EXHIBIT 10.1
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CREDIT AGREEMENT
BETWEEN
HARKEN EXPLORATION COMPANY, XPLOR ENERGY, INC.
HARKEN ENERGY WEST TEXAS, INC., SOUTH COAST EXPLORATION CO.,
XPLOR ENERGY SPV-1, INC.,
HARKEN GULF EXPLORATION COMPANY
AND
GUARANTY BANK, FSB
December 6, 2002
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REDUCING REVOLVING LINE OF CREDIT OF UP TO $20,000,000.00
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TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS AND INTERPRETATION ............................... 4
1.1 Terms Defined Above ............................................... 4
1.2 Additional Defined Terms .......................................... 4
1.3 Undefined Financial Accounting Terms .............................. 16
1.4 References ........................................................ 16
1.5 Articles and Sections ............................................. 16
1.6 Number and Gender ................................................. 16
1.7 Incorporation of Exhibits ......................................... 16
ARTICLE II TERMS OF FACILITY ............................................ 16
2.1 Revolving Line of Credit .......................................... 16
2.2 Letter of Credit Facility ......................................... 17
2.3 Limitations on Interest Periods ................................... 17
2.4 Limitation on Types of Loans ...................................... 17
2.5 Use of Loan Proceeds and Letters of Credit ........................ 18
2.6 Interest .......................................................... 18
2.7 Repayment of Loans and Interest ................................... 19
2.8 Outstanding Amounts ............................................... 19
2.9 Time, Place, and Method of Payments ............................... 19
2.10 Borrowing Base Determinations ..................................... 19
2.11 Mandatory Prepayments ............................................. 20
2.12 Voluntary Prepayments of Loans .................................... 20
2.13 Commitment Fee .................................................... 20
2.14 Facility Fee ...................................................... 21
2.15 Engineering Fee ................................................... 21
2.16 Letter of Credit Fee .............................................. 21
2.17 Loans to Satisfy Obligations of Borrower .......................... 21
2.18 Security Interest in Accounts; Right of Offset .................... 21
2.19 General Provisions Relating to Interest ........................... 22
2.20 Yield Protection .................................................. 22
2.21 Illegality ........................................................ 23
2.22 Regulatory Change ................................................. 23
2.23 Limitations on Interest Periods ................................... 23
2.24 Letters in Lieu of Transfer Orders ................................ 24
2.25 Power of Attorney ................................................. 24
ARTICLE III CONDITIONS ................................................... 24
3.1 Receipt of Loan Documents and Other Items ......................... 24
3.2 Each Loan and Letter of Credit .................................... 26
ARTICLE IV REPRESENTATIONS AND WARRANTIES ............................... 28
4.1 Due Authorization ................................................. 28
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4.2 Corporate Existence ............................................... 28
4.3 Valid and Binding Obligations ..................................... 28
4.4 Security Instruments .............................................. 28
4.5 Title to Assets ................................................... 28
4.6 Scope and Accuracy of Financial Statements ........................ 28
4.7 No Material Misstatements ......................................... 29
4.8 Liabilities, Litigation, and Restrictions ......................... 29
4.9 Authorizations; Consents .......................................... 29
4.10 Compliance with Laws .............................................. 29
4.11 ERISA ............................................................. 29
4.12 Environmental Laws ................................................ 30
4.13 Compliance with Federal Reserve Regulations ....................... 30
4.14 Investment Company Act Compliance ................................. 30
4.15 Public Utility Holding Company Act Compliance ..................... 30
4.16 Proper Filing of Tax Returns; Payment of Taxes Due ................ 30
4.17 Refunds ........................................................... 31
4.18 Gas Contracts ..................................................... 31
4.19 Intellectual Property ............................................. 31
4.20 Casualties or Taking of Property .................................. 31
4.21 Locations of Borrower ............................................. 31
4.22 Subsidiaries ...................................................... 31
4.23 Existing Indebtedness; No Defenses ................................ 31
ARTICLE V AFFIRMATIVE COVENANTS ........................................ 32
5.1 Maintenance and Access to Records ................................. 32
5.2 Quarterly Financial Statements; Compliance Certificates ........... 32
5.3 Annual Financial Statements ....................................... 32
5.4 Oil and Gas Reserve Reports ....................................... 32
5.5 Title Opinions; Title Defects ..................................... 33
5.6 Notices of Certain Events ......................................... 33
5.7 Letters in Lieu of Transfer Orders; Division Orders ............... 34
5.8 Additional Information ............................................ 34
5.9 Compliance with Laws .............................................. 34
5.10 Payment of Assessments and Charges ................................ 34
5.11 Maintenance of Corporate Existence and Good Standing .............. 35
5.12 Payment of Note; Performance of Obligations ....................... 35
5.13 Further Assurances ................................................ 35
5.14 Initial Fees and Expenses of Counsel to Lender .................... 35
5.15 Subsequent Fees and Expenses of Lender ............................ 35
5.16 Operation of Oil and Gas Properties ............................... 35
5.17 Maintenance and Inspection of Properties .......................... 36
5.18 Maintenance of Insurance .......................................... 36
5.19 INDEMNIFICATION ................................................... 36
5.20 Hedging ........................................................... 37
ARTICLE VI NEGATIVE COVENANTS ........................................... 37
6.1 Indebtedness ...................................................... 37
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6.2 Contingent Obligations ............................................ 38
6.3 Liens ............................................................. 38
6.4 Sales of Assets ................................................... 38
6.5 Leasebacks ........................................................ 38
6.6 Sale or Discount of Receivables ................................... 38
6.7 Loans or Advances ................................................. 38
6.8 Investments ....................................................... 39
6.9 Dividends and Distributions ....................................... 39
6.10 Transactions with Affiliates ...................................... 39
6.11 Lines of Business ................................................. 39
6.12 Erisa Compliance .................................................. 39
6.13 Current Ratio ..................................................... 39
6.14 General and Administrative Expenses ............................... 39
6.15 Maximum Liability to Equity Ratio ................................. 39
6.16 Debt Service Coverage Ratio ....................................... 40
ARTICLE VII EVENTS OF DEFAULT ............................................ 40
7.1 Enumeration of Events of Default .................................. 40
7.2 Remedies .......................................................... 41
ARTICLE VIII MISCELLANEOUS ................................................ 42
8.1 Transfers; Participations ......................................... 42
8.2 Survival of Representations, Warranties, and Covenants ............ 42
8.3 Notices and Other Communications .................................. 42
8.4 Parties in Interest ............................................... 43
8.5 Rights of Third Parties ........................................... 43
8.6 Renewals; Extensions .............................................. 43
8.7 No Waiver; Rights Cumulative ...................................... 44
8.8 Survival Upon Unenforceability .................................... 44
8.9 Amendments; Waivers ............................................... 44
8.10 Controlling Agreement ............................................. 44
8.11 Disposition of Collateral ......................................... 44
8.12 GOVERNING LAW ..................................................... 44
8.13 JURISDICTION AND VENUE ............................................ 44
8.14 WAIVER OF RIGHTS TO JURY TRIAL .................................... 45
8.15 ENTIRE AGREEMENT .................................................. 45
8.16 Counterparts ...................................................... 45
8.17 Release by Borrower ............................................... 45
LIST OF EXHIBITS
Exhibit I - Form of Note
Exhibit II - Form of Borrowing Request
Exhibit III - Form of Compliance Certificate
Exhibit IV - Form of Opinion of Counsel
Exhibit V - Disclosures
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CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made and entered into effective the 6/th/
day of December, 2002, by and between HARKEN EXPLORATION COMPANY, a
Delaware corporation, XPLOR ENERGY, INC., a Texas corporation, HARKEN
ENERGY WEST TEXAS, INC., a Delaware corporation, SOUTH COAST EXPLORATION
CO., a Texas corporation, XPLOR ENERGY SPV-1, INC., an Oklahoma
corporation, and HARKEN GULF EXPLORATION COMPANY, a Delaware corporation
(collectively the "Borrower"), and GUARANTY BANK, FSB, a federal savings
bank (the "Lender").
W I T N E S S E T H:
In consideration of the mutual covenants and agreements herein
contained, the Borrower and the Lender hereby agree as follows, amending
and restating in its entirety the Credit Agreement dated as of August 11,
2000, by and between the Borrower and Bank One, N.A. (the "Existing
Lender"), as heretofore amended, restated, or supplemented (the "Existing
Credit Agreement").
ARTICLE I
DEFINITIONS AND INTERPRETATION
1.1 Terms Defined Above. As used in this Credit Agreement, the
terms "Borrower", "Existing Credit Agreement", "Existing Lender" and
"Lender" shall have the meaning assigned to them hereinabove.
