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EXHIBIT 10.2
FORBEARANCE AGREEMENT
THIS FORBEARANCE AGREEMENT (this "Forbearance Agreement") is made and
entered into on July 26, 1999 and effective as of July 1, 1999 (the "Effective
Date"), by and among KCS MEDALLION RESOURCES, INC., a Delaware corporation
(formerly known as InterCoast Oil and Gas Company) ("KCS Medallion"), KCS
ENERGY, INC., a Delaware corporation ("KCS"), KCS ENERGY SERVICES, INC., a
Delaware corporation ("KCS Energy Services"), MEDALLION GAS SERVICES, INC., an
Oklahoma corporation (formerly known as InterCoast Gas Services Company)
("Medallion Gas Services" and together with KCS Medallion, KCS and KCS Energy
Services, each individually, a "Borrower" and collectively, the "Borrowers"),
each lender that is a signatory hereto or becomes a party hereto as provided in
Sections 9.1 or 2.25 of the Credit Agreement (hereinafter defined)
(individually, together with its successors and assigns, a "Lender" and,
collectively, together with their respective successors and assigns, the
"Lenders"), CANADIAN IMPERIAL BANK OF COMMERCE, acting through its New York
agency (in its individual capacity, "CIBC"), and as agent for the Lenders (in
such capacity, together with its successors in such capacity, the "Agent") and
CIBC Inc., a Delaware corporation as collateral agent for the Lenders (in such
capacity pursuant to the terms hereof, the "Collateral Agent").
WITNESSETH:
WHEREAS, on December 22, 1998, the Borrowers, the Lenders, and the
Agent entered into a First Amended and Restated Credit Agreement (the "Credit
Agreement") whereby, upon the terms and conditions therein stated, the Lenders
agreed to make loans to the Borrowers up to the aggregate amount of
$160,000,000.00 to be used by the Borrowers for the purposes set forth in
Section 2.6 of the Credit Agreement; and
WHEREAS, the Annual Report of KCS on Form 10-K filed with the SEC on
March 31, 1999 (the "10-K Report") revealed the existence of certain events and
conditions (the "MAC Events") which are in violation of the terms and provisions
of the Credit Agreement and/or which constitute a Material Adverse Effect; and
WHEREAS, the Agent has advised the Borrowers in a letter dated April 7,
1999 (the "Default Letter") that the existence of each such MAC Event
constitutes a Default; and
WHEREAS, the Borrowers, the Lenders, the Agent and the Collateral Agent
entered into a Forbearance Agreement dated May 14, 1999 but effective April 1,
1999 (the "Prior Forbearance Agreement") and the Prior Forbearance Agreement
terminated pursuant to its terms on June 30, 1999; and
WHEREAS, pursuant to Section 9.4 of the Prior Forbearance Agreement the
Defaults resulting from the MAC Events have become Events of Default pursuant to
which the Agent, the
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Collateral Agent and the Lenders have the right to exercise the rights and
remedies available to them under such circumstances, all as set forth in the
Credit Agreement and other Loan Documents; and
WHEREAS, pursuant to the terms of the Credit Agreement and the Prior
Forbearance Agreement, the Lenders and the Agent redetermined the Borrowing Base
on July 1, 1999 and, as of such date, the Tranche A Obligations were in excess
of the Borrowing Base; and
WHEREAS, the Agent in a letter delivered July 7, 1999, notified the
Borrowers of such excess and demanded pursuant to Sections 3.5(a) and 9.8 of the
Prior Forbearance Agreement that payment thereof be made within five days of
receipt of the July 7, 1999 notice; and
WHEREAS, the Borrower failed to pay Obligations in an amount sufficient
to eliminate the excess of the Tranche A Obligations over the Borrowing Base;
and
WHEREAS, the Borrowers' failure to repay Obligations in the amount
required to reduce Tranche A Obligations to an amount equal to the Borrowing
Base on or before July 12, 1999 is an Event of Default pursuant to the Prior
Forbearance Agreement and Section 7.1(a)(i) of the Credit Agreement; and
WHEREAS, the Agent delivered a notice of default dated July 12, 1999
(the "Notice of Default"), pursuant to which (i) all Obligations of the
Borrowers were declared immediately due and payable and (ii) all Commitments of
the Lenders to extend credit or to participate in Letters of Credit and the
Agent's obligation to issue such Letters of Credit were terminated; and
WHEREAS, the Borrowers have requested that, in consideration of the
compliance by the Borrowers with the terms and provisions of this Agreement, the
Agent, the Collateral Agent and the Lenders forbear from exercising any further
rights and remedies pursuant to the Loan Documents or otherwise and the Agent
and the Lenders rescind that declaration contained in the Notice of Default that
all Obligations of the Borrowers pursuant to the Credit Agreement are
immediately due and payable; and
WHEREAS, subject to (i) compliance by the Borrowers with the terms and
provisions of this Agreement applicable to each, and (ii) the other terms and
provisions of this Agreement, the Lenders have agreed (x) to forbear from
exercising any further rights and remedies as provided in the Loan Documents or
otherwise during the Forbearance Period and (y) to rescind the declaration
contained in the Notice of Default that all Obligations of the Borrowers
pursuant to the Loan Documents are immediately due and payable, such rescission
to be in effect until termination of the Forbearance Period and notice to the
Borrowers from the Agent accelerating the date for payment of the Obligations.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
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ARTICLE 1
GENERAL TERMS
Section 1.1 Terms Defined in Agreement. As used in this Agreement,
except as may otherwise be provided in this Agreement, all capitalized terms
which are defined in the Credit Agreement shall have the same meaning herein as
therein, all of such terms and definitions being incorporated herein by
reference.
