FORBEARANCE AGREEMENT
Exhibit 10.3
EXECUTION VERSION
FORBEARANCE AGREEMENT, dated as of April 22, 2009 (this “Agreement”) among DHS HOLDING
COMPANY, a Delaware corporation (“Holdings”), DHS DRILLING COMPANY, a Colorado corporation
(“Borrower”) and XXXXXX COMMERCIAL PAPER INC., as administrative agent (in such capacity, the
“Administrative Agent”) and as the Lender (in such capacity, the “Lender”) under that certain
Credit Agreement (as defined below).
W I T N E S S E T H:
WHEREAS, the Borrower, Holdings, the Lender and the Administrative Agent are parties to that
certain Amended and Restated Credit Agreement, dated as of August 15, 2008, as amended by that
certain Amendment No. 1, dated as of September 19, 2008 (as further amended, modified or
supplemented from time to time in accordance with its terms, the “Credit Agreement”; capitalized
terms used but not defined herein shall have the respective meanings ascribed to such terms in the
Credit Agreement);
WHEREAS, the Borrower has failed in its performance of certain provisions of the Credit
Agreement as further described herein, such failure constituting a default under the Credit
Agreement;
WHEREAS, the Lender failed to fund a borrowing request in the amount of $16,000,000 submitted
by the Borrower under the Credit Agreement on September 23, 2008 (“Lender’s Breach”); and
WHEREAS, the Borrower and Holdings have requested that the Lender and the Administrative Agent
forbear, and the Lender and the Administrative Agent have agreed, subject to the terms and
conditions of this Agreement, to forbear, from exercising certain rights under the Credit Agreement
and the other Loan Documents during the Forbearance Period (as defined below).
NOW, THEREFORE, in consideration of the premises and the agreements hereinafter contained, the
parties hereto agree as follows:
1. Forbearance.
(a) Acknowledgement. As of the date hereof, each of the Loan Parties acknowledge that
the failure by the Borrower to have furnished (a) financial statements pursuant to Section 5.1(a)
of the Credit Agreement for the fiscal period ended December 31, 2008, (including audit reports in
respect thereof without a “going concern” or like qualification) and (b) the related deliverables
as required by Section 5.3(a) of the Credit Agreement constitutes a default under the Credit
Agreement (the “Forbearance Default”). By acknowledging the Forbearance Default, the Loan Parties
do not waive or release any defenses available at law or equity as a result of Lender’s Breach.
(b) Forbearance Period. (i) During the period from the Effective Date (as defined
below) until May 15, 2009 (the “Forbearance Period”), each of the Administrative Agent and the
Lender hereby agrees to forbear (the “Forbearance”) from exercising its rights
and remedies under the Credit Agreement and the other Loan Documents arising as a result of
the Forbearance Default; provided, however, that upon the occurrence of any Event
of Default other than the Forbearance Default, including the Events of Defaults set forth in
Section 1(c) hereof,
the Forbearance Period shall automatically and immediately terminate, and the Administrative Agent
and the Lender shall be entitled to exercise any and all of their rights and remedies under the
Credit Agreement, the other Loan Documents and applicable law, without further notice other than as
required therein. Upon termination of the Forbearance Period, (A) the forbearance shall
automatically terminate and be of no further force or effect without any further action by the
Lender, (B) the Forbearance Default is, without further action, reinstated and shall have the same
force and effect as if the Forbearance had not been agreed to by the parties hereto and (C) subject
to the terms of the Credit Agreement, the Loan Documents and applicable law, the Lender may
thereafter, without limitation, xxx, ask for or demand from the Loan Parties payment of the
Obligations due and payable to such Lender, in whole or in part, and otherwise enforce any of its
rights and remedies (including rights of acceleration and foreclosure) provided for under the
Credit Agreement, the Loan Documents or applicable law against any party, subject to any defenses
available at law or equity as a result of Lender’s Breach. Each of the Loan Parties agrees that,
subject to the agreement of the Lender to forbear from exercising certain of their rights and
remedies as and to the extent expressly set forth in this Agreement, all rights and remedies of the
Lender under the Credit Agreement, the Loan Documents or applicable law with respect to such Loan
Party shall continue to be available to the Lender from and after the Effective Date.
(ii) It is understood and agreed that interest shall accrue from the Effective Date through
the remainder of the Forbearance Period on the outstanding Obligations at the applicable default
rates provided for pursuant to the Credit Agreement.