1.2 Additional Defined Terms. As used in this Credit Agreement, each
of the following terms shall have the meaning assigned thereto in this
Section, unless the context otherwise requires:
"Additional Costs" shall mean costs which the Lender determines
are attributable to its obligation to make or its making or
maintaining any LIBO Rate Loan, or any reduction in any amount
receivable by the Lender in respect of any such obligation or any
LIBO Rate Loan, resulting from any Regulatory Change which (a)
changes the basis of taxation of any amounts payable to the Lender
under this Agreement or the Note in respect of any LIBO Rate Loan
(other than taxes imposed on the overall net income of the Lender),
(b) imposes or modifies any reserve, special deposit, minimum
capital, capital rates, or similar requirements relating to any
extensions of credit or other assets of, or any deposits with or
other liabilities of, the Lender (including LIBO Rate Loans and
Dollar deposits in the London interbank market in connection with
LIBO Rate Loans), or any commitments of the Lender hereunder, (c)
increases the Assessment Rate, or (d) imposes any other condition
affecting this Agreement or any of such extensions of credit,
liabilities, or commitments.
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"Adjusted LIBO Rate" shall mean, for any LIBO Rate Loan, an interest
rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
determined by the Lender to be equal to the sum of the LIBO Rate for such
Loan plus the Applicable Margin, but in no event exceeding the Highest
Lawful Rate.
"Affiliate" shall mean any Person directly or indirectly controlling,
or under common control with, the Borrower and includes any Subsidiary of
the Borrower and any "affiliate" of the Borrower within the meaning of Reg.
(S)240.12b-2 of the Securities Exchange Act of 1934, as amended, with
"control," as used in this definition, meaning possession, directly or
indirectly, of the power to direct or cause the direction of management,
policies or action through ownership of voting securities, contract, voting
trust, or membership in management or in the group appointing or electing
management or otherwise through formal or informal arrangements or business
relationships.
"Agreement" shall mean this Credit Agreement, as it may be amended,
supplemented, or restated from time to time.
"Applicable Lending Office" shall mean, for each type of Loan, the
lending office of the Lender (or an affiliate of the Lender) designated for
such type of Loan on the signature pages hereof or such other office of the
Lender (or an affiliate of the Lender) as the Lender may from time to time
specify to the Borrower as the office by which Loans of such type are to be
made and maintained.
"Applicable Margin" shall mean as to each LIBO Rate Loan, the LIBO
Rate plus 2.75%.
"Assignment" shall mean the Assignment of Notes, Liens, Security
Interests, and Other Rights, in form and substance satisfactory to the
Lender, executed by the Existing Lender, assigning to the Lender the
Existing Note, the indebtedness evidenced thereby, the Liens securing the
Existing Note, and the rights of the Existing Lender under the Existing
Loan Documents, and financing statement changes constituent thereto.
"Available Commitment" shall mean, at any time, an amount equal to
the remainder, if any, of (a) the Borrowing Base in effect at such time
minus (b) the sum of the outstanding balance (principal and interest) on
the Note at such time plus the L/C Exposure at such time.
"Base Rate" shall mean, at any time, the rate of interest per annum
then most recently established by the Lender as its base rate, which rate
may not be the lowest rate of interest charged by the Lender to its
borrowers. Each change in any interest rate provided for herein based upon
the Base Rate resulting from a change in the Base Rate shall take effect
without notice to the Borrower at the time of such change in the Base Rate.
"Borrowing Base" shall mean, at any time, the amount determined by
the Lender in accordance with Section 2.7 and then in effect.
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"Borrowing Request" shall mean each written request, in substantially
the form attached hereto as Exhibit II, by the Borrower to the Lender for a
borrowing or prepayment pursuant to Sections 2.1, 2.8 or 2.9, each of
which shall:
(a) be signed by a Responsible Officer of the Borrower;
(b) specify the amount and type of Loan requested or to be
converted and the date of the borrowing or conversion (which shall be a
Business Day);
(c) when requesting a Floating Rate Loan, be delivered to the
Lender no later than 5:00 p.m., Central Standard or Daylight Savings Time,
as the case may be, on the Business Day preceding the day of the requested
borrowing or conversion; and
(d) when requesting a LIBO Rate Loan, be delivered to the Lender no
later than 10:00 a.m., Central Standard or Daylight Savings Time, as the
case may be, three Business Days preceding the requested borrowing or
conversion and designate the Interest Period requested with respect to such
Loan.
"Business Day" shall mean (a) for all purposes other than as covered
by clause (b) of this definition, a day other than a Saturday, Sunday,
legal holiday for commercial banks under the laws of the State of Texas,
or any other day when banking is suspended in the State of Texas, and (b)
with respect to all requests, notices, and determinations in connection
with, and payments of principal and interest on, LIBO Rate Loans, a day
which is a Business Day described in clause (a) of this definition and
which is a day for trading by and between banks for Dollar deposits in the
London interbank market.
"Closing Date" shall mean the effective date of this Agreement.
"Collateral" shall mean the Mortgaged Properties and any other
Property now or at any time used or intended as security for the payment
or performance of all or any portion of the Obligations.
"Commitment" shall mean the obligation of the Lender, subject to
applicable provisions of this Agreement, to make Loans to or for the
benefit of the Borrower pursuant to Section 2.1 and to issue Letters of
Credit pursuant to Section 2.2.
"Commitment Fee" shall mean each fee payable to the Lender by the
Borrower pursuant to Section 2.13.
"Commitment Period" shall mean the period from and including
the Closing Date to but not including the Commitment Termination Date.
"Commitment Termination Date" shall mean December 6, 2005.
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"Commodity Hedge Agreement" shall mean any crude oil, natural gas, or
other hydrocarbon floor, collar, cap, price protection, or swap agreement,
in form and substance with a Person acceptable to the Lender.
"Commonly Controlled Entity" shall mean any Person which is under
common control with the Borrower or the Guarantor within the meaning of
Section 4001 of ERISA.
"Compliance Certificate" shall mean each certificate, substantially
in the form attached hereto as Exhibit III, executed by a Responsible
Officer of the Borrower and furnished to the Lender from time to time in
accordance with Sections 5.2 and 5.3.
"Contingent Obligation" shall mean, as to any Person, any obligation
of such Person guaranteeing or in effect guaranteeing any Indebtedness,
leases, dividends, or other obligations of any other Person (for purposes
of this definition, a "primary obligation") in any manner, whether directly
or indirectly, including, without limitation, any obligation of such
Person, regardless of whether such obligation is contingent, (a) to
purchase any primary obligation or any Property constituting direct or
indirect security therefor, (b) to advance or supply funds (i) for the
purchase or payment of any primary obligation, or (ii) to maintain working
or equity capital of any other Person in respect of any primary obligation,
or otherwise to maintain the net worth or solvency of any other Person, (c)
to purchase Property, securities or services primarily for the purpose of
assuring the owner of any primary obligation of the ability of the Person
primarily liable for such primary obligation to make payment thereof, or
(d) otherwise to assure or hold harmless the owner of any such primary
bligation against loss in respect thereof, with the amount of any
Contingent Obligation being deemed to be equal to the stated or
determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof as determined
by such Person in good faith.
"Current Assets" shall mean all assets which would, in accordance
with GAAP, be included as current assets on a balance sheet of the Borrower
as of the date of calculation plus the unused portion of the revolver.
"Current Liabilities" shall mean all liabilities which would, in
accordance with GAAP, be included as current liabilities on a balance sheet
of the Borrower as of the date of calculation.
"Debt Service" shall mean 25% of outstanding debt under this Note
plus interest expense.
"Default" shall mean any event or occurrence which with the lapse of
applicable grace period or the giving of notice or both would become an
Event of Default.
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"Default Rate" shall mean a per annum interest rate equal to the Base
Rate plus five percent (5%), but in no event exceeding the Highest Lawful
Rate.
"Dollars" and "$" shall mean dollars in lawful currency of the United
States of America.
"EBITDA" shall mean, for any period, Net Income for such period plus
Interest Expense, federal and state income taxes, depreciation,
amortization, and other non-cash expenses including non-cash charges for
hedge accounting for such period deducted in the determination of Net
Income for such period.
"Engineering Fee" shall mean each fee payable to the Lender by the
Borrower pursuant to Section 2.15.
"Environmental Complaint" shall mean any written complaint, order,
directive, claim, citation, notice of environmental report or
investigation, or other notice by any Governmental Authority or any other
Person with respect to (a) air emissions, (b) spills, releases, or
discharges to soils, any improvements located thereon, surface water,
groundwater, or the sewer, septic, waste treatment, storage, or disposal
systems servicing any Property of the Borrower, (c) solid or liquid waste
disposal, (d) the use, generation, storage, transportation, or disposal of
any Hazardous Substance, or (e) other environmental, health, or safety
matters affecting any Property of the Borrower or the business conducted
thereon.