Section 1.2 Forbearance Period. Subject to (i) satisfaction of the
conditions set forth in Section 4.1 of this Agreement, (ii) continuous
compliance by the Borrowers with the terms and provisions of this Agreement
applicable to each, and (iii) the other terms and provisions of this Agreement,
the Lenders hereby agree to forbear from exercising any rights and remedies not
heretofore exercised which may be available to them as a result of the Events of
Default described in the Default Letter and the Notice of Default and
subsections 4.2(a)(ii) through (iv) of this Agreement during a period commencing
as of the date hereof and ending on the first to occur of (i) any event or
condition pursuant to which the Forbearance Period automatically terminates,
including without limitation, any of the provisions of Section 8.1 of this
Agreement, or (ii) October 5, 1999 (the "Forbearance Termination Date"). The
term "Forbearance Period" means the period of time commencing on the Effective
Date and ending at 11:59 p.m. on the Forbearance Termination Date. The Agent and
the Lenders also agree to rescind, and do hereby rescind, the declaration
contained in the Notice of Default that all Obligations of the Borrowers
pursuant to the Loan Documents are immediately due and payable; provided that
upon the termination of the Forbearance Period, such declaration may be
reinstated by notice to the Borrowers from the Agent; and provided further that
the demand for immediate payment of the Tranche A Obligations in excess of the
Borrowing Base contained in the Notice of Default shall not be deemed to be
modified or altered in any manner hereby and remains in full force and effect.
Except as expressly herein provided, upon termination of the Forbearance Period
(regardless of how such termination occurs), this Agreement shall have no
further force and effect whatsoever, and thereafter the terms and provisions of
the Credit Agreement and the other Loan Documents shall be effective as
expressly therein provided without further reference to the terms and provisions
of this Agreement. Upon termination of the Forbearance Period, the Agent may
declare all Obligations of the Borrowers pursuant to the Loan Documents to be
immediately due and payable, without any grace or cure period that might
otherwise be provided in the Loan Documents, by delivery of a notice to the
Borrowers that such Obligations are due and payable. Nothing herein shall be, or
be construed to be, a waiver of the Events of Default as described in the
Default Letter or Notice of Default, and nothing herein shall be construed to
mean that such Events of Default have been cured or have ceased to exist.
ARTICLE 2
DEFINITIONS
Section 2.1 Definitions. The following terms shall have meanings as follows:
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"1996 Indenture" means the Indenture dated as of January 15, 1996 by
and among KCS, the Subsidiary Guarantors (as such term is defined therein) and
Fleet National Bank of Connecticut, as Trustee, relating to the sale by KCS of
its eleven percent (11%) Senior Notes due 2003.
"1998 Indenture" means the Indenture dated as of January 15, 1998, by
and among KCS, the Subsidiary Guarantors (as such term is defined therein) and
State Street Bank and Trust Company, as Trustee, relating to the sale by KCS of
its eight and seven-eighths percent (8 7/8%) Senior Subordinated Notes due 2008.
"Applicable Margin" shall mean as to each Tranche A Base Rate Loan and
each Tranche A LIBO Rate Loan, an amount equal to the percentage set forth in
the grid below for such type of Loan:
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Applicable Margin
(Tranche A)
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Base Rate IBO Rate
Type of Loans
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Loans in an Aggregate Principal Amount in the 1.5% 2.5%
amount of the Borrowing Base or less
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Loans in Excess of Borrowing Base 2.0% 3.0%
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"Borrowing Base Deficiency" means, at any time, the excess of Tranche A
Obligations over the Borrowing Base in effect as of such date.
"Interest Period" shall mean, subject to the limitations set forth in
Section 2.4 of the Credit Agreement, with respect to any LIBO Rate Loan, a
period commencing on the date such Loan is converted from a Loan of another type
pursuant to the Credit Agreement or the last day of the next preceding Interest
Period with respect to such Loan and ending on the numerically corresponding day
in the calendar month that is one or two months thereafter, as the Borrowers may
request in the Tranche A Borrowing Request or the Tranche B Borrowing Request
for such Loan provided that, the Interest Period for each LIBO Rate Loan shall
end on or before the Forbearance Termination Date.
ARTICLE 3
TERMS AND FACILITIES
Section 3.1 Loans and Continuing Termination of Commitments. Pursuant
to the Notice of Default, the Commitments have been terminated and the Lenders
are not obligated and do not have any commitment whatsoever to make Loans, other
than conversions of LIBO Rate Loans into Base Rate Loans or Base Rate Loans into
LIBO Rate Loans and reborrowings of LIBO Rate Loans
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which occur at the end of an Interest Period, in each case occurring
during the Forbearance Period. The Borrowers may not reborrow any portion of any
Loan after all or such portion of any such Loan shall have been repaid. The
Lenders shall have no obligation to continue loans as LIBO Rate Loans or to
convert Base Rate Loans into LIBO Rate Loans after the Forbearance Termination
Date.
