not engage in a
"prohibited transaction", as defined in Section 406 of ERISA or Section 4975 of
the Code, with respect to any Benefit
-40-
46
Plan or knowingly consent to any other "interested party" or any "disqualified
person", as such terms are defined in Section 3(14) of ERISA and Section
4975(e)(2) of the Code, respectively, engaging in any "prohibited transaction",
with respect to any Benefit Plan maintained by the Borrower or any ERISA
Affiliate, or permit any Benefit Plan maintained by the Borrower or such ERISA
Affiliate of the Borrower to incur any "accumulated funding deficiency", as
defined in Section 302 of ERISA or Section 412 of the Code, unless such
incurrence shall have been waived in advance by the IRS; or terminate any
Benefit Plan in a manner which could result in the imposition of a Lien on any
Property of the Borrower pursuant to Section 4068 of ERISA; or breach any
fiduciary responsibility imposed under Title I of ERISA with respect to any
Benefit Plan; engage in any transaction which would result in the incurrence of
a liability under Section 4069 of ERISA; or fail to make contributions to a
Benefit Plan which results in the imposition of a Lien on any Property of the
Borrower pursuant to Section 302(f) of ERISA or Section 412(n) of the Code, if
the occurrence of any of the foregoing events would constitute a Material
Adverse Effect. The Borrower shall not (nor will any trade or business,
whether or not incorporated, that is a member of a group of which the Borrower
is a member and which is treated as a single employer under Section 414 of the
Code) sponsor, maintain or contribute to any Multiemployer Plan(s). The
Borrower shall not become a member of any other group which is treated as a
single employer under Section 414 of the Code.
SECTION 6.12. Sales and Leasebacks. The Borrower shall not become
liable, directly or by way of Accommodation Obligation, with respect to any
lease or any Property (whether real or personal or mixed) whether now owned or
hereafter acquired, (i) which the Borrower has sold or transferred or is to
sell or transfer to any other Person, or (ii) which the Borrower intends to use
for substantially the same purposes as any other Property which has been or is
to be sold or transferred by the Borrower to any other Person in connection
with such lease.
SECTION 6.13. Fiscal Year. The Borrower shall not change its Fiscal
Year.
SECTION 6.14. Hedging Agreements. The Borrower will not at any time
become a party to a Hedging Agreement for any purpose except for bona fide
hedging purposes. Without limiting the generality of the foregoing, at any time
during any calendar year, the Borrower will not enter into any Hedging
Agreement with respect to natural gas or crude oil if, immediately after giving
effect to such transaction, the aggregate reference quantity of Hydrocarbons
with respect to all Hedging Agreements with respect to natural gas or crude oil
which the Borrower shall have entered into during such year exceeds 65% of the
aggregate natural gas and crude oil production of the Borrower for such year
(calculated on the basis of actual natural gas and crude oil production for
such year to date and a good faith estimate of the aggregate amount of such
production for the remainder of such year).
SECTION 6.15. Financial Covenants. From and after the Effective
Date, the Borrower shall not:
(a) Current Ratio. Permit the ratio of the Borrower's
Consolidated current assets (as determined in conformity with GAAP) to the
Borrower's Consolidated current liabilities (as determined in conformity with
GAAP) as of the end of any Fiscal Quarter to be less than 1.0 to 1.0. For
purposes of this subsection, "Borrower's Consolidated current liabilities" will
be calculated without including any payments of principal on the Note which are
required to be repaid within one year from the time of calculation.
(b) Cash Flow. Permit as of the end of any fiscal quarter the sum
of (i) EBITDA of the Borrower for such fiscal quarter plus (ii) Distributions
received by the Parent Guarantor in respect of its
-41-
47
units of limited partner interests in HEP during such fiscal quarter to be less
than 110% of scheduled interest and principal payments on the Obligations due
and payable during such fiscal quarter.