"Environmental Laws" shall mean (a) the following federal laws as
they may be cited, referenced, and amended from time to time: the Clean Air
Act, the Clean Water Act, the Safe Drinking Water Act, the Comprehensive
Environmental Response, Compensation and Liability Act, the Endangered
Species Act, the Resource Conservation and Recovery Act, the Occupational
Safety and Health Act, the Hazardous Materials Transportation Act, the
Superfund Amendments and Reauthorization Act, and the Toxic Substances
Control Act; (b) any and all equivalent environmental statutes of any state
in which Property of the Borrower is situated, as they may be cited,
referenced and amended from time to time; (c) any rules or regulations
promulgated under or adopted pursuant to the above federal and state laws;
and (d) any other equivalent federal, state, or local statute or any
requirement, rule, regulation, code, ordinance, or order adopted pursuant
thereto, including, without limitation, those relating to the generation,
transportation, treatment, storage, recycling, disposal, handling, or
release of Hazardous Substances.
"Equity" shall mean assets less liabilities which would, in
accordance with GAAP, be included on a balance sheet of the Borrower as of
the date of calculation.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations thereunder and
interpretations thereof.
"Event of Default" shall mean any of the events specified in
Section 7.1.
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"Existing Loan Documents" shall mean the Loan Documents, as
such term is defined in the Existing Credit Agreement, in existence on
the Closing Date immediately prior to the Assignment.
"Existing Note" shall mean the Note, as such term is defined
in the Existing Credit Agreement, in existence on the Closing Date
immediately prior to the Assignment.
"Existing Security Instruments" shall mean the Security
Documents, as such term is defined in the Existing Credit Agreement, in
existence on the Closing Date immediately prior to the Assignment.
"Final Maturity" shall mean December 6, 2005.
"Financial Statements" shall mean statements of the financial
condition of the Borrower and the Guarantor as at the point in time and
for the period indicated and consisting of at least a balance sheet and
related statements of operations, common stock and other stockholders'
equity (for Guarantor only for stockholder's equity), and cash flows
for the Borrower and the Guarantor and, when required by applicable
provisions of this Agreement to be audited, accompanied by the
unqualified certification of a nationally-recognized firm of
independent certified public accountants or other independent certified
public accountants acceptable to the Lender and footnotes to any of the
foregoing, all of which shall be prepared in accordance with GAAP
consistently applied and in comparative form with respect to the
corresponding period of the preceding fiscal period.
"Fixed Rate Loan" shall mean any LIBO Rate Loan.
"Floating Rate" shall mean an interest rate per annum equal to
the Base Rate from time to time in effect plus .25%, but in no event
exceeding the Highest Lawful Rate.
"Floating Rate Loan" shall mean any Loan and any portion of
the Loan Balance which the Borrower has requested, in the initial
Borrowing Request for such Loan or a subsequent Borrowing Request for
such portion of the Loan Balance, bear interest at the Floating Rate,
or which pursuant to the terms hereof is otherwise required to bear
interest at the Floating Rate.
"GAAP" shall mean generally accepted accounting principles
established by the Financial Accounting Standards Board or the American
Institute of Certified Public Accountants and in effect in the United
States from time to time.
"Governmental Authority" shall mean any nation, country,
commonwealth, territory, government, state, county, parish,
municipality, or other political subdivision and any entity exercising
executive, legislative, judicial, regulatory, or administrative
functions of or pertaining to government.
"Guarantor" shall mean Harken Energy Corporation.
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"Guaranty" shall mean the Guaranty dated the Closing Date executed by
the Guarantor in favor of the Lender, guaranteeing the payment and
performance of the Obligations, as the same may be ratified, amended,
restated, or supplemented from time to time.
"Hazardous Substances" shall mean flammables, explosives, radioactive
materials, hazardous wastes, asbestos, or any material containing asbestos,
polychlorinated biphenyls (PCBs), toxic substances or related materials,
petroleum, petroleum products, associated oil or natural gas exploration,
production, and development wastes, or any substances defined as "hazardous
substances," "hazardous materials," "hazardous wastes," or "toxic
substances" under the Comprehensive Environmental Response, Compensation
and Liability Act, as amended, the Superfund Amendments and Reauthorization
Act, as amended, the Hazardous Materials Transportation Act, as amended,
the Resource Conservation and Recovery Act, as amended, the Toxic
Substances Control Act, as amended, or any other law or regulation now or
hereafter enacted or promulgated by any Governmental Authority.
"Highest Lawful Rate" shall mean the maximum non-usurious interest
rate, if any (or, if the context so requires, an amount calculated at such
rate), that at any time or from time to time may be contracted for, taken,
reserved, charged, or received under applicable laws of the State of Texas
or the United States of America, whichever authorizes the greater rate, as
such laws are presently in effect or, to the extent allowed by applicable
law, as such laws may hereafter be in effect and which allow a higher
maximum non-usurious interest rate than such laws now allow.
"Indebtedness" shall mean, as to any Person, without duplication, (a)
all liabilities (excluding reserves for deferred income taxes, deferred
compensation liabilities, and other deferred liabilities and credits) which
in accordance with GAAP would be included in determining total liabilities
as shown on the liability side of a balance sheet, (b) all obligations of
such Person evidenced by bonds, debentures, promissory notes, or similar
evidences of indebtedness, (c) all other indebtedness of such Person for
borrowed money, and (d) all obligations of others, to the extent any such
obligation is secured by a Lien on the assets of such Person (whether or
not such Person has assumed or become liable for the obligation secured by
such Lien).
"Insolvency Proceeding" shall mean application (whether voluntary or
instituted by another Person) for or the consent to the appointment of a
receiver, trustee, conservator, custodian, or liquidator of any Person or
of all or a substantial part of the Property of such Person, or the filing
of a petition (whether voluntary or instituted by another Person)
commencing a case under Title 11 of the United States Code, seeking
liquidation, reorganization, or rearrangement or taking advantage of any
bankruptcy, insolvency, debtor's relief, or other similar law of the United
States, the State of Texas, or any other jurisdiction.
"Intellectual Property" shall mean patents, patent applications,
trademarks, tradenames, copyrights, technology, know-how, and processes.
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"Investment" in any Person shall mean any stock, bond, note, or other
evidence of Indebtedness, or any other security (other than current trade
and customer accounts) of, investment or partnership interest in or loan
to, such Person.
"L/C Exposure" shall mean, at any time, the aggregate maximum amount
available to be drawn under outstanding Letters of Credit at such time.
"Letter of Credit" shall mean any standby letter of credit issued by
the Lender for the account of the Borrower pursuant to Section 2.2.
"Letter of Credit Application" shall mean the standard letter of
credit application employed by the Lender from time to time in connection
with letters of credit.
"Letter of Credit Fee" shall mean each fee payable to the Lender by
the Borrower pursuant to Section 2.16 upon or in connection with the
issuance of a Letter of Credit.
"LIBO Rate" shall mean, with respect to any Interest Period for any
LIBO Rate Loan, the lesser of (a) the rate per annum (rounded upwards, if
necessary, to the nearest 1/16 of 1%) equal to the average of the offered
quotations appearing on Telerate Page 3750 (or if such Telerate Page shall
not be available, any successor or similar service selected by the Lender
and the Borrower) as of approximately 10:00 a.m., Central Standard or
Daylight Savings Time, as the case may be, on the day two Business Days
prior to the first day of such Interest Period for Dollar deposits in an
amount comparable to the principal amount of such LIBO Rate Loan and having
a term comparable to the Interest Period for such LIBO Rate Loan, or (b)
the Highest Lawful Rate. If neither such Telerate Page 3750 nor any
successor or similar service is available, the term "LIBO Rate" shall mean,
with respect to any Interest Period for any LIBO Rate Loan, the lesser of
(a) the rate per annum (rounded upwards if necessary, to the nearest 1/16
of 1%) quoted by the Lender at approximately 11:00 a.m., London time (or as
soon thereafter as practicable) two Business Days prior to the first day of
the Interest Period for such LIBO Rate Loan for the offering by the Lender
to leading banks in the London interbank market of Dollar deposits in an
amount comparable to the principal amount of such LIBO Rate Loan and having
a term comparable to the Interest Period for such LIBO Rate Loan, or (b)
the Highest Lawful Rate.
"LIBO Rate Loan" shall mean any Loan and any portion of the Loan
Balance which the Borrower has requested, in the initial Borrowing Request
for such Loan or a subsequent Borrowing Request for such portion of the
Loan Balance, bear interest at the Adjusted LIBO Rate and which is
permitted by the terms hereof to bear interest at the Adjusted LIBO Rate.
"Lien" shall mean any interest in Property securing an obligation owed
to, or a claim by, a Person other than the owner of such Property, whether
such interest is based on common law, statute, or contract, and including,
but not limited to, the lien
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or security interest arising from a mortgage, encumbrance, pledge, security
agreement, conditional sale or trust receipt, or a lease, consignment, or
bailment for security purposes (other than true leases or true
consignments), liens of mechanics, materialmen, and artisans, maritime
liens and reservations, exceptions, encroachments, easements, rights of
way, covenants, conditions, restrictions, leases, and other title
exceptions and encumbrances affecting Property which secure an obligation
owed to, or a claim by, a Person other than the owner of such Property (for
the purpose of this Agreement, the Borrower shall be deemed to be the owner
of any Property which it has acquired or holds subject to a conditional
sale agreement, financing lease, or other arrangement pursuant to which
title to the Property has been retained by or vested in some other Person
for security purposes), and the filing or recording of any financing
statement or other security instrument in any public office.