Section 3.2 Letters of Credit. No Letters of Credit were outstanding as
of the Effective Date and none are outstanding as of the date hereof and the
Agent is not obligated to issue, on behalf of the Lenders or otherwise, and the
Lenders are not obligated to participate in, any Letters of Credit.
Section 3.3 Repayment of Loans and Interest. (a) Accrued and unpaid
interest on each outstanding Base Rate Loan shall be due and payable on July 31,
1999, August 31, 1999 and September 30, 1999. Accrued and outstanding interest
on each LIBO Rate Loan shall be due and payable on the last day of the Interest
Period for such LIBO Rate Loan and, in the case of any Interest Period for LIBO
Rate Loans which is in excess of one month, on the last day of each calendar
month following the commencement of such Interest Period, the payment in each
instance to be the amount of interest which has accrued and remains unpaid in
respect of the relevant Loan. Notwithstanding the Notice of Default and subject
to Section 2.20 of the Credit Agreement, Loans shall bear interest at the
Adjusted Base Rate for each Base Rate Loan and the Adjusted LIBO Rate for each
LIBO Rate Loan; provided that, for purposes of determining the Adjusted Base
Rate and the Adjusted LIBO Rate, the term "Applicable Margin" shall have the
meaning set forth in Section 2.1 of this Agreement.
(b) During the Forbearance Period, payments of principal of
the Tranche A Loans shall be due and payable in the amount of $1,250,000 on each
of July 31, 1999, August 31, 1999 and September 30, 1999. At the time of the
making of each payment hereunder, the Borrowers shall specify to the Agent the
Tranche A Loans to which such payment is to be applied. In the event the
Borrowers fail to so specify, the Agent may apply such payment to Tranche A
Loans as it may elect in its discretion and in accordance with the terms of the
Credit Agreement and this Agreement.
Section 3.4 Borrowing Base; Mandatory Prepayments. (a) The Borrowing
Base in effect as of the Effective Date is $46,000,000. The Borrowing Base shall
be automatically reduced in the amount of the Specified Value of each of the Oil
and Gas Properties of any of the Borrowers sold in accordance with Section 3.6
hereof. Notwithstanding clauses (b) and (c) of Section 2.12 of the Credit
Agreement, except for redeterminations pursuant to the immediately preceding
sentence, the Borrowing Base in effect as of the Effective Date shall remain in
effect until the first Business Day following the earlier of (x) the Forbearance
Termination Date and (y) September 30, 1999 (the "Redetermination Date") and,
notwithstanding Section 2.12 of the Credit Agreement, such redetermination of
the Borrowing Base shall be the amount agreed to by the Agent and the Tranche A
Lenders on or after the Redetermination Date.
(b) If on or after the Redetermination Date, a Borrowing Base
Deficiency exists after giving effect to such redetermination of the Borrowing
Base, the Borrowers shall, within five days from receiving notice of the
Borrowing Base, prepay Loans in the amount of any increase in
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the Borrowing Base Deficiency in effect by reason of such determination together
with accrued and unpaid interest thereon.
(c) In addition to the amount payable pursuant to clause (b)
above (if any), upon the termination of the Forbearance Period, Loans in the
amount of any Borrowing Base Deficiency existing prior to the redetermination of
the Borrowing Base as provided in clause (a) above (but such amount not to
exceed the Borrowing Base Deficiency on the Redetermination Date) are
immediately due and payable without any grace or cure period.
Section 3.5 Borrowing Base Deficiency, etc. Upon any redetermination of
the Borrowing Base by reason of a sale of Oil and Gas Properties pursuant to
Section 3.6 of this Agreement, the Agent shall notify the Borrowers of the
amount of the Borrowing Base after such redetermination and the amount of any
Borrowing Base Deficiency which may exist on such date.
Section 3.6 Sales of Oil and Gas Properties. At any time during the
Forbearance Period that (i) any of the Oil and Gas Properties which are
described in Exhibit "A" hereto, or any other Oil and Gas Properties which are
added to Exhibit "A" pursuant to the agreement of the Agent, the Required
Lenders, and the Borrowers with respect to a Specified Value (collectively, the
"Scheduled Properties"), or (ii) any other Oil and Gas Properties owned by any
of the Borrowers (the "Unscheduled Properties") are sold (other than Oil and Gas
Properties described in Section 7.1(iii) of this Agreement), the Borrowers
shall, substantially concurrently with the sale thereof, pay principal of the
Obligations in an amount equal to (i) with respect to Scheduled Properties, the
value attributable to such Scheduled Properties as specified in Exhibit "A" as
amended from time to time or (ii) with respect to the Unscheduled Properties the
value specified by the Agent with the consent of the Required Lenders
(collectively, the "Specified Value") until the principal of the Obligations is
paid in full. In addition, upon the sale of any such Oil and Gas Properties
(whether Scheduled Properties or Unscheduled Properties), if the Net Cash
Proceeds are greater than the Specified Value, the Borrowers shall pay an amount
equal to twenty percent (20%) of the portion of the Net Cash Proceeds in excess
of the Specified Value which shall be applied to the repayment of the principal
of the Obligations until the principal amount of such Obligations is repaid in
full. At the time of the making of each payment hereunder, the Borrowers shall
specify to the Agent the Loans to which such payment is to be applied in
accordance with the terms of this Agreement. In the event the Borrowers fail to
so specify, the Agent may apply such payment to Loans as it may elect in its
discretion and in accordance with the terms of the Credit Agreement and this
Agreement. The Agent shall have the necessary authority to release, and each
Lender hereby consents to the Agent releasing, Liens on the Scheduled Properties
and the Unscheduled Properties so long as the Net Cash Proceeds equal or exceed
the Specified Value.