-42-
48
ARTICLE VII
EVENTS OF DEFAULT
SECTION 7.1. Events of Default. If any of the following events,
acts, occurrences or conditions (each an "Event of Default") shall occur and be
continuing:
(a) The Borrower shall fail to pay when due any principal of the
Loan. The Borrower shall fail to pay when due any accrued interest on the Loan
and such failure shall continue for two (2) Business Days; or
(b) Any Loan Party shall fail to pay when due the payment of any
fee, expense, compensation, reimbursement or other amount when due under this
Credit Agreement, the Note or any other Loan Document or other agreement or
document contemplated by or delivered pursuant to or in connection with this
Credit Agreement or such Loan Document or any material document executed in
connection therewith and, in any event, such failure shall continue for two (2)
Business Days after written notice thereof from the Lender to such Loan Party;
or
(c) Any Loan Party shall fail to perform or observe any term,
covenant or agreement contained in Section 3.2, or Article VI of this Credit
Agreement; or
(d) Any Loan Party shall fail to perform or observe any term,
covenant or agreement contained in Subsections 5.1(iv) or 5.1(v) of this
Credit Agreement and, in the case of any such failure that is capable of being
remedied, such failure shall not have been remedied within fifteen (15) days
after the earlier of (i) notice thereof from the Lender to such Loan Party and
(ii) discovery thereof by a Responsible Officer of such Loan Party; or
(e) Any Loan Party shall fail to perform any term, covenant or
agreement contained in this Credit Agreement other than those referenced in
Subsections 7.1(a), (b), (c) or (d), or in any other Loan Document to which
such Loan Party is a party and, in the case of any such failure that is capable
of being remedied, such failure shall not have been remedied within thirty (30)
days after the earlier of (i) notice thereof from the Lender to such Loan Party
and (ii) discovery thereof by a Responsible Officer of such Loan Party; or
(f) Any Termination Event occurs which would subject the Borrower
or Hallwood GP, to a liability in excess of $50,000, or the plan administrator
of any Benefit Plan applies under Section 412(d) of the Code for a waiver of
the minimum funding standards of Section 412(a) of the Code which would subject
the Borrower or Hallwood GP to a liability in excess of $50,000; or
(g) Any Termination Event occurs which would subject the Parent
Guarantor to a liability in excess of $500,000, or the plan administrator of
any Benefit Plan applies under Section 412(d) of the Code for a waiver of the
minimum funding standards of Section 412(a) of the Code which would subject the
Parent Guarantor to a liability in excess of $500,000; or
(h) Any representation, warranty, certificate or statement made or
incorporated by any Loan Party in any Loan Document to which such Loan Party is
a party or in any certificate, agreement or
-43-
49
instrument delivered in connection with, any Loan Document shall prove to have
been incorrect or misleading in any material respect when made or deemed made;
or
(i) (a) Either of the Borrower or Hallwood GP shall (i) fail
to pay any Debt having a principal amount in excess of $50,000 owing
by the Borrower, or any interest or premium thereon, when due (or, if
permitted by the terms of the relevant document, within any applicable
grace period), whether such Debt shall become due by scheduled
maturity, by required prepayment, by acceleration, by demand or
otherwise unless effectively waived or consented to in accordance with
the documents evidencing such Debt or (ii) fail to observe or perform
any material term, covenant or condition on its respective part to be
performed under any agreement or instrument evidencing, securing or
relating to any such Debt, when required to be performed, and such
failure shall continue after the applicable grace period, if any,
specified in such agreement or instrument if the effect of any failure
is to cause, or to permit the holder or holders of such Debt or a
trustee on its or their behalf (with or without the giving of notice,
the lapse of time, or both), to cause such Debt to become due prior to
its stated maturity; or
(b) The Parent Guarantor shall (i) fail to pay any Debt
having a principal amount in excess of $500,000 owing by the Parent
Guarantor, or any interest or premium thereon, when due (or, if
permitted by the terms of the relevant document, within any applicable
grace period), whether such Debt shall become due by scheduled
maturity, by required prepayment, by acceleration, by demand or
otherwise unless effectively waived or consented to in accordance with
the documents evidencing such Debt or (ii) fail to observe or perform
any material term, covenant or condition on its respective part to be
performed under any agreement or instrument evidencing, securing or
relating to any such Debt, when required to be performed, and such
failure shall continue after the applicable grace period, if any,
specified in such agreement or instrument if the effect of any failure
is to cause, or to permit the holder or holders of such Debt or a
trustee on its or their behalf (with or without the giving of notice,
the lapse of time, or both), to cause such Debt to become due prior to
its stated maturity; or
(j) Any Loan Document shall, at any time after its execution and
delivery and for any reason, cease to be in full force and effect or shall be