"Limitation Period" shall mean any period while any amount remains
owing on the Note and interest on such amount, calculated at the applicable
interest rate, plus any fees or other sums payable under any Loan Document
and deemed to be interest under applicable law, would exceed the amount of
interest which would accrue at the Highest Lawful Rate.
"Loan" shall mean any loan made by the Lender to or for the benefit of
the Borrower pursuant to this Agreement and any payment made by the Lender
under a Letter of Credit.
"Loan Balance" shall mean, at any time, the outstanding principal
balance of the Note at such time, plus the L/C Exposure at such time.
"Loan Documents" shall mean this Agreement, the Note, the Guaranty,
the Letters of Credit Applications, the Letters of Credit, the Security
Instruments, and all other documents and instruments now or hereafter
delivered pursuant to the terms of or in connection with this Agreement,
the Note, the Guaranty, the Letters of Credit Applications, the Letters of
Credit, or the Security Instruments, and all renewals and extensions of,
amendments and supplements to, and restatements of, any or all of the
foregoing from time to time in effect.
"Material Adverse Effect" shall mean (a) any adverse effect on the
business, operations, properties, financial condition of the Borrower, or
the Guarantor which materially increases the risk that any of the
Obligations will not be repaid as and when due, or (b) any material adverse
effect upon the Collateral.
"Maximum Liability" shall mean all liabilities which would, in
accordance with GAAP, be included as liabilities on a balance sheet of the
Borrower as of the date of calculation.
"Mortgaged Properties" shall mean all Oil and Gas Properties of the
Borrower, subject to a perfected first-priority Lien in favor of the
Lender, subject only to Permitted Liens, as security for the Obligations.
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"Note" shall mean the promissory note of the Borrower, in the form
attached hereto as Exhibit I, together with all renewals, extensions for
any period, increases, and rearrangements thereof.
"Obligations" shall mean, without duplication, (a) all Indebtedness
evidenced by the Note, (b) the Reimbursement Obligations, (c) the undrawn,
unexpired amount of all outstanding Letters of Credit, (d) the obligation
of the Borrower for the payment of Commitment Fees, Letter of Credit Fees,
and Engineering Fees, (e) the obligations of the Guarantor under the
Guaranty, (f) all obligations and liabilities whether now existing or
hereafter arising of the Borrower to the Lender in connection with any
Commodity Hedge Agreement or Rate Management Transaction, and (e) all other
obligations and liabilities of the Borrower or the Guarantor to the Lender,
now existing or hereafter incurred, under, arising out of or in connection
with any Loan Document, and to the extent that any of the foregoing
includes or refers to the payment of amounts deemed or constituting
interest, only so much thereof as shall have accrued, been earned and which
remains unpaid at each relevant time of determination.
"Oil and Gas Properties" shall mean fee, leasehold, or other interests
in or under mineral estates or oil, gas, and other liquid or gaseous
hydrocarbon leases with respect to Properties situated in the United States
or offshore from any State of the United States, including, without
limitation, overriding royalty and royalty interests, leasehold estate
interests, net profits interests, production payment interests, and mineral
fee interests, together with contracts executed in connection therewith and
all tenements, hereditaments, appurtenances and Properties appertaining,
belonging, affixed, or incidental thereto.
"Permitted Liens" shall mean (a) Liens for taxes, assessments, or
other governmental charges or levies not yet due or which (if foreclosure,
distraint, sale, or other similar proceedings shall not have been
initiated) are being contested in good faith by appropriate proceedings,
and such reserve as may be required by GAAP shall have been made therefor,
(b) Liens (including, but not limited to, pledges or deposits) in
connection with workers' compensation, unemployment insurance or other
social security (other than Liens created by Section 4068 of ERISA),
old-age pension, or public liability obligations which are not yet due or
which are being contested in good faith by appropriate proceedings, if such
reserve as may be required by GAAP shall have been made therefor, (c) Liens
in favor of vendors, carriers, warehousemen, repairmen, mechanics, workmen,
materialmen, construction, or similar Liens arising by operation of law in
the ordinary course of business in respect of obligations which are not yet
due or which are being contested in good faith by appropriate proceedings,
if such reserve as may be required by GAAP shall have been made therefor,
(d) Liens in favor of operators and non-operators under joint operating
agreements or similar contractual arrangements arising in the ordinary
course of the business of the Borrower to secure amounts owing, which
amounts are not yet due or are being contested in good faith by appropriate
proceedings, if such reserve as may be required by GAAP shall have been
made therefor, (e) Liens under production sales agreements, division
orders, operating agreements, and other
13
agreements customary in the oil and gas business for processing, producing,
and selling hydrocarbons securing obligations not constituting Indebtedness
and provided that such Liens do not secure obligations to deliver
hydrocarbons at some future date without receiving full payment therefor
within 90 days of delivery, (f) easements, rights of way, restrictions, and
other similar encumbrances, and minor defects in the chain of title which
are customarily accepted in the oil and gas financing industry, none of
which interfere with the ordinary conduct of the business of the Borrower
or materially detract from the value or use of the Property to which they
apply and (g) Liens in favor of the Lender and other Liens expressly
permitted under the Security Instruments.
"Person" shall mean an individual, corporation, partnership, trust,
unincorporated organization, government, any agency or political
subdivision of any government, or any other form of entity.
"Plan" shall mean, at any time, any employee benefit plan which is
covered by ERISA and in respect of which the Borrower, the Guarantor, or
any Commonly Controlled Entity is (or, if such 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.
"Principal Office" shall mean the principal office of the Lender in
Houston, Texas, presently located at 000 Xxxx Xxxxxx, Xxxxx 0000, Xxxxxxx,
Xxxxx 00000.
"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, tangible or intangible.
"Rate Management Transaction" shall mean any transaction (including an
agreement with respect thereto) now existing or hereafter entered into
between Borrower and Lender or a Person acceptable to the Lender which is a
rate swap, basis swap, forward rate transaction, commodity swap, commodity
option, equity or equity index swap, equity or equity index option, bond
option, interest rate option, foreign exchange transaction, cap
transaction, floor transaction, collar transaction, forward transaction,
currency swap transaction, cross-currency rate swap transaction, currency
option or any other similar transaction (including any option with respect
to any of these transactions) or any combination thereof, whether linked to
on or more interest rates, foreign currencies, commodity prices, equity
prices or other financial measures.
"Regulation D" shall mean Regulation D of the Board of Governors of
the Federal Reserve System, as the same may be amended or supplemented from
time to time.
"Regulatory Change" shall mean the passage, adoption, institution, or
amendment of any federal, state, local, or foreign Requirement of Law
(including, without limitation, Regulation D), or any interpretation,
directive, or request (whether or not having the force of law) of any
Governmental Authority or monetary
14
authority charged with the enforcement, interpretation, or administration
thereof, occurring after the Closing Date and applying to a class of banks
including the Lender.
"Reimbursement Obligation" shall mean the obligation of the Borrower
to provide to the Lender or reimburse the Lender for any amounts payable,
paid, or incurred by the Lender with respect to Letters of Credit.
"Release of Hazardous Substances" shall mean any emission, spill,
release, disposal, or discharge, except in accordance with a valid permit,
license, certificate, or approval of the relevant Governmental Authority,
of any Hazardous Substance into or upon (a) the air, (b) soils or any
improvements located thereon, (c) surface water or groundwater, or (d) the
sewer or septic system, or the waste treatment, storage, or disposal system
servicing any Property of the Borrower.
"Requirement of Law" shall mean, as to any Person, the certificate or
articles of incorporation and by-laws, partnership agreements or other
organizational or governing documents of such Person, and 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 permits, licenses, registrations, approvals, or authorizations, 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.
"Reserve Report" shall mean each report delivered to the Lender
pursuant to Section 5.4.
"Responsible Officer" shall mean, as to any Person, its President,
Chief Executive Officer, Chief Financial Officer or any Vice President.
"Security Instruments" shall mean the Existing Security Documents
executed and delivered in satisfaction of the condition set forth in
Section 3.1(f), and all other documents and instruments at any time
executed as 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 to any Person, a corporation of which
shares of stock having ordinary voting power (other than stock having such
power only by reason of the happening of a contingency) to elect a majority
of the board of directors or other managers of such corporation are at the
time owned, or the management of which is otherwise controlled, directly or
indirectly through one or more intermediaries, or both, by such Person.
"Superfund Site" shall mean those sites listed on the Environmental
Protection Agency National Priority List and eligible for remedial action
or any comparable state registries or list in any state of the United
States.
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"UCC" shall mean the Uniform Commercial Code as from time to time in
effect in the State of Delaware.
1.3 Undefined Financial Accounting Terms. Undefined financial accounting
terms used in this Agreement shall be defined according to GAAP at the time in
effect.