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ARTICLE 4
CONDITIONS
Section 4.1 Conditions Precedent to Initial Effectiveness of Agreement.
The Lenders shall have no obligation to forbear from exercising any rights and
remedies under and pursuant to the Loan Documents unless and until the Agent
shall have received the following documentation and other items, appropriately
executed when necessary and, where applicable, acknowledged by one or more
authorized officers of each of the Borrowers and dated, where applicable, of
even date herewith or a date prior thereto:
(a) multiple counterparts of this Agreement as requested by the Agent;
(b) certificates of incumbency and copies of corporate resolutions in
the form attached hereto as Exhibit "B" approving and authorizing the
transactions contemplated herein duly adopted by the boards of directors of each
Borrower accompanied by certificates of the secretary or an assistant secretary
of each Borrower, as the case may be, to the effect that such copies are true
and correct copies of resolutions duly adopted at a meeting or by unanimous
consent of the board of directors of each Borrower, as the case may be, and that
such resolutions constitute all the resolutions adopted with respect to such
transactions, have not been amended, modified, or revoked in any respect, and
are in full force and effect as of the date of such certificate; and
(c) the opinion of counsel to the Borrowers in the form attached hereto
as Exhibit "C".
Section 4.2 Additional Conditions Precedent to Initial Effectiveness of
Agreement. The obligations of the Agent, the Collateral Agent, and the Lenders
to forbear from exercising their rights and remedies under and pursuant to the
Credit Agreement and other Loan Documents are subject to the satisfaction of the
following additional conditions precedent that, as of the date of execution of
this Agreement:
(a) no Default or Event of Default shall exist except for (i) the
Defaults or Events of Default referred to in the Default Letter and the Notice
of Default, (ii) the defaults and events of default existing in connection with
the Affiliate Credit Agreement including, without limitation, the event of
default pursuant to the Affiliate Credit Agreement which is set out in that
notice of default delivered to the borrowers under the Affiliate Credit
Agreement dated July 12, 1999 and any Default or Event of Default pursuant to
Section 7.1(d) of the Credit Agreement by reason of such events of default,
(iii) Defaults existing pursuant to Section 7.1(d) of the Credit Agreement or
pursuant to the 1996 Indenture and 1998 Indenture, in each case by reason of the
non-payment of certain interest obligations in respect of the Public Debt and
(iv) defaults and events of default pursuant to Section 5.1(e) of each of the
1996 Indenture and the 1998 Indenture by reason of the Events of Default and
defaults or events of default set forth in clauses (i) and (ii) above;
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(b) no Material Adverse Effect shall have occurred and be continuing
except for those disclosed in the 10-K Report, the Event of Default set forth in
the Notice of Default and the consequent acceleration of the maturities of the
Obligations and the defaults and events of defaults set forth above in clauses
(ii) through (iv) of subsection (a) of this Section 4.2;
(c) each of the representations and warranties contained in the Credit
Agreement and the other Loan Documents shall be true and correct, except for (i)
such representations and warranties which were contained in the Credit Agreement
and the other Loan Documents which are modified and/or supplemented as provided
in Sections 5.2 and 5.3 of this Agreement or (ii) those which are expressly
stated to be made as of a particular date;
(d) the Security Instruments shall be in full force and effect and
provide to the Lenders the security intended thereby;
(e) the consummation of the transactions contemplated hereby shall not
contravene, violate, or conflict with any Requirement of Law; and
(f) legal counsel for the Agent shall have received payment (to the
extent invoiced) from the Borrowers for all reasonable fees and expenses and
legal counsel of any Lender shall have received payment (to the extent invoiced)
from the Borrowers for all reasonable fees and expenses for services rendered
after July 1, 1999, in each case as payable by the Borrowers pursuant to the
Loan Documents.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
Each Borrower hereby represents and warrants to the Agent and each
Lender that:
Section 5.1 Representations Repeated. The representations and
warranties of the Borrowers contained in the Credit Agreement and the other Loan
Documents and otherwise made in writing by or on behalf of the Borrowers
pursuant to the Credit Agreement and the other Loan Documents were true and
correct when made, and are true and correct in all material respects at and as
of the Effective Date and the date hereof except for such representations and
warranties (i) which were contained in the Credit Agreement and the other Loan
Documents which are modified or supplemented as provided in Section 5.2 and 5.3
of this Agreement, and (ii) which are expressly stated to be made as of a
particular date which shall remain true and correct as of the date made.