declared to be null and void, or the validity or enforceability thereof shall
be contested by any Person party thereto (other than the Lender) or any such
Person party thereto (other than the Lender) shall deny that it has any or
further liability or obligation thereunder, or the rights and/or benefits
afforded to the Lender thereunder are materially impaired. Any Security
Instrument shall for any reason not, or shall cease to, create valid and
perfected first-priority Liens against the Collateral purportedly covered
thereby other than as a result of the failure by the Lender to file
continuation statements as and when required by applicable Requirements of Law;
or
(k) Any Loan Party shall be adjudicated insolvent, or shall
generally not pay, or admit in writing its inability to pay, its debts as they
mature, or make a general assignment for the benefit of creditors, or any
proceeding shall be instituted by any such Person seeking to adjudicate it
insolvent, seeking liquidation, dissolution, winding-up, reorganization,
arrangement, adjustment, protection, relief or composition of it or its debts
under any Debtor Relief Law, or seeking the entry of an order for relief or the
appointment of a receiver, trustee, or other similar official for it or for any
substantial part of its Property, or any such Person shall take any corporate
action in furtherance of any of the actions set forth above in this Subsection
7.1(k); or
-44-
50
(l) Any proceeding of the type referred to in Subsection 7.1(k) is
filed, or any such proceeding is commenced against any Loan Party, or any such
Loan Party by any act indicates its approval thereof, consent thereto or
acquiescence therein, or an order for relief is entered in an involuntary case
under the bankruptcy law of the United States, or an order, judgment or decree
is entered appointing a trustee, receiver, custodian, liquidator or similar
official or adjudicating any such Person insolvent, or approving the petition
in any such proceedings, and such order, judgment or decree remains in effect
for thirty (30) days; or
(m) (a) Final judgments or orders involving liabilities in
excess of $50,000 in the aggregate which are not otherwise covered by
insurance shall be rendered against the Borrower or against Hallwood
GP and the same shall not be discharged (or provision shall not be
made for such discharge), or a stay of execution thereof shall not be
procured, within sixty (60) days from the date of entry thereof, or
the Borrower or Hallwood GP or both, as the case may be, shall not,
within said period of sixty (60) days or such longer period during
which execution of the same shall have been stayed, appeal therefrom
and cause the execution thereof to be stayed during such appeal; or
(b) Final judgments or orders involving liabilities in excess of
$500,000 in the aggregate which are not otherwise covered by insurance
shall be rendered against the Parent Guarantor and its Subsidiaries on
a Consolidated basis and the same shall not be discharged (or
provision shall not be made for such discharge), or a stay of
execution thereof shall not be procured, within sixty (60) days from
the date of entry thereof, or such Person shall not, within said
period of sixty (60) days or such longer period during which execution
of the same shall have been stayed, appeal therefrom and cause the
execution thereof to be stayed during such appeal; or
(n) Environmental Liabilities in excess of $ 50,000 in the
aggregate shall have been assessed under any applicable Environmental Law
against any Loan Party or (ii) Releases of any Hazardous Substance shall have
occurred, and such event(s) could reasonably be expected to form the basis of
Environmental Liabilities against any Loan Party in excess of $50,000 in the
aggregate; or
(o) The Parent Guarantor shall cease to own (x) all of the issued
and outstanding limited partnership interests in the Borrower, or (y) all of
the issued and outstanding shares of capital stock of Hallwood GP or (z)
directly or indirectly, all of the issued and outstanding general partner
interest in the Borrower; or
(p) The Borrower shall cease to be the sole general partner of
HEP; or HEP shall suffer to exist, directly or indirectly, any material change
in its ownership or control; or
(q) Either of the Borrower or HEP shall began winding up its
business or affairs as described in the Uniform Limited Partnership Act,
Uniform Partnership Act or the laws of general application, as applicable, in
state of its organization.
THEN, (x) upon the occurrence of any Event of Default described in Subsection
7.1(k) or Subsection 7.1(l) with respect to any Loan Party the entire unpaid
amount of all Obligations shall automatically become immediately due and
payable, without presentment for payment, demand, protest, notice of intent to
accelerate, notice of acceleration or further notice of any kind, all of which
are hereby expressly waived by each Loan Party and (y) upon the occurrence of
any other Event of Default, the Lender may by written
-45-
51
notice to the Loan Parties declare the entire unpaid amount of all Obligations
to be forthwith due and payable, whereupon all Obligations shall become and be
forthwith due and payable, without presentment for payment, demand, protest,
notice of intent to accelerate, notice of acceleration or further notice of any
kind, all of which are hereby expressly waived by each of the Loan Parties.