1.4 References. References in this Agreement to Exhibit, Article, or
Section numbers shall be to Exhibits, Articles, or Sections of this Agreement,
unless expressly stated to the contrary. References in this Agreement to
"hereby," "herein," "hereinafter," "hereinabove," "hereinbelow," "hereof,"
"hereunder" and words of similar import shall be to this Agreement in its
entirety and not only to the particular Exhibit, Article, or Section in which
such reference appears.
1.5 Articles and Sections. This Agreement, for convenience only, has been
divided into Articles and Sections; and it is understood that the rights and
other legal relations of the parties hereto shall be determined from this
instrument as an entirety and without regard to the aforesaid division into
Articles and Sections and without regard to headings prefixed to such Articles
or Sections.
1.6 Number and Gender. Whenever the context requires, reference herein
made to the single number shall be understood to include the plural; and
likewise, the plural shall be understood to include the singular. Definitions of
terms defined in the singular or plural shall be equally applicable to the
plural or singular, as the case may be, unless otherwise indicated. Words
denoting sex shall be construed to include the masculine, feminine and neuter,
when such construction is appropriate; and specific enumeration shall not
exclude the general but shall be construed as cumulative.
1.7 Incorporation of Exhibits. The Exhibits attached to this Agreement are
incorporated herein and shall be considered a part of this Agreement for all
purposes.
ARTICLE II
TERMS OF FACILITY
2.1 Revolving Line of Credit. (a) Upon the terms and conditions
(including, without limitation, the right of the Lender to decline to make any
Loan so long as any Default or Event of Default exists) and relying on the
representations and warranties contained in this Agreement, the Lender agrees,
during the Commitment Period, to make Loans, in immediately available funds at
the Principal Office, to or for the benefit of the Borrower, from time to time
on any Business Day designated by the Borrower following receipt by the Lender
of a Borrowing Request; provided, however, that the Loan Balance shall not
exceed at any time the lesser of the Commitment Amount or the Borrowing Base
then in effect. Loans shall be made from time to time on any Business Day
designated by the Borrower in its Borrowing Request.
(b) Subject to the terms of this Agreement, during the Commitment
Period, the Borrower may borrow, repay, and reborrow and convert Loans of one
type or with one Interest Period into Loans of another type or with a different
Interest Period. Except for prepayments made pursuant to Section 2.11, each
borrowing, conversion, and prepayment of principal of Loans shall be
16
in an amount at least equal to $100,000. Each borrowing, prepayment, or
conversion of or into a Loan of a different type or, in the case of a LIBO Rate
Loan, having a different Interest Period, shall be deemed a separate borrowing,
conversion, and prepayment for purposes of the foregoing, one for each type of
Loan or Interest Period. Anything in this Agreement to the contrary
notwithstanding, the aggregate principal amount of LIBO Rate Loans having the
same Interest Period shall be at least equal to $500,000 with multiples of
$100,000; and if any LIBO Rate Loan would otherwise be in a lesser principal
amount for any period, such Loan shall be a Floating Rate Loan during such
period.
(c) The Loans made under this Section 2.1 shall be made and maintained
at the Principal Office and shall be evidenced by the Note.
2.2 Letter of Credit Facility. Upon the terms and conditions and relying
on the representations and warranties contained in this Agreement, the Lender
agrees, from the date of this Agreement until the date which is 30 days prior to
the Commitment Termination Date, to issue Letters of Credit for the account of
the Borrower and to renew and extend such Letters of Credit. Letters of Credit
shall be issued, renewed, or extended from time to time on any Business Day
designated by the Borrower following the receipt in accordance with the terms
hereof by the Lender of the written (or oral, confirmed promptly in writing)
request by a Responsible Officer of the Borrower therefor and a Letter of Credit
Application. Letters of Credit shall be issued in such amounts as the Borrower
may request; provided, however, that (i) no Letter of Credit shall have an
expiration date which is more than 365 days after the issuance thereof or
subsequent to five days prior to the Commitment Termination Date, (ii) the Loan
Balance plus the L/C Exposure shall not exceed at any time the lesser of the
Commitment Amount or the Borrowing Base, and (iii) the L/C Exposure shall not
exceed at any time $1,000,000.
2.3 Limitations on Interest Periods. Each Interest Period selected by the
Borrower (a) which commences on the last Business Day of a calendar month (or
any day for which there is no numerically corresponding day in the appropriate
subsequent calendar month) shall end on the last Business Day of the appropriate
subsequent calendar month, (b) which would otherwise end on a day which is not a
Business Day shall end on the next succeeding Business Day (or, if such next
succeeding Business Day falls in the next succeeding calendar month, on the next
preceding Business Day), (c) which would otherwise end after Final Maturity
shall end on Final Maturity, and (d) shall have a duration of not less than one
month and, if any Interest Period would otherwise be a shorter period, the
relevant Loan shall be a Floating Rate Loan during such period.
2.4 Limitation on Types of Loans. Anything herein to the contrary
notwithstanding, no more than six separate Loans, including LIBO Rate Loans,
shall be outstanding at any one time, with, for purposes of this Section, all
Floating Rate Loans constituting one Loan, and all LIBO Rate Loans for the same
Interest Period constituting one Loan. Anything herein to the contrary
notwithstanding, if, on or prior to the determination of any interest rate for
any LIBO Rate Loan for any Interest Period therefor:
(a) the Lender determines (which determination shall be conclusive,
absent manifest error) that quotations of interest rates for the deposits
referred to in the definition of "LIBO Rate" in Section 1.2 are not being
provided in the relevant amounts or for the relevant maturities for
purposes of determining the rate of interest for such Loan as provided in
this Agreement; or
17
(b) the Lender determines (which determination shall be conclusive,
absent manifest error) that the rates of interest referred to in the
definition of "LIBO Rate" in Section 1.2 upon the basis of which the rate
of interest for such Loan for such Interest Period is to be determined do
not adequately cover the cost to the Lender of making or maintaining such
Loan for such Interest Period,
then the Lender shall give the Borrower prompt notice thereof; and so long as
such condition remains in effect, the Lender shall be under no obligation to
make LIBO Rate Loans or to convert Floating Rate Loans into LIBO Rate Loans, and
the Borrower shall, on the last day of the then current Interest Period for each
outstanding LIBO Rate Loan, either prepay such LIBO Rate Loan or convert such
Loan into a Floating Rate Loan in accordance with Section 2.12.
2.5 Use of Loan Proceeds and Letters of Credit. As of the date hereof,
indebtedness in the amount of $5,069,748.71 is outstanding under the Existing
Note. The Lender shall use proceeds of the initial Loan to purchase such
indebtedness. Such indebtedness shall be renewed, extended, and rearranged
pursuant to the terms of this Agreement, the Note, and the relevant Borrowing
Request and shall for all purposes be deemed a borrowing hereunder. Proceeds of
all subsequent Loans shall be used solely for acquisitions and development of
Oil and Gas Properties and for general corporate purposes.
(b) Letters of Credit shall be used solely for general corporate
purposes provided, however, no Letter of Credit may be used in lieu or in
support of stay or appeal bonds.
2.6 Interest. Subject to the terms of this Agreement (including, without
limitation, Section 2.15), interest on the Loans shall accrue and be payable at
a rate per annum equal to the Floating Rate for each Floating Rate Loan and the
Adjusted LIBO Rate for each LIBO Rate Loan. Interest on all Floating Rate Loans
shall be computed on the basis of a year of 365 or 366 days, as the case may be,
and actual days elapsed (including the first day but excluding the last day)
during the period for which payable. Interest on all LIBO Rate Loans shall be
computed on the basis of a year of 360 days, and actual days elapsed (including
the first day but excluding the last day) during the period for which payable.
Notwithstanding the foregoing, interest on past-due principal and, to the extent
permitted by applicable law, past-due interest, shall accrue at the Default
Rate, computed on the basis of a year of 365 or 366 days, as the case may be,
and actual days elapsed (including the first day but excluding the last day)
during the period for which payable, and shall be payable upon demand by the
Lender at any time as to all or any portion of such interest. In the event that
the Borrower fails to select the duration of any Interest Period for any Fixed
Rate Loan within the time period and otherwise as provided herein, such Loan (if
outstanding as a Fixed Rate Loan) will be automatically converted into a
Floating Rate Loan on the last day of the then current Interest Period for such
Loan or (if outstanding as a Floating Rate Loan) will remain as, or (if not then
outstanding) will be made as, a Floating Rate Loan. Interest provided for herein
shall be calculated on unpaid sums actually advanced and outstanding pursuant to
the terms of this Agreement and only for the period from the date or dates of
such advances until repayment. Notwithstanding anything in this Agreement to the
contrary if an Event of Default shall have occurred and be continuing each LIBO
Rate Loan shall be converted to a Floating Rate Loan on the last day of the
interest period applicable thereto.