Section 5.2 Scope and Accuracy of Financial Statements. The Financial
Statements of KCS and its Subsidiaries as at December 31, 1998, present fairly
the financial position and results of operations and cash flows of KCS and its
Subsidiaries in accordance with GAAP as at the relevant point in time or for the
period indicated. No event or circumstance has occurred since December 31, 1998,
except for the MAC Events disclosed in the 10-K Report, the Event of Default and
the
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consequent acceleration of the maturities of the Obligations as set forth in the
Notice of Default and other defaults and events of default set forth in
subsections 4.2(a)(ii) through (iv) of this Agreement which could reasonably be
expected to have a Material Adverse Effect on KCS or KCS Medallion.
Section 5.3 Default. None of the Borrowers is in default of, and no
event has occurred which, with the lapse of time or giving of notice, or both,
could result in such a default of, (i) any charter document or bylaws of any
Borrower, or (ii) any agreement, obligation or Debt to which any Borrower is a
party or by which any Property of any Borrower may be bound, pursuant to which
the obligations of any of the Borrowers in the aggregate under any such
agreement, obligation or Debt, or the obligations secured thereby, exceed
$2,500,000, except (x) such as are being contested in good faith and as to which
such reserve as may be required by GAAP shall have been made therefor or (y)
Defaults and Events of Default pursuant to the Credit Agreement and the defaults
and events of default pursuant to the Affiliate Credit Agreement, the 1996
Indenture and the 1998 Indenture, in each case as described in Section 4.2(a) of
this Agreement, and the Borrowers hereby acknowledge that the Events of Default
described in the Default Letter and the Notice of Default are existing as of the
date hereof.
Section 5.4 Defenses. As of the date hereof, the outstanding principal
amount of the Tranche A Loans is $59,912,362 and no Borrower has any defenses,
offsets or counterclaims which would limit, reduce or impair in any manner the
obligations and indebtedness of any Borrower to pay the full amount of the
Obligations.
ARTICLE 6
AFFIRMATIVE COVENANTS
Section 6.1 Monthly Reconciliation Reports. During the Forbearance
Period the Borrowers shall deliver to the Agent, on or before the last day of
each calendar month, commencing July 31, 1999, Sufficient Copies of a report
prepared by KCS and certified by a Responsible Officer of KCS to be true and
correct as of the close of the immediately preceding calendar month and for the
period indicated with respect to (i) Net Cash Proceeds on a consolidated basis
from sales of Oil and Gas Properties for such period and (ii) such other
financial information as the Agent or any Lender reasonably requests.
Section 6.2 Fees and Expenses. In addition to the covenants in the
Credit Agreement, during the Forbearance Period, the Borrowers shall:
(a) promptly pay to or reimburse the Agent or the Collateral Agent, as
applicable, for all reasonable third-party fees, out-of-pocket costs and
expenses of the Agent and the Collateral Agent in connection with the
preparation, negotiation, execution, delivery and enforcement of this Agreement,
the Credit Agreement and the other Loan Documents, and any and all amendments,
restatements and supplements thereof and thereto, the filing and recordation of
the Security Instruments, and the consummation of the transactions contemplated
by the Loan Documents,
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including reasonable fees and expenses of legal counsel
and auditors and accountants for the Agent and the Collateral Agent.
(b) upon request by the Agent or on the request of any Lender with
notice to the Agent, promptly pay for all amounts reasonably expended, advanced,
or incurred (x) by or on behalf of the Agent and the Collateral Agent or (y)
with respect to services rendered or expenses incurred after July 1, 1999, by or
on behalf of any Lender (i) to satisfy any obligation of any of the Borrowers
under any of the Loan Documents; (ii) to collect the Obligations; (iii) to
enforce the rights of the Agent, the Collateral Agent, and the Lenders under any
of the Loan Documents, including, without limitation, any such expenses in
connection with the preparation, execution, delivery and enforcement of this
Agreement or any instruments and documents executed in connection herewith, and
any amendments, restatements and supplements thereof and thereto; and, (iv) to
protect the Properties or business of the Borrowers, including the Collateral,
which amounts shall be deemed compensatory in nature and liquidated as to amount
upon notice to the Borrowers by the Agent or such Lender and which amounts shall
include all court costs and reasonable fees and expenses of legal counsel,
auditors and accountants, petroleum engineers, and environmental and insurance
consultants.
(c) during the Forbearance Period, the Borrowers will each permit the
Agent, each Lender and Ernst & Young LLP or an alternate independent public
accounting firm designated by the Agent (Ernst & Young LLP or such alternate
independent public accounting firm designated by the Agent, the "Financial
Representative"), upon reasonable prior notice, to visit all of their respective
offices and to discuss the financial matters of each with its officers and
independent public accountant. Each Borrower hereby authorizes such independent
public accountant to discuss its financial matters with the Agent and the
Financial Representative whether or not any representative of such Borrower is
present. The Agent, each Lender and the Financial Representative may, upon
reasonable prior notice, examine (and, at the expense of the Borrowers,
photocopy extracts from) any of a Borrower's books or other corporate records.