SECTION 7.2. Remedies. If any Event of Default shall occur, the
Lender may protect and enforce the Lender's rights and remedies under the Loan
Documents by any appropriate proceedings, including proceedings for specific
performance of any covenant or agreement contained in any Loan Document, and
the Lender may enforce the payment of any Obligations due or enforce any other
legal or equitable right. All rights and remedies and powers conferred upon the
Lender under the Loan Documents shall be deemed cumulative and not exclusive of
any other rights, remedies or powers available under the Loan Documents or at
law or in equity.
SECTION 7.3. Right of Setoff. In addition to any rights now or
hereafter granted under applicable law or otherwise, and not by way of
limitation of any such rights, upon the occurrence and during the continuance
of any Event of Default the Lender is hereby authorized at any time or from
time to time, to the fullest extent permitted by law and without presentment,
demand, protest or other notice of any kind to any Loan Party or to any other
Person, any such notice being hereby expressly waived, to set off and apply any
and all deposits (general or special, time or demand, provisional or final) at
any time held, and other Debt at any time owing, by the Lender (including,
without limitation, by Affiliates, branches or agencies of the Lender wherever
located) to or for the credit or the account of any Loan Party against any of
and all the Obligations, and all other claims of any nature or description
arising out of or in connection with this Credit Agreement or any other Loan
Document, irrespective of whether or not the Lender shall have made any demand
under this Credit Agreement or the Note or other Loan Documents and although
such Obligations, liabilities or claims, or any of them, shall be contingent or
unmatured. The Lender agrees promptly to notify such Loan Party, as the case
may be, after any such setoff and application made by the Lender, but the
failure to give such notice shall not affect the validity of such setoff and
application. The rights of the Lender under this Section 7.3 are in addition
to other rights and remedies (including, without limitation, other rights of
setoff) which the Lender may have.
SECTION 7.4. Indemnity. Each of the Loan Parties hereby indemnifies
the Lender, each Affiliate of the Lender and its respective directors,
officers, employees, shareholders and agents (each an "Indemnitee") from, and
hold each of them harmless against, any and all losses, liabilities, claims,
damages, expenses, penalties, actions, judgments, suits, costs or disbursements
of any kind or nature whatsoever that are asserted against an Indemnitee by any
Person if such losses, liabilities, claims, damages, expenses, penalties,
actions, judgments, suits, costs or disbursements arise out of or result from
(i) any use by the Borrower of the proceeds of any extension of credit by the
Lender hereunder or (ii) any investigation, litigation or other proceeding
(including any threatened investigation or proceeding) relating to the
foregoing or arising out of or based upon any Loan Document or any of the
transactions contemplated by any Loan Document, and the Loan Parties shall
reimburse such Indemnitee, within ten (10) Business Days after receipt of a
composite statement of account for any reasonable expenses (including
reasonable legal fees) incurred in connection with any such investigation or
proceeding; but excluding any such losses, liabilities, claims, damages,
expenses, penalties, actions, judgments, suits, costs or disbursements
resulting from the gross negligence or willful misconduct of such Indemnitee.
IT IS THE EXPRESS INTENTION OF THE PARTIES HERETO THAT EACH INDEMNITEE TO BE
INDEMNIFIED HEREUNDER OR THEREUNDER SHALL BE INDEMNIFIED AND HELD HARMLESS
AGAINST ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, EXPENSES, PENALTIES,
ACTIONS, JUDGMENTS, SUITS, COSTS OR DISBURSEMENTS ARISING OUT OF OR FROM
-46-
52
THE ORDINARY NEGLIGENCE OF SUCH INDEMNITEE. Without prejudice to the survival
of any other Obligations of the Loan Parties hereunder and the other Loan
Documents, the Obligations of the Loan Parties under this Section 7.4 shall
survive the termination of this Credit Agreement, the payment in full of the
Obligations and/or assignment of the Note.
-47-
53
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1. Amendments and Waivers.
(a) Neither this Credit Agreement or any other Loan Document to
which any Loan Party is a party nor any terms hereof or thereof may be amended,
supplemented, waived or otherwise modified except in accordance with the
provisions of this subsection. Any provision of this Credit Agreement or any
other Loan Document may be amended, supplemented, waived, or otherwise modified
if and only if such amendment, supplement, waiver or other modification (i) is
in writing, (ii) is signed by the Lender and (iii) is signed by each other
party thereto except that in the case of a waiver, the party whose performance
is being waived need not be a signatory. Any such amendment, supplement,
modification or waiver shall be binding upon the Lender, all future holders of
the Note and Obligations, and all parties to the Loan Document so amended,
supplemented, waived or otherwise modified.