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2.7 Repayment of Loans and Interest. Accrued and unpaid interest on each
outstanding Floating Rate Loan shall be due and payable monthly commencing on
the first day of January, 2003, and continuing on the first day of each calendar
month thereafter while any Floating Rate Loan remains outstanding, the payment
in each instance to be the amount of interest which has accrued and remains
unpaid in respect of the relevant Loan. Accrued and unpaid interest on each
outstanding 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
in excess of three months, on the day of the third calendar month following the
commencement of such Interest Period corresponding to the day of the calendar
month on which such Interest Period commenced, the payment in each instance to
be the amount of interest which has accrued and remains unpaid in respect of the
relevant Loan. The Loan Balance, together with all accrued and unpaid interest
thereon, shall be due and payable at Final Maturity. At the time of making each
payment hereunder or under the Note, the Borrower shall specify to the Lender
the Loans or other amounts payable by the Borrower hereunder to which such
payment is to be applied. In the event the Borrower fails to so specify, or if
an Event of Default has occurred and is continuing, the Lender may apply such
payment as it may elect in its sole discretion.
2.8 Outstanding Amounts. The outstanding principal balance of the Note
reflected by the notations by the Lender on its records shall be deemed
rebuttably presumptive evidence of the principal amount owing on the Note. The
liability for payment of principal and interest evidenced by the Note shall be
limited to principal amounts actually advanced and outstanding pursuant to this
Agreement and interest on such amounts calculated in accordance with this
Agreement.
2.9 Time, Place, and Method of Payments. All payments required pursuant to
this Agreement or the Note shall be made in lawful money of the United States of
America and in immediately available funds, shall be deemed received by the
Lender on the next Business Day following receipt if such receipt is after 2:00
p.m., Central Standard or Daylight Savings Time, as the case may be, on any
Business Day, and shall be made at the Principal Office. Except as provided to
the contrary herein, if the due date of any payment hereunder or under the Note
would otherwise fall on a day which is not a Business Day, such date shall be
extended to the next succeeding Business Day, and interest shall be payable for
any principal so extended for the period of such extension.
2.10 Borrowing Base Determinations. (a) The Borrowing Base as of the
Closing Date is acknowledged by the Borrower and the Lender to be $7,500,000.
Commencing on January 1, 2003, and continuing thereafter on the first day of
each calendar month until the next Borrowing Base review, the amount of the
Borrowing Base shall be reduced by $200,000.
(b) The Borrowing Base shall be redetermined semi-annually beginning
May 1, 2003, on the basis of information supplied by the Borrower in compliance
with the provisions of this Agreement, including, without limitation, Reserve
Reports, and all other information available to the Lender. In addition, the
Lender shall, in the normal course of business following a request of the
Borrower, redetermine the Borrowing Base; provided, however, the Lender shall
not be obligated to respond to more than two such requests during any calendar
year, and in no event shall the Lender be required to redetermine the Borrowing
Base more than once in any three-month period, including, without limitation,
each scheduled semi-annual redetermination provided for above. Notwithstanding
the foregoing, the Lender may at its discretion redetermine the Borrowing Base
and the amount by which the Borrowing Base shall be reduced each calendar month
as set forth in Section 2.7(a) at any time and from time to time.
19
(c) Upon each determination of the Borrowing Base by the Lender, the
Lender shall notify the Borrower orally (confirming such notice promptly in
writing) of such determination, and the Borrowing Base and the amount by which
the Borrowing Base shall be reduced so communicated to the Borrower shall become
effective upon such written notification and shall remain in effect until the
next subsequent determination of the Borrowing Base and the amount by which the
Borrowing Base shall be reduced.
(d) The Borrowing Base shall represent the determination by the
Lender, in accordance with the applicable definitions and provisions herein
contained and its customary lending practices for loans of this nature, of the
value, for loan purposes, of the Mortgaged Properties, subject, in the case of
any increase in the Borrowing Base, to the credit approval process of the
Lender. Furthermore, the Borrower acknowledges that the determination of the
Borrowing Base contains an equity cushion (market value in excess of loan
value), which is acknowledged by the Borrower to be essential for the adequate
protection of the Lender.
2.11 Mandatory Prepayments. If at any time the sum of the Loan Balance and
the L/C Exposure exceeds the Borrowing Base then in effect, the Borrower shall,
within 30 days of notice from the Lender of such occurrence, (a) prepay, or make
arrangements acceptable to the Lender for the prepayment of, the amount of such
excess for application on the Loan Balance, (b) provide additional collateral,
of character and value satisfactory to the Lender in its sole discretion, to
secure the Obligations by the execution and delivery to the Lender of security
instruments in form and substance satisfactory to the Lender, or (c) effect any
combination of the alternatives described in clauses (a) and (b) of this Section
and acceptable to the Lender in its sole discretion. In the event that a
mandatory prepayment is required under this Section and the Loan Balance is less
than the amount required to be prepaid, the Borrower shall repay the entire Loan
Balance and, in accordance with the provisions of the relevant Letter of Credit
Applications executed by the Borrower or otherwise to the satisfaction of the
Lender, deposit with the Lender, as additional collateral securing the
Obligations, an amount of cash, in immediately available funds, equal to the L/C
Exposure minus the Borrowing Base. The cash deposited with the Lender in
satisfaction of the requirement provided in this Section may be invested, at the
sole discretion of the Lender and then only at the express direction of the
Borrower as to investment vehicle and maturity (which shall be no later than the
latest expiry date of any then outstanding Letter of Credit), for the account of
the Borrower in cash or cash equivalent investments offered by or through the
Lender.
2.12 Voluntary Prepayments of Loans. Subject to applicable provisions of
this Agreement, the Borrower shall have the right at any time or from time to
time to prepay Loans without prepayment penalty provided, however, (a) the
Borrower shall pay all accrued and unpaid interest on the amounts prepaid, and
(b) no such prepayment shall serve to postpone the repayment when due of any
Obligation.
2.13 Commitment Fee. In addition to interest on the Note as provided herein
and all other fees payable hereunder and to compensate the Lender for
maintaining funds available, the Borrower shall pay to the Lender, in
immediately available funds, on the first day of April, 2003, and on the first
day of each third calendar month thereafter during the Commitment Period, a fee
in the amount of one-half percent (1/2%) per annum, calculated on the basis of a
year of 365 or 366 days, as the case may be, and actual days elapsed (including
the first day but excluding the last day), on the average daily amount of the
Available Commitment during the preceding quarterly period.
20
2.14 Facility Fee. In addition to interest on the Note as provided herein
and all other fees payable hereunder and to compensate the Lender for the costs
of the extension of credit hereunder, the Borrower shall pay to the Lender on
the Closing Date, in immediately available funds, a facility fee in the amount
of $56,250 (one-half of which has previously been paid, leaving a balance of
$28,125 due on the Closing Date) and .75% on any future increase of the
Borrowing Base then in effect.
2.15 Engineering Fee. In addition to interest on the Note as provided
herein and all other fees payable hereunder and to compensate the Lender for the
costs of evaluating the Mortgaged Properties and reviewing the Reserve Reports,
the Borrower shall pay to the Lender, in immediately available funds, on the
date of each redetermination of the Borrowing Base, an engineering fee in the
amount of $5,000.00.
2.16 Letter of Credit Fee. In addition to interest on the Note as provided
herein and Commitment Fees and Facility Fees payable hereunder, the Borrower
agrees to pay to the Lender on the date of issuance of each Letter of Credit, a
fee equal to the greater of $500 or 2.75% per annum, calculated on the basis of
a year of 365 or 366 days, as the case may be, and actual days elapsed
(including the first day but excluding the last day), on the face amount of such
Letter of Credit during the period for which such Letter of Credit is issued;
provided, however, in the event such Letter of Credit is canceled prior to its
original expiry date or a payment is made by the Lender with respect to such
Letter of Credit, the Lender shall, within ten days after such cancellation or
the making of such payment, rebate to the Borrower the unearned portion of such
fee. The Borrower also agrees to pay to the Lender on demand its customary
letter of credit transactional fees, including, without limitation, amendment
fees, payable with respect to each Letter of Credit. Upon the Borrower's
request, a schedule of fees will be provided which fees are subject to change.
2.17 Loans to Satisfy Obligations of Borrower. The Lender may, but shall
not be obligated to, make Loans for the benefit of the Borrower and apply
proceeds thereof to the extent reasonably required to satisfy of any condition,
warranty, representation, or covenant of the Borrower contained in this
Agreement or any other Loan Document. Any such Loan shall be evidenced by the
Note and shall be made at the Floating Rate.
2.18 Security Interest in Accounts; Right of Offset. As security for the
payment and performance of the Obligations, the Borrower hereby transfers,
assigns, and pledges to the Lender and grants to the Lender a security interest
in all funds of the Borrower now or hereafter or from time to time on deposit
with the Lender, with such interest of the Lender to be retransferred,
reassigned, and/or released by the Lender, as the case may be, at the expense of
the Borrower upon payment in full and complete performance by the Borrower of
all Obligations. All remedies as secured party or assignee of such funds shall
be exercisable by the Lender upon the occurrence of any Event of Default,
regardless of whether the exercise of any such remedy would result in any
penalty or loss of interest or profit with respect to any withdrawal of funds
deposited in a time deposit account prior to the maturity thereof. Furthermore,
the Borrower hereby grants to the Lender the right, exercisable at such time as
any Obligation shall mature, whether by acceleration of maturity or otherwise,
of offset or banker's lien against all funds of the Borrower now or hereafter or
from time to time on deposit with the Lender, regardless of whether the exercise
of any such remedy would result in any penalty or loss of interest or profit
with respect to any withdrawal of funds deposited in a time deposit account
prior to the maturity thereof.