(c) Additional Events of Default. The following events shall constitute Events of
Default under the terms of the Credit Agreement and the other Loan Documents:
(i) any of the Borrower, Holdings or the other Loan Parties shall pledge, encumber, charge,
assign or grant a security interest in, or encumbrance of any kind on, any Collateral; or
(ii) any of the Borrower, Holdings or the other Loan Parties shall enter into any arrangement
to provide priority or preference with respect thereto, in connection with securing or obtaining
debtor-in-possession financing; or
(iii) any of the Loan Parties shall pay any management fees to Delta Petroleum Corporation
(“Parent”) or make any other payments, distributions or dividends in respect of stock held by
Parent in any Loan Party; or
(iv) Holdings, the Borrower or any other Loan Party shall fail to perform or observe any term,
covenant or agreement set forth in this Agreement; or
(v) any representation or warranty made or deemed made by any Loan Party herein or any
representation or warranty made or deemed made hereafter by any Loan Party in any Loan Document or
which is made in connection with this Agreement or any other Loan Document shall prove to have been
incorrect or misleading in any material respect on or as of the date made or deemed made.
(d) No Waiver. Any other provision of this Agreement notwithstanding, the Loan
Parties do not waive or release any rights or defenses available to them as a result of Lender’s
Breach.
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2. Forbearance Requirements. The Borrower, Holdings and the other Loan Parties agree
to the following as consideration for the Forbearance (the “Forbearance Requirements”):
(a) Within 3 days following the Effective Date, the Loan Parties shall deliver to the Lender
updated versions of the Loan Parties’ budget, business/operating plan and cash flow forecast and
analysis, all in form and substance satisfactory to the Administrative Agent.
(b) Holdings and Borrower shall deliver to the Lender and the Administrative Agent, on a
weekly basis, an update as to the Loan Parties’ analysis, progress and results, regarding the Loan
Parties’ business/operating plan and cash flow, their efforts to provide the Borrower and Holdings
with additional liquidity and recover their accounts receivable.
(c) On any date during the Forbearance Period any Loan Party or Subsidiary of a Loan Party
shall receive any payment in respect of accounts receivable, then, on such date of receipt and
without any requirement of prior notice, the Borrower shall prepay (or cause to be prepaid) the
principal amount of the Loans in an amount equal to 75% of such payment in respect of accounts
receivable, such prepayment being applied (notwithstanding anything to the contrary set forth in
the Credit Agreement) solely to the repayment of the outstanding principal amount of Term B Loans
on such date; it being understood that any prepayment in respect of this Section 2(c) shall be made
without premium or penalty, including the Applicable Premium or Make Whole Price or any payment of
any LIBOR funding breakage costs in accordance with Section 2.12 of the Credit Agreement.
(d) Holdings and Borrower shall permit any third party financial consultant or advisor acting
on behalf of the Lender or Administrative Agent to inspect the property of Holdings and its
Subsidiaries and to conduct such other activity as contemplated in Section 5.7(b) of the Credit
Agreement.
3. Representations and Warranties. Each of the Borrower, Holdings and the other Loan
Parties represents and warrants as follows (which representations and warranties shall survive the
execution and delivery of this Agreement):
(a) Each of the Borrower, Holdings and the other Loan Parties has taken all necessary action
to authorize the execution, delivery and performance of this Agreement.
(b) This Agreement constitutes the legal, valid and binding obligation of each of the
Borrower, Holdings and the other Loan Parties, as applicable, enforceable against them in
accordance with their respective terms, subject to applicable bankruptcy, reorganization,
insolvency, moratorium and similar laws affecting the enforcement of creditors’ rights generally
and to general equity principles.
(c) No consent or approval of any person, firm, corporation or entity, and no consent,
license, approval or authorization of any governmental authority is or will be required in
connection with the execution, delivery, performance, validity or enforcement of this Agreement,
other than any such consent, approval, license or authorization which has been obtained and remains
in full force and effect or where the failure to obtain such consent, approval, license or
authorization would not result in a Material Adverse Effect.
(d) After giving effect to this Agreement, each of the Borrower, Holdings and the other Loan
Parties is in compliance with all of the various covenants and agreements set
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forth in the Credit Agreement and each of the other Loan Documents, other than the Forbearance
Default.
(e) After giving effect to this Agreement and the agreements to be delivered in connection
herewith, no event has occurred and is continuing which constitutes a Default or an Event of
Default, other than the Forbearance Default.
(f) After giving effect to this Agreement and the agreements to be delivered in connection
herewith, all representations and warranties contained in the Credit Agreement and each of the
other Loan Documents are true and correct in all material respects as of the date hereof, except to
the extent that any representation or warranty relates to a specified date, in which case such are
true and correct in all material respects as of the specific date to which such representations and
warranties relate, and except to the extent of any inconsistency in such representations or
warranties arising directly out of the Forbearance Default.
(g) Each report delivered and any information provided pursuant to or in connection with this
Agreement has and will be prepared on a reasonable basis and in good faith, and has/will be based
on assumptions believed by the applicable Loan Party to be reasonable at the time made and upon the
best information available to such Loan Party, and such Loan Party is not aware of any facts or
information that would lead the applicable party to believe that any such information or report is
incorrect or misleading in any material respect.