(b) Acknowledgements and Admissions. Each Loan Party hereby
represents, warrants, acknowledges and admits that (i) it has been advised by
counsel in the negotiation, execution and delivery of the Loan Documents to
which it is a party, (ii) it has made an independent decision to enter into
this Credit Agreement and the other Loan Documents to which it is a party,
without reliance on any representation, warranty, covenant or undertaking by
the Lender, whether written, oral or implicit, other than as expressly set out
in this Credit Agreement or in another Loan Document delivered on or after the
date hereof, (iii) there are no representations, warranties, covenants,
undertakings or agreements by the Lender as to the Loan Documents except as
expressly set out in a letter agreement dated November 5, 1996 from the Parent
Guarantor to the Lender regarding legal fees, this Agreement or in another Loan
Document delivered on or after the date hereof, (iv) the Lender owes no
fiduciary duty to any Loan Party with respect to any Loan Document or the
transactions contemplated thereby, (v) the relationship pursuant to the Loan
Documents between Loan Parties, on one hand, and the Lender, on the other hand,
is and shall be solely that of debtor and creditor, respectively, (vi) no
partnership or joint venture exists with respect to the Loan Documents between
any Loan Party and the Lender, (vii) should an Event of Default or Default
occur or exist the Lender will determine in its sole discretion and for its own
reasons what remedies and actions it will or will not exercise or take at that
time, (viii) without limiting any of the foregoing, no Loan Party is relying
upon any representation or covenant by the Lender, or any representative
thereof, and no such representation or covenant has been made, that the Lender
will, at the time of an Event of Default or Default, or at any other time,
waive, negotiate, discuss, or take or refrain from taking any action permitted
under the Loan Documents with respect to any such Event of Default or Default
or any other provision of the Loan Documents, and (ix) the Lender has relied
upon the truthfulness of the acknowledgements in this section in deciding to
execute and deliver this Credit Agreement and to make the Loan.
SECTION 8.2. Notices, Etc.
(a) Notices, consents, requests, approvals, demands and other
communications (collectively "Communications") provided for herein shall be in
writing (including telecopy, telegraphic, telex or cable communications) and
mailed, telecopied, telegraphed, telexed, cabled or delivered:
-48-
54
If to the Borrower, to it at:
HEPGP Ltd.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone Number: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy Number: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Legal Department
If to the Parent Guarantor, to it at:
The Hallwood Group Incorporated
▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Telephone Number: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy Number: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Vice President
If to Hallwood GP to it at:
Hallwood G.P., Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone Number: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy Number: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Legal Department
If to the Lender, to it at:
First Union National Bank of North Carolina
c/oFirst Union Corporation of North Carolina
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telephone Number: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy Number: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇▇▇▇▇
If such notice to the Lender relates to fundings or payments,
with a copy to:
First Union National Bank of North Carolina
c/oFirst Union Corporation of North Carolina
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telephone Number: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy Number: (▇▇▇) ▇▇▇-▇▇▇▇
-49-
55
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇
(b) All Communications, except as otherwise expressly provided in
the Loan Documents, must be in writing and must be mailed, telecopied or
delivered, to the appropriate party at the address set forth herein or other
applicable Loan Document or, as to any party to any Loan Document, at any other
address as may be designated by it in a written notice sent to all other
parties to such Loan Document in accordance with this Section 8.2.
(c) Any Communication given by telecopier must be confirmed within
48 hours by letter mailed or delivered to the appropriate party at its
respective address. Except as otherwise expressly provided in any Loan
Document, any Communication required or permitted by any Loan Document given in
compliance with this Section 8.2 shall be effective when received or delivered.
SECTION 8.3. No Waiver; Remedies Cumulative. No failure on the part
of the Lender or any holder of the Note to exercise, and no delay in
exercising, any right, power or privilege hereunder or under any other Loan
Document and no course of dealing between the Loan Parties or any of them and
the Lender or any holder of the Note shall operate as a waiver thereof; nor
shall any single or partial exercise of any such right, power or privilege, or
any abandonment or discontinuance of any steps to enforce such right, power or
privilege, preclude any other or further exercise thereof or the exercise of
any other right, power or privilege. No notice to or demand on any Loan Party
in any case shall entitle such Loan Party to any other or further notice or
demand in similar or other circumstances. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
SECTION 8.4. Costs, Expenses and Taxes.