The Borrowers shall pay the reasonable fees of the Financial Representative
incurred in connection with the Agent's or any Lender's exercise of its rights
pursuant to this clause.
ARTICLE 7
NEGATIVE COVENANTS
Section 7.1 Sales of Assets. Notwithstanding the provisions of Section
6.5 of the Credit Agreement, the Borrowers shall not, and shall not permit any
of their respective Subsidiaries to sell, transfer, or otherwise dispose of any
Oil and Gas Properties, in one or any series of transactions, whether now owned
or hereafter acquired, or enter into any agreement to do so unless the proceeds
of such sales (i) are of the type described in clauses (a) and (b) of the first
sentence of Section 6.5 of the Credit Agreement, or (ii) are made subject to and
in accordance with the provisions of Section 3.6 of this Agreement concerning
payments upon the sale of certain Oil and Gas Properties, or (iii) have an
aggregate value for all such sales of less than $250,000 (excluding sales of Oil
and Gas
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Properties, the proceeds of which are applied to the Loans in accordance with
other provisions of this Agreement).
Section 7.2 Restricted Payments. During the Forbearance Period (i)
none of the Borrowers or any Subsidiary of KCS shall make any payment of
principal of or interest on the Public Debt or purchase, redeem or defease any
of the Public Debt or make a deposit for such payment, purchase, redemption or
defeasance and (ii) KCS shall not pay or make any dividend or distribution or
purchase, redeem or otherwise acquire for value, any share of any class of its
capital stock.
ARTICLE 8
TERMINATION
Section 8.1 Termination of Agreement. (a) The Forbearance Period shall
automatically terminate upon the occurrence of (i) an Event of Default specified
in the Credit Agreement, other than those described in the Default Letter or the
Notice of Default or arising pursuant to Section 7.1(d) of the Credit Agreement
by reason of a default or event of default pursuant to the Affiliate Credit
Agreement and existing as of the date hereof or any Event of Default pursuant to
Section 7.1(d) of the Credit Agreement arising by reason of a failure to pay or
perform its obligations in respect of the Public Debt, or (ii) the termination
of any forbearance by lenders arising under or in connection with the Affiliate
Credit Agreement, or (iii) any default in the payment when due of any sums
payable hereunder or in the due observance or performance of any obligation of
any of the Borrowers hereunder, including, without limitation, the making of any
payment, purchase or deposit or the taking of any other action by the Borrowers,
or any Subsidiary of KCS which is prohibited by Section 7.2 of this Agreement;
or (iv) any failure by the Borrowers to deliver to the Agent on or before August
15, 1999 the engineering reports and data required by Sections 5.4(b) and (c) of
the Credit Agreement, or (v) any representation or warranty made in this
Agreement by any Borrower proving to have been untrue in any material respect as
of the date the facts therein set forth were stated or certified.
(b) Except as herein expressly provided, upon the termination of the
Forbearance Period, this Agreement shall terminate and be of no further force
and effect and the rights and remedies of the Agent, the Collateral Agent and
the Lenders shall be such as are provided in the Credit Agreement and the other
Loan Documents.
ARTICLE 9
MISCELLANEOUS
Section 9.1 No Waiver; Rights Cumulative. No course of dealing on the
part of the Agent, the Collateral Agent or any of the Lenders or any of their
officers or employees, nor any forbearance, failure or delay by the Agent, the
Collateral Agent or any of the Lenders with respect to exercising any of their
rights under the Credit Agreement or any other Loan Document shall
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12
operate as a waiver thereof including, without limitation, (i) any forbearance
by the Agent, the Collateral Agent and the Lenders with respect to the Events of
Default described in the Default Letter or the Event of Default described in the
Notice of Default or any other Default or Event of Default, (ii) any forbearance
by the Agent, the Collateral Agent and the Lenders from constituting any Default
as an Event of Default and (iii) any and all other actions of the Agent, the
Collateral Agent and the Lenders. The rights of the Agent, the Collateral Agent
and the Lenders under this Agreement, the Credit Agreement and the other Loan
Documents shall be cumulative and the exercise or partial exercise of any such
right shall not preclude the exercise of any other right. Neither the making of
any Loan nor the issuance of a Letter of Credit shall constitute a waiver of any
of the covenants, warranties, or conditions of any of the Borrowers contained in
this Agreement, the Credit Agreement or any other Loan Documents. In the event
any Borrower is unable to satisfy any such covenant, warranty, or condition,
neither the making of any Loan nor the issuance of a Letter of Credit nor the
forbearance from exercising their rights and remedies as provided in the Credit
Agreement and other Loan Documents shall have the effect of precluding the Agent
or the Lenders from thereafter declaring such inability to be a Default or an
Event of Default or from exercising their rights and remedies as provided in the
Credit Agreement and other Loan Documents.
Section 9.2 Release. The Borrowers hereby release the Agent, the
Collateral Agent and the Lenders from any and all claims and causes of action
arising out of or relating in any way to the actions or omissions of such
Persons in connection with the Loans, the Commitments or any of the Loan
Documents.
Section 9.3 Severability. In the event any one or more of the
provisions contained in this Agreement shall, for any reason, be held to be
invalid, illegal, or unenforceable in any respect, such invalidity, illegality,
or unenforceability shall not affect any other provision of this Agreement.