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2.19 General Provisions Relating to Interest. (a) It is the intention of
the parties hereto to comply strictly with the usury laws of the State of Texas
and the United States of America. In this connection, there shall never be
collected, charged, or received on the sums advanced hereunder interest in
excess of that which would accrue at the Highest Lawful Rate. For purposes of
Chapter 303 of the Texas Finance Code (Vernon's 1999), the Borrower agrees that
the Highest Lawful Rate shall be the "weekly ceiling" as defined in such
Section, provided that the Lender may also rely, to the extent permitted by
applicable laws of the State of Texas or the United States of America, on
alternative maximum rates of interest under other laws of the State of Texas or
the United States of America applicable to the Lender, if greater.
(b) Notwithstanding anything herein or in the Note to the contrary,
during any Limitation Period, the interest rate to be charged on amounts
evidenced by the Note shall be the Highest Lawful Rate, and the obligation, if
any, of the Borrower for the payment of fees or other charges deemed to be
interest under applicable law shall be suspended. During any period or periods
of time following a Limitation Period, to the extent permitted by applicable
laws of the State of Texas or the United States of America, the interest rate to
be charged hereunder shall remain at the Highest Lawful Rate until such time as
there has been paid to the Lender (i) the amount of interest in excess of that
accruing at the Highest Lawful Rate that the Lender would have received during
the Limitation Period had the interest rate remained at the otherwise applicable
rate, and (ii) all interest and fees otherwise payable to the Lender but for the
effect of such Limitation Period.
(c) If, under any circumstances, the aggregate amounts paid on the
Note or under this Agreement or any other Loan Document include amounts which by
law are deemed interest and which would exceed the amount permitted if the
Highest Lawful Rate were in effect, the Borrower stipulates that such payment
and collection will have been and will be deemed to have been, to the extent
permitted by applicable laws of the State of Texas or the United States of
America, the result of mathematical error on the part of the Borrower and the
Lender; and the Lender shall promptly refund the amount of such excess (to the
extent only of such interest payments in excess of that which would have accrued
and been payable on the basis of the Highest Lawful Rate) upon discovery of such
error by the Lender or notice thereof from the Borrower. In the event that the
maturity of any Obligation is accelerated, by reason of an election by the
Lender or otherwise, or in the event of any required or permitted prepayment,
then the consideration constituting interest under applicable laws may never
exceed the Highest Lawful Rate; and excess amounts paid which by law are deemed
interest, if any, shall be credited by the Lender on the principal amount of the
Obligations, or if the principal amount of the Obligations shall have been paid
in full, refunded to the Borrower.
(d) All sums paid, or agreed to be paid, to the Lender for the use,
forbearance and detention of the proceeds of any advance hereunder shall, to the
extent permitted by applicable law, be amortized, prorated, allocated, and
spread throughout the full term hereof until paid in full so that the actual
rate of interest is uniform but does not exceed the Highest Lawful Rate
throughout the full term hereof.
2.20 Yield Protection. The Borrower shall pay to the Lender such amounts as
shall be sufficient in the reasonable opinion of the Lender to compensate it for
any loss, cost, or expense incurred by and as a result of:
22
(i) any payment, prepayment, or conversion by the Borrower of a
Fixed Rate Loan on a date other than the last day of an Interest
Period for such Loan; or
(ii) any failure by the Borrower to borrow a Fixed Rate Loan from
the Lender on the date for such borrowing specified in the relevant
Borrowing Request;
such compensation to include, without limitation, with respect to any LIBO Rate
Loan, an amount equal to the excess, if any, of (A) the amount of interest which
would have accrued on the principal amount so paid, prepaid, converted, or not
borrowed for the period from the date of such payment, prepayment, conversion,
or failure to borrow to the last day of the then current Interest Period for
such Loan (or, in the case of a failure to borrow, the Interest Period for such
Loan which would have commenced on the date of such failure to borrow) at the
applicable rate of interest for such Loan provided for herein over (B) the
interest component (as reasonably determined by the Lender) of the amount (as
reasonably determined by the Lender) the Lender would have bid in the London
interbank market for Dollar deposits of amounts comparable to such principal
amount and maturities comparable to such period.
2.21 Illegality. Notwithstanding any other provision of this Agreement, in
the event that it becomes unlawful for the Lender or its Applicable Lending
Office to (a) honor its obligation to make any type of Fixed Rate Loans
hereunder, or (b) maintain any type of Fixed Rate Loans hereunder, then the
Lender shall promptly notify the Borrower thereof; and the obligation of the
Lender hereunder to make such type of Fixed Rate Loans and to convert other
types of Loans into Fixed Rate Loans of such type shall be suspended until such
time as the Lender may again make and maintain Fixed Rate Loans of such type,
and the outstanding Fixed Rate Loans of such type shall be converted into
Floating Rate Loans in accordance with Section 2.13. Before giving such notice
pursuant to this Section, the Lender will designate a different available
Applicable Lending Office for Fixed Rate Loans or take such other action as the
Borrower may request if such designation or action will avoid the need to
suspend the obligation of the Lender to make Fixed Rate Loans and will not, in
the opinion of the Lender, be disadvantageous to the Lender.
2.22 Regulatory Change. In the event that by reason of any Regulatory
Change, the Lender (a) incur Additional Costs based on or measured by the excess
above a specified level of the amount of a category of deposits or other
liabilities of the Lender which includes deposits by reference to which the
interest rate on any Fixed Rate Loan is determined as provided in this Agreement
or a category of extensions of credit or other assets of such Lender which
includes any Fixed Rate Loan, or (b) becomes subject to restrictions on the
amount of such a category of liabilities or assets which it may hold, then, at
the election of the Lender with notice to the Borrower, the obligation of the
Lender to make such Fixed Rate Loans and to convert Floating Rate Loans into
such Fixed Rate Loans shall be suspended until such time as such Regulatory
Change ceases to be in effect, and all such outstanding Fixed Rate Loans shall
be converted into Floating Rate Loans in accordance with Section 2.13.
2.23 Limitations on Interest Periods. Each Interest Period selected by the
Borrower (a) which commences on the last Business Day of a calendar month (or,
with respect to any LIBO Rate Loan, any day for which there is no numerically
corresponding day in the appropriate subsequent
23
calendar month) shall end on the last Business Day of the appropriate subsequent
calendar month, (b) which would otherwise end on a day which is not a Business
Day shall end on the next succeeding Business Day (or, if such next succeeding
Business Day falls in the next succeeding calendar month, on the next preceding
Business Day), (c) which would otherwise commence before and end after Final
Maturity shall end on Final Maturity, and (d) shall have a duration of not less
than one month, as to any LIBO Rate Loan, and, if any Interest Period would
otherwise be a shorter period, the relevant Loan shall be a Floating Rate Loan
during such period.
2.24 Letters in Lieu of Transfer Orders. The Lender agrees that none of the
letters in lieu of transfer or division orders provided by the Borrower pursuant
to Section 3.1(g)(v) or Section 5.7 will be sent to the addressees thereof prior
to the occurrence and continuance of an Event of Default, at which time the
Lender may, at its option and in addition to the exercise of any of its other
rights and remedies, send any or all of such letters.
2.25 Power of Attorney. The Borrower hereby designates the Lender as its
agent and attorney-in-fact, to act in its name, place, and stead for the purpose
of completing and, upon the occurrence and continuance of an Event of Default,
delivering any and all of the letters in lieu of transfer orders delivered by
the Borrower to the Lender pursuant to Section 3.1(g)(v) or Section 5.7,
including, without limitation, completing any blanks contained in such letters
and attaching exhibits thereto describing the relevant Collateral. The Borrower
hereby ratifies and confirms all that the Lender shall lawfully do or cause to
be done by virtue of this power of attorney and the rights granted with respect
to such power of attorney. This power of attorney is coupled with the interests
of the Lender in the Collateral, shall commence and be in full force and effect
as of the Closing Date and shall remain in full force and effect and shall be
irrevocable so long as any Obligation remains outstanding or unpaid or any
Commitment exists. The powers conferred on the Lender by this appointment are
solely to protect the interests of the Lender under the Loan Documents and shall
not impose any duty upon the Lender to exercise any such powers. The Lender
shall be accountable only for amounts that it actually receives as a result of
the exercise of such powers and shall not be responsible to the Borrower or any
other Person for any act or failure to act with respect to such powers, except
for gross negligence or willful misconduct.