(a) The Loan Parties agree to pay within ten (10) Business Days
after presentation of a composite statement of account: (i) all reasonable
costs and expenses of the Lender in connection with the negotiation,
preparation, distribution, execution and delivery of this Credit Agreement, the
Note and the other Loan Documents and the documents and instruments referred to
therein, and (ii) the negotiation, preparation, distribution, execution and
delivery of any amendment, supplement, modification, waiver or consent,
including the Lender's review and due diligence with respect to any such
amendment, supplement, modification, waiver or consent or the addition of
Mortgaged Properties not engineered in connection with the initial funding
under this Credit Agreement relating to any of the Loan Documents (including,
without limitation, as to each of the foregoing, the reasonable fees and
disbursements of legal counsel to the Lender;
(b) The Loan Parties shall pay all reasonable out-of-pocket costs
and expenses of the Lender in connection with (i) the preservation of its
rights under, and enforcement of, the Loan Documents and the documents and
instruments referred to therein and (ii) any workout, restructuring or
rescheduling of the Obligations or any proceeding under any Debtor Relief Law
with respect to any Loan Party (including, without limitation, in each case,
the reasonable fees and disbursements of counsel for the Lender).
(c) The Loan Parties shall pay, and hold the Lender harmless from
and against, any and all present and future stamp, excise, and other similar
taxes and fees with respect to the foregoing matters and hold the Lender
harmless from and against any and all liabilities with respect to or resulting
from any delay or omission (other than to the extent attributable to the
Lender) to pay such taxes.
-50-
56
(d) Without prejudice to the survival of any other obligations of
the Loan Parties hereunder, under the other Loan Documents, the obligations of
the Loan Parties under this Section 8.4 shall survive the termination of this
Credit Agreement and/or the payment or assignment of the Note.
SECTION 8.5. Governing Law. This Credit Agreement, the Note and,
unless otherwise specified therein, all other Loan Documents and all other
documents executed in connection herewith or therewith, shall be deemed to be
contracts and agreements executed by the Borrower, the Parent Guarantor,
Hallwood GP and the Lender under the laws of the State of North Carolina and of
the United States and for all purposes shall be construed in accordance with,
and governed by, the laws of said State and of the United States. Without
limitation of the foregoing, nothing in this Credit Agreement, the Note or any
other Loan Document shall be deemed to constitute a waiver of any rights which
the Lender may have under applicable federal legislation relating to the amount
of interest which the Lender may contract for, take, receive or charge in
respect of the Loan, including any right to take, receive, reserve and charge
interest at the rate allowed by the law of the state where the Lender is
located.
SECTION 8.6. Interest. Each provision in this Credit Agreement and
each other Loan Document is expressly limited so that in no event whatsoever
shall the amount paid, or otherwise agreed to be paid, to the Lender for the
use, forbearance or detention of the money to be loaned under this Credit
Agreement or any Loan Document or otherwise (including any sums paid as
required by any covenant or obligation contained herein or in any other Loan
Document which is for the use, forbearance or detention of such money), exceed
that amount of money which would cause the effective rate of interest to exceed
the Highest Lawful Rate, and all amounts owed under this Credit Agreement and
each other Loan Document shall be held to be subject to reduction to the effect
that such amounts so paid or agreed to be paid which are for the use,
forbearance or detention of money under this Credit Agreement or such Loan
Document shall in no event exceed that amount of money which would cause the
effective rate of interest to exceed the Highest Lawful Rate. Anything in this
Credit Agreement, the Note or any other Loan Document to the contrary
notwithstanding, with respect to the Note the Borrower shall never be required
to pay unearned interest on the Note or ever be required to pay interest on the
Note at a rate in excess of the Highest Lawful Rate, and if the effective rate
of interest which would otherwise be payable with respect to the Note would
exceed the Highest Lawful Rate, or if the holder of the Note shall receive any
unearned interest or shall receive monies that are deemed to constitute
interest which would increase the effective rate of interest payable by the
Borrower with respect to the Note to a rate in excess of the Highest Lawful
Rate, then (i) the amount of interest which would otherwise be payable by the
Borrower with respect to the Note shall be reduced to the amount allowed under
applicable law and (ii) any unearned interest paid by the Borrower or any
interest paid by the Borrower in excess of the Highest Lawful Rate shall be in
the first instance credited on the principal of the Note with the excess
thereof, if any, refunded to the Borrower. It is further agreed that, without
limitation of the foregoing, all calculations of the rate of interest
contracted for, charged or received by the Lender under the Note, or under this
Credit Agreement or the other Loan Documents, are made for the purpose of
determining whether such rate exceeds the Highest Lawful Rate applicable to the
Lender (such Highest Lawful Rate being the Lender's "Maximum Permissible
Rate"), shall be made, to the extent permitted by usury laws applicable to the
Lender (now or hereafter enacted), by (i) characterizing any non-principal
payment as an expense, fee or premium rather than as interest and (ii)
amortizing, prorating and spreading in equal parts during the period of the
full stated term of the Loan evidenced by the Note all interest at any time
contracted for, charged or received by the Lender in connection therewith.