Section 9.4 No Cure of Default. This Agreement shall not have the
effect of curing or otherwise eliminating the Defaults or Events of Default
described in the Default Letter or the Event of Default described in the Notice
of Default. Unless any Default or Event of Default is waived in writing by the
Lenders, such Default or Event of Default shall continue to exist throughout the
Forbearance Period.
Section 9.5 Extent of Agreement. Except as otherwise expressly provided
herein, the Credit Agreement and the other Loan Documents and the rights and
remedies of the parties thereto are not amended, modified, altered, or affected
by this Agreement. Except as expressly set forth herein, all of the terms,
conditions, covenants, representations, warranties and all other provisions of
the Credit Agreement and the other Loan Documents are herein ratified and
confirmed and shall remain in full force and effect. This Agreement does not
constitute an amendment to the Credit Agreement or the other Loan Documents, but
rather, constitutes a temporary supplement thereto. The terms and provisions of
the Credit Agreement and the other Loan Documents are expressly incorporated
herein except to the extent such terms and provisions conflict with the terms
and provisions of this Agreement, in which case, during the Forbearance Period,
but not otherwise, the terms and provisions of this Agreement shall control.
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Section 9.6 Counterparts. This Agreement may be executed in two or
more counterparts, and it shall not be necessary that the signatures of all
parties hereto be contained on any one counterpart hereof; each counterpart
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
Section 9.7 Indemnification. The Borrowers jointly and severally agree
to indemnify the Agent, the Collateral Agent, the Lenders and each of their
officers, directors, employees, agents, attorneys-in-fact and affiliates (the
"Indemnified Persons") from and against any and all liabilities, claims,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses and disbursements of any kind whatsoever (individually or collectively,
the "Liabilities") which may at any time be imposed on, incurred by or asserted
against the Indemnified Persons in any way relating to or arising out of this
Agreement, the Credit Agreement or any other Loan Document, or any other
document contemplated or referred to herein or the transactions contemplated
hereby or thereby or any action taken or omitted by any of the Indemnified
Persons under or in connection with any of the foregoing, including any
Liabilities incurred or asserted as a result of the negligence, whether sole or
concurrent, of any of the Indemnified Persons; provided that no Borrower shall
be liable to any Indemnified Person for the payment of any portion of such
Liabilities resulting solely from the gross negligence or willful misconduct of
any such Indemnified Person.
Section 9.8 Survival. Notwithstanding any other provision of this
Agreement, all representations and warranties of the Borrowers and the
provisions of the penultimate sentence of Section 1.2 and Sections 2.1, 3.1,
3.2, 3.4, 9.2, 9.7 and this Section 9.8 of this Agreement shall survive the
termination of the Forbearance Period and the termination of this Agreement and
shall remain in force and effect so long as any Obligation is outstanding or any
Commitment exists.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on July 26, 1999; provided that this Agreement shall be effective
as of July 1, 1999.
[SIGNATURE PAGES TO FOLLOW]
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BORROWERS:
KCS MEDALLION RESOURCES, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
KCS ENERGY, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
KCS ENERGY SERVICES, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
MEDALLION GAS SERVICES, INC
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Address for Notices:
0000 Xxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxxx X. Xxxxxxxx
Telecopy: (000) 000-0000
S-1
15
LENDERS:
BANK ONE, TEXAS, NATIONAL
ASSOCIATION
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Applicable Lending Office:
000 Xxxxxx
Xxxxxxx, Xxxxx 00000
Attention: Xxxxx Xxxxx
Telecopy: (000) 000-0000
Address for Notices:
000 Xxxxxx Xxxxxx
Xxxxxxx, Xxxxx 00000
Attention:
Telecopy: (000) 000-0000
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16
COMERICA BANK-TEXAS
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Applicable Lending Office:
0000 Xxxx Xxxxxxxxxxx
Xxxxxx, Xxxxx 00000
Address for Notices:
0000 Xxx Xxxxxx
Xxxxxx Xxxxx
Xxxxxx, Xxxxx 00000
Attention:
------------
Telecopy: (000) 000-0000
with copies to:
COMERICA BANK-TEXAS
One Shell Plaza
000 Xxxxxxxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxx X. Xxxxxx
Telecopy: (000) 000-0000
X-0
00
XXXXXXX XXXXXXXX,
XXXXXXXXX AGENCY
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Address for Notices:
0000 Xxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xxxx Xxx
X-0
00
XXX XXXXXX BANK ASA
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Applicable Lending Office:
000 Xxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Address for Notices:
000 Xxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000
Attention: Xxxxxxxx Xxxxxxx
Telecopy: (000) 000-0000
with copies to:
DEN NORSKE BANK ASA
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxx Xxxxxx
Telecopy: (000) 000-0000
X-0
00
XXXXXXX
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Address for Notices:
0000 Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxxx X. Xxxxxxx
S-6
20
GENERAL ELECTRIC
CAPITAL CORPORATION
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Address for Notices:
SFG Global Asset Management
000 Xxxx Xxxxx Xxxx
Xxxxxxxx, XX 00000
Telecopier No.: (000) 000-0000
Telephone No.: (000) 000-0000
Attention: Xxxxx Xxxxxxxx
X-0
21
CIBC INC., Lender and Collateral Agent
By:
----------------------------------
Authorized Signatory
Address for Notices:
0000 Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xxxx Xxxx
Telecopy: (000) 000-0000
AGENT:
CANADIAN IMPERIAL BANK OF
COMMERCE
By:
----------------------------------
Authorized Signatory
Address for Notices:
000 Xxxxxxxxx Xxxxxx
0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxxx Xxxx
Syndications Group
Telecopy: (000) 000-0000
with copies to:
CANADIAN IMPERIAL BANK OF COMMERCE
0000 Xxxxx Xxxxxx
Xxxxxxx, Xxxxx 00000
Attention: Xxxx Xxxx
Telecopy: (000) 000-0000
S-8
22
EXHIBIT C
July 26, 1999
To each Lender party
to the Forbearance Agreement
referenced below and
Canadian Imperial Bank
of Commerce, as Agent and
CIBC Inc. as Collateral Agent
Re: Forbearance Agreement dated July 26, 1999 but to be effective as of
July 1, 1999, by and among KCS Medallion Resources, Inc., KCS Energy, Inc., KCS
Energy Services, Inc. and Medallion Services, Inc. (collectively, the "KCS
Entities"), Canadian Imperial Bank of Commerce, as Agent, CIBC Inc., as
Collateral Agent and the lenders party thereto from time to time (the
"Forbearance Agreement")
Ladies and Gentlemen:
We have acted as counsel to the KCS Entities in connection with the
transactions contemplated in the Forbearance Agreement. This Opinion is
delivered pursuant to Section 4.1(c) of the Forbearance Agreement, and the Agent
and the Lenders are hereby authorized to rely upon this Opinion in connection
with the transactions contemplated in the Forbearance Agreement. Each
capitalized term used but not defined herein shall have the meaning assigned to
such term in the Forbearance Agreement.
In our representation of the KCS Entities, we have examined an executed
counterpart of the Forbearance Agreement.
We have also examined the originals, or copies certified to our
satisfaction, of such other records of the KCS Entities, certificates of public
officials and officers of the KCS Entities, agreements, instruments, and
documents as we have deemed necessary as a basis for the opinions hereinafter
expressed.
In making such examinations, we have, with your permission, assumed:
(a) the genuineness of all signatures to the Forbearance Agreement
other than those of the KCS Entities;
(b) the authenticity and completeness of all documents submitted to us
as originals and the conformity with the originals of all documents submitted to
us as copies;
S-9
23
(c) the Agent and each Lender is authorized and has the power to enter
into and perform its obligations under the Forbearance Agreement;
(d) the due authorization, execution, and delivery of the Forbearance
Agreement by each party thereto other than the KCS Entities; and
(e) the representations as to factual matters made by the KCS Entities
in the Forbearance Agreement are true and complete.
Based upon the foregoing and subject to the qualifications set forth
herein, we are of the opinion that:
A. The execution and delivery by the KCS Entities of the Forbearance
Agreement and the payment and performance of all obligations of the KCS Entities
thereunder are within the power of each KCS Entity and have been duly authorized
by all necessary corporate action.
B. The Forbearance Agreement constitutes the legal, valid, and binding
obligations of each KCS Entity, enforceable against each KCS Entity in
accordance with its terms.
The opinions expressed herein are subject to the following
qualifications and limitations:
We are licensed to practice law only in the States of New Jersey and
New York and other jurisdictions whose laws are not applicable to the opinions
expressed herein; accordingly, the foregoing opinions are limited solely to the
laws of the State of New Jersey, the State of New York, applicable United States
federal law, and the corporation laws of the State of Delaware.
The validity, binding effect, and enforceability of the Forbearance
Agreement or certain provisions thereof may be limited or affected by
bankruptcy, insolvency, moratorium, fraudulent conveyance, reorganization, or
other similar laws affecting rights of creditors generally, including, without
limitation, judicial decisions, statutes or rules of law which limit the effect
of waivers of rights by a debtor and limit the permissible scope of
indemnification agreements, provided, however, that the limitations and other
effects of such statutes or rules of law, as currently in effect, upon the
validity and binding effect of the Forbearance Agreement should not differ
materially from the limitations and other effects of such statutes or rules of
law upon the validity and binding effect of credit agreements and forbearance
agreements generally. No opinion is expressed with respect to the enforceability
of any provisions that may purport to bind the KCS Entities to the waiver of any
right or defense which by virtue of applicable law or equitable principle cannot
be waived.
The enforceability of the respective obligations of the KCS Entities
under the Forbearance Agreement is subject to general principles of equity
(whether such enforceability is considered in a suit in equity or at law).
24
This Opinion is furnished by us solely for the benefit of the Agent,
the Lenders and the successors and assigns of each in connection with the
transactions contemplated by the Forbearance Agreement and is not to be quoted
in whole or in part or otherwise referred to or disclosed in any other
transaction.
This Opinion speaks as of the date hereof, and we disclaim any
obligation to update this opinion to you.
Very truly yours,
ORLOFF, LOWENBACH, XXXXXXXXX
& XXXXXX, P.A.
By:
------------------------