4. Fees and Expenses. (a) The Borrower and Holdings agree to pay to the Lender a
forbearance fee in an aggregate amount equal to $250,000, such fee to be applied pro rata according
to the respective Term A Loan Percentages or Term B Loan Percentages of the Lender, and which fee
shall be due and payable on the Effective Date; and (b) The Borrower and Holdings further agree to
pay on demand all costs and expenses, including reasonable attorneys’ fees, of the Administrative
Agent and the Lender incurred in connection with this Agreement.
5. Effective Date. This Agreement shall not become effective unless and until (the
latest date upon which such occurs, the “Effective Date”):
(a) this Agreement shall have been duly executed and delivered by the Borrower, Holdings, the
other Loan Parties, the Lender and the Administrative Agent;
(b) the Borrower and Holdings shall have paid the fee referred to in Section 4(a) hereof;
(c) the Borrower shall have prepaid (or cause to be prepaid) the principal amount of the Loans
in an amount equal to $1,250,000, such prepayment being applied (notwithstanding anything to the
contrary set forth in the Credit Agreement) solely to the repayment of the outstanding principal
amount of Term B Loans on such date; it being understood that any prepayment in respect of this
Section 5(c) shall be made without premium or penalty, including the Applicable Premium or Make
Whole Price; and
(d) the Lender shall have received such other certificates, documents and agreements as the
Lender may reasonably request.
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6. Reference and Continued Effectiveness of the Loan Documents.
(a) The term “Agreement”, “hereof”, “herein” and similar terms as used in the Credit
Agreement, and references in the other Loan Documents to the Credit Agreement, shall mean and refer
to, from and after the Effective Date, the Credit Agreement as affected by this Agreement.
(b) The Borrower hereby agrees that all of the covenants and agreements contained in the
Credit Agreement and the Loan Documents are hereby ratified and confirmed in all respects.
(c) This Agreement constitutes a Loan Document.
7. Counterparts. This Agreement may be executed in counterparts, each of which shall
be an original, and all of which, taken together, shall constitute a single instrument. Delivery
of an executed counterpart of a signature page to this Agreement by telecopier shall be effective
as delivery of a manually executed counterpart of this Agreement.
8. Governing Law. This Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York without giving effect to the conflict of laws provisions
thereof.
9. Limitation. Each party hereto hereby agrees that this Agreement does not impose on
Xxxxxx Commercial Paper Inc. affirmative obligations or indemnities not existing, as of the date of
its petition commencing its proceeding under chapter 11 of the United States Code, and that could
give rise to administrative expense claims.
10. Indemnity. The Borrower, Holdings and the other Loan Parties further agree,
jointly and severally, to defend, protect, indemnify and hold harmless the Administrative Agent and
the Lender, each of their respective Affiliates and their respective officers, directors,
employees, attorneys and agents (collectively the “Indemnitees”) from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs,
expenses of any kind or nature whatsoever (including, without limitation, the reasonable fees and
expenses of counsel for such Indemnitees in connection with any investigative, administrative or
judicial proceeding, whether or not such Indemnitees shall be designated as a party thereto),
imposed on, incurred by, or asserted against such Indemnitees in any manner relating to or arising
out of this Agreement or any other Loan Document (collectively the “Indemnified Matters”);
provided, however, that neither the Borrower, Holdings or any Loan Party shall have
an obligation to an Indemnitee hereunder with respect to Indemnified Matters caused or resulting
from (a) a dispute among the Lender or a dispute between the Lender and the Administrative Agent,
or (b) the willful misconduct or gross negligence of such Indemnitee, or (c) defense of claims by
the Loan Parties relating to Lender’s Breach (but only if the Loan Parties are the prevailing party
with respect to such claims). If the undertaking to indemnify, pay and hold harmless set forth in
the preceding sentence may be unenforceable because it violates any law or public policy, the
Borrower, Holdings and the other Loan Parties shall contribute the maximum portion which it is
permitted to pay and satisfy under the applicable law, to the payment and satisfaction of all
Indemnified Matters incurred by Indemnities. This Section 10 shall survive the payment of the
Obligations and the termination of this Agreement or any other Loan Document.
[Signatures Pages Follow]
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IN WITNESS WHEREOF the parties hereto have caused this Agreement to be duly executed by their
respective officers as of the date first written above.
| DHS DRILLING COMPANY, as the Borrower |
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| By: | /s/ Xxxxxxx X. Xxxxx | |||
| Name: | Xxxxxxx X. Xxxxx | |||
| Title: Executive Vice President | ||||
| DHS HOLDING COMPANY, as Holdings |
||||
| By: | /s/ Xxxxxxx X. Xxxxx | |||
| Name: | Xxxxxxx X. Xxxxx | |||
| Title: Executive Vice President | ||||
[Signature Page to Agreement]
| XXXXXX COMMERCIAL PAPER, INC, as Administrative Agent and Lender |
||||
| By: | /s/ Xxxx XxXxxxxx | |||
| Name: | Xxxx XxXxxxxx | |||
| Title: Vice President | ||||
[Signature Page to Agreement]