-51-
57
SECTION 8.7. Survival of Representations and Warranties. All
representations, warranties and covenants contained or incorporated herein or
made in writing by any Loan Party in connection herewith shall survive the
execution and delivery of this Credit Agreement, the Note and the other Loan
Documents.
SECTION 8.8. Binding Effect. This Credit Agreement shall become
effective on the Effective Date and shall be binding upon and inure to the
benefit of the Loan Parties and the Lender and their respective successors and
assigns, whether so expressed or not, provided, that no Loan Party may assign
or transfer any of its rights or delegate any of its duties or obligations
under any Loan Document without the prior consent of Lender.
SECTION 8.9. Participations; Assignments. The Lender shall have the
right to sell assign or transfer all or any part of its Note, the Loan and the
associated rights and obligations under all Loan Documents to one or more
financial institutions, pension plans, investment funds, or similar purchasers,
and the assignee, transferee or recipient shall have, to the extent of such
sale, assignment, or transfer, the same rights, benefits and obligations as it
would if it were such Lender and a holder of such Note. Within three (3)
Business Days after its receipt of notice that the Lender has made any such
sale, assignment or transfer, the Borrower shall execute and deliver to such
assignee a new Note evidencing such assignee's assigned portion of the Loan
and, if the Lender has retained a portion of the Loan, a replacement Note in
the principal amount of the portion of the Loan retained by the Lender (such
Notes to be in exchange for, but not in payment of, the Note held by such
Lender). The Lender shall have the right to grant participations in all or any
part of its Note, the Loan and the associated rights and obligations under all
Loan Documents to one or more pension plans, investment funds, financial
institutions or similar purchasers. The Lender may at any time assign all or
any portion of its rights under this Credit Agreement and the Note to a Federal
Reserve Bank. No such assignment shall release the Lender from its obligation
hereunder.
SECTION 8.10. Separability. Should any clause, sentence, paragraph
or section of this Credit Agreement or any other Loan Document be judicially
declared to be invalid, unenforceable or void, such decision will not have the
effect of invalidating or voiding the remainder of this Credit Agreement or
such other Loan Document, as the case may be, and the parties hereto agree that
the part or parts of this Credit Agreement or such Loan Document so held to be
invalid, unenforceable or void will be deemed to have been stricken here from
or therefrom and the remainder will have the same force and effectiveness as if
such part or parts had never been included herein or therein.
SECTION 8.11. Marshalling; Recapture. The Lender shall be under no
obligation to marshal any Properties in favor of any Loan Party or any other
Person or against or in payment of any or all of the Obligations. To the
extent the Lender receives any payment by or on behalf of any Loan Party which
payment or any part thereof is subsequently invalidated, declared to be
fraudulent or preferential, set aside or required to be repaid to such Loan
Party, as the case may be, or such Loan Party's estate, trustee, receiver,
custodian or any other party under any Debtor Relief Law, state or federal law,
common law or equitable cause, then to the extent of such payment or repayment,
the obligation or part thereof which has been paid, reduced or satisfied by the
amount so repaid shall be reinstated by the amount so repaid and shall be
included within the liabilities of such Loan Party, as the case may be, to the
Lender as of the date such initial payment, reduction or satisfaction occurred.
SECTION 8.12. Representation by the Lender. The Lender represents that
it is the present intention of the Lender to acquire the Note for its own
account or for the account of its Affiliates and not
-52-
58
with a view to the distribution or sale thereof, subject, nevertheless to the
necessity that the Lender remain in control at all times of the disposition of
Property held by it for its own account; it being understood that the foregoing
representations shall not affect the characterization of the Loan as a
commercial lending transaction.
SECTION 8.13. No Third Party Beneficiaries. The agreement of the
Lender to make the Loan on the terms and conditions set forth in this Credit
Agreement, is solely for the benefit of the Loan Parties, and no other Person
(including any obligor, contractor, subcontractor, supplier or materialman
furnishing supplies, goods or services to or for the benefit of any Loan Party)
shall have any rights hereunder, as against the Lender, under any other Loan
Document, or with respect to the Loan or the proceeds thereof.