ARTICLE III
CONDITIONS
The obligations of the Lender to enter into this Agreement and to make
Loans and issue Letters of Credit are subject to the satisfaction of the
following conditions precedent:
3.1 Receipt of Loan Documents and Other Items. The Lender shall have no
obligation under this Agreement unless and until all matters incident to the
consummation of the transactions contemplated herein, including, without
limitation, the review by the Lender or its counsel of the title of the Borrower
to its Oil and Gas Properties, shall be satisfactory to the Lender, and the
Lender shall have received, reviewed, and approved the following documents and
other items, appropriately executed when necessary and, where applicable,
acknowledged by the Borrower, all in form and substance satisfactory to the
Lender and dated, where applicable, of even date herewith or a date prior
thereto and acceptable to the Lender:
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(a) multiple counterparts of this Agreement and the Assignment and the
Guaranty, as requested by the Lender;
(b) the Existing Note; endorsed payable to the Lender;
(c) the Note;
(d) copies of the Articles of Incorporation or Certificate of
Incorporation and all amendments thereto and the bylaws and all amendments
thereto of the Borrower accompanied by a certificate issued by the secretary or
an assistant secretary of the Borrower to the effect that each such copy is
correct and complete;
(e) certificates of incumbency and signatures of all officers of the
Borrower who are authorized to execute Loan Documents on behalf of the Borrower,
each such certificate being executed by the secretary or an assistant secretary
of the Borrower;
(f) copies of corporate resolutions approving the Loan Documents and
authorizing the transactions contemplated herein and therein, duly adopted by
the board of directors of the Borrower accompanied by certificates of the
secretary or an assistant secretary of the Borrower 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 the Borrower 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;
(g) the following documents ratifying, amending, and/or restating the
Existing Security Instruments and otherwise establishing Liens in favor of the
Lender in and to the Collateral:
(i) Amended and Restated Mortgage, Deed of Trust, Indenture,
Security Agreement, Assignment of Production, and Financing Statement from
the Borrower covering all Oil and Gas Properties of the Borrower and all
improvements, personal property, and fixtures related thereto;
(ii) Financing Statements from the Borrower, as debtor, constituent
to the instrument described in clause (i) above;
(iii) Security Agreement from the Borrower pledging accounts, contract
rights, etc.;
(iv) Financing Statement from the Borrower, as debtor, constituent to
the instrument described in clause (iii) above;
(v) undated letters, in form and substance satisfactory to the
Lender, from the Borrower to each purchaser of production and disburser of
the proceeds of production from or attributable to the Mortgaged
Properties, together with additional letters with the addressees left
blank, authorizing and
25
directing the addressees to make future payments attributable to
production from the Mortgaged Properties directly to the Lender;
(h) unaudited Financial Statements of the Borrower as of September 30,
2002, with the exception of the cash flow statement and the Guarantor as of
September 30, 2002;
(i) results of searches of the UCC Records of the Secretary of State
of the State of Delaware, Louisiana and Texas, from a source acceptable to
the Lender and reflecting no Liens against any of the Collateral as to
which perfection of a Lien is accomplished by the filing of a financing
statement other than existing security instruments in favor of the Lender;
(j) confirmation, acceptable to the Lender, of the title of the
Borrower to the Mortgaged Properties, free and clear of Liens other than
Permitted Liens;
(k) copies of all material operating, lease, sublease, royalty, sales,
exchange, processing, farmout, bidding, pooling, unitization,
communitization, and other agreements relating to the Mortgaged Properties
requested by the Lender;
(l) reservoir engineering reports covering the Mortgaged Properties;
(m) the opinion of Xxxxx Xxxxxxxx, counsel to the Borrower, in the
form attached hereto as Exhibit IV, with such changes thereto as may be
approved by the Lender;
(n) certificates evidencing the insurance coverage required pursuant
to Section 5.18;
(o) payment of the balance owed on the Facility Fee;
(p) payment of the fees described in Section 5.14; and
(q) such other agreements, documents, instruments, opinions,
certificates, waivers, consents, and evidence as the Lender may reasonably
request.
3.2 Each Loan and Letter of Credit. In addition to the conditions
precedent stated elsewhere herein, the Lender shall not be obligated to make any
Loan or issue any Letter of Credit unless:
(a) the Borrower shall have delivered to the Lender a Borrowing
Request at least one Business Day prior to the requested date for the
relevant Loan, or a Letter of Credit Application at least two Business Days
prior to the requested issuance date for the relevant Letter of Credit and
each statement or certification made in such Borrowing Request or Letter of
Credit Application, as the case may be, shall be true and correct in all
material respects on the requested date for such Loan or the issuance of
such Letter of Credit;
(b) no Event of Default or Default shall exist or will occur as a
result of the making of the requested Loan or the issuance of the requested
Letter of Credit;
26
(c) if requested by the Lender, the Borrower shall have delivered
evidence satisfactory to the Lender substantiating any of the matters
contained in this Agreement which are necessary to enable the Borrower to
qualify for such Loan or the issuance of such Letter of Credit;
(d) the Lender shall have received, reviewed, and approved such
additional documents and items as described in Section 3.1 as may be
requested by the Lender with respect to such Loan or Letter of Credit;
(e) no event shall have occurred which, in the reasonable opinion of
the Lender, could have a Material Adverse Effect;
(f) each of the representations and warranties contained in this
Agreement shall be true and correct (unless they speak to a specific date
or are based on facts which have changed by transactions contemplated or
expressly permitted by this Agreement) and shall be deemed to be repeated
by the Borrower as if made on the requested date for such Loan or the
issuance of such Letter of Credit;
(g) the Guaranty and all of the Security Instruments shall be in full
force and effect and provide to the Lender the security intended thereby;
(h) neither the consummation of the transactions contemplated hereby
nor the making of such Loan nor the issuance of such Letter of Credit shall
contravene, violate, or conflict with any Requirement of Law;
(i) the Borrower shall hold full legal title to the Collateral and be
the sole beneficial owner thereof;
(j) the Lender shall have received the payment of all Engineering
Fees, and other fees payable to the Lender hereunder and reimbursement from
the Borrower, or special legal counsel for the Lender shall have received
payment from the Borrower, for (i) all reasonable fees and expenses of
counsel to the Lender for which the Borrower is responsible pursuant to
applicable provisions of this Agreement and for which invoices have been
presented as of or prior to the date of the relevant Loan or Letter of
Credit Application, and (ii) estimated fees charged by filing officers and
other public officials incurred or to be incurred in connection with the
filing and recordation of any Security Instruments, for which invoices have
been presented as of or prior to the date of the requested Loan or Letter
of Credit Application; and
(k) all matters incident to the consummation of the transactions
hereby contemplated shall be satisfactory to the Lender.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement and to make the Loans and
issue Letters of Credit, the Borrower represents and warrants to the Lender
(which representations and warranties shall survive the delivery of the Note)
that:
4.1 Due Authorization. The execution and delivery by the Borrower of this
Agreement and the borrowings hereunder, the execution and delivery by the
Borrower of the Note, the repayment of the Note and interest and fees provided
for in the Note and this Agreement, the execution and delivery of the Security
Instruments by the Borrower and the performance of all obligations of the
Borrower under the Loan Documents are within the power of the Borrower, have
been duly authorized by all necessary corporate action by the Borrower, and do
not and will not (a) require the consent of any Governmental Authority, (b)
contravene or conflict with any Requirement of Law, (c) contravene or conflict
with any indenture, instrument, or other agreement to which the Borrower is a
party or by which any Property of the Borrower may be presently bound or
encumbered, or (d) result in or require the creation or imposition of any Lien
in, upon or of any Property of the Borrower under any such indenture,
instrument, or other agreement, other than the Loan Documents.
4.2 Corporate Existence. The Borrower is a corporation duly organized,
legally existing under the laws of its state of formation and is duly qualified
as a foreign corporation and in good standing in all jurisdictions wherein the
ownership of Property or the operation of its business necessitates same, other
than those jurisdictions wherein the failure to so qualify will not have a
Material Adverse Effect.
4.3 Valid and Binding Obligations. All Loan Documents to which the Borrower
is a party, when duly executed and delivered by the Borrower, will be the legal,
valid, and binding obligations of the Borrower, enforceable against the Borrower
in accordance with their respective terms.
4.4 Security Instruments. The provisions of each Security Instrument
executed by the Borrower are effective to create in favor of the Lender, a
legal, valid, and enforceable Lien in all right, title, and interest of the
Borrower in the Collateral described therein, which Liens, assuming the
accomplishment of recording and filing in accordance with applicable laws prior
to the intervention of rights of other Persons, shall constitute fully perfected
first-priority Liens on all right, title, and interest of the Borrower in the
Collateral described therein.
4.5 Title to Assets. The Borrower has good and defensible title to its Oil
and Gas Properties, free and clear of all Liens except Permitted Liens.
4.6 Scope and Accuracy of Financial Statements. The Financial Statements of
the Borrower as of September 30, 2002, and Guarantor as of September 30, 