SECTION 8.14. Execution in Counterparts. This Credit Agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute one and the same
agreement.
SECTION 8.15. Jurisdiction; Consent to Service of Process.
(a) Each Loan Party hereby irrevocably and unconditionally submits,
for itself and its Property, to the nonexclusive jurisdiction of any North
Carolina State court or Federal court of the United States of America sitting
in Mecklenburg County, North Carolina in any action or proceeding arising out
of or relating to this Credit Agreement or the Loan Documents, or for
recognition or enforcement of any order or judgment, and each of the parties
hereto hereby irrevocably and unconditionally agrees that all claims in respect
of any such action or proceeding may be heard and determined in such North
Carolina State court, or to the extent permitted by law, in such Federal court
in Mecklenburg County, North Carolina. Each party to this Credit Agreement
irrevocably consents to the service of process out of any North Carolina State
court or Federal court of the United States of America sitting in Mecklenburg
County, North Carolina in any such action or proceeding by the mailing of
copies thereof by registered or certified mail, postage prepaid, to such party
at its address referred to in Section 8.2. Each of the Borrower, Hallwood GP
and the Parent Guarantor agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. Nothing in this
Credit Agreement shall affect any right that the Lender may otherwise have to
bring any action or proceeding relating to this Credit Agreement or the Loan
Documents against the Borrower, Hallwood GP or the Parent Guarantor or their
respective Properties in the courts of any other jurisdiction.
(b) Each of the Borrower, Hallwood GP and the Parent Guarantor hereby
irrevocably and unconditionally waives, to the fullest extent it may legally
and effectively do so, any objection which it may now or hereafter have to the
laying of venue of any suit, action or proceeding arising out of or relating to
this Credit Agreement or the Loan Documents in any North Carolina State or
Federal court sitting in Mecklenburg County, North Carolina. Each of the
Borrower, Hallwood GP and the Parent Guarantor hereby irrevocably waives, to
the fullest extent permitted by law, the defense of an inconvenient forum to
the maintenance of such action or proceeding in any such court.
SECTION 8.16. WAIVER OF JURY TRIAL, DAMAGES, ETC. TO THE EXTENT
PERMITTED BY LAW, EACH OF THE LENDER, THE PARENT GUARANTOR, HALLWOOD GP AND THE
BORROWER HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE
-53-
59
ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED
HEREON, OR DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER, OR IN CONNECTION WITH,
THIS CREDIT AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT,
COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF SUCH
PERSONS, THE PARENT GUARANTOR, HALLWOOD GP OR THE BORROWER. THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE LENDER'S ENTERING INTO THIS CREDIT AGREEMENT AND
THE OTHER LOAN DOCUMENTS. EACH OF THE BORROWER, HALLWOOD GP, THE PARENT
GUARANTOR AND THE LENDER HEREBY FURTHER (a) IRREVOCABLY WAIVES, TO THE MAXIMUM
EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY
SUCH LITIGATION ANY SPECIAL, EXEMPLARY OR CONSEQUENTIAL DAMAGES, OR DAMAGES
OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (b) CERTIFIES THAT NO PARTY
HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN
THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (C)
ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS CREDIT AGREEMENT, THE
OTHER LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS
SECTION.
SECTION 8.17. FINAL AGREEMENT OF THE PARTIES. THIS CREDIT AGREEMENT
(INCLUDING THE EXHIBITS AND SCHEDULES HERETO), THE NOTE AND THE OTHER LOAN
DOCUMENTS TO WHICH ANY LOAN PARTY IS A PARTY CONSTITUTE A "LOAN AGREEMENT" AS
DEFINED IN SECTION 26.02(A) OF THE TEXAS BUSINESS AND COMMERCE CODE, AND
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 ORAL AGREEMENTS BETWEEN THE PARTIES.
-54-
60
IN WITNESS WHEREOF, the parties hereto have caused this Credit
Agreement to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
THE LOAN PARTIES:
HEPGP LTD.,
a Colorado limited partnership
By: HALLWOOD G.P., INC., its sole general partner
By:/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: President
THE HALLWOOD GROUP INCORPORATED
By:/s/ Willliam ▇. ▇▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Executive Vice President
HALLWOOD G.P., INC.
By:/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: President
THE LENDER
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By:/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
Title: Vice President
-55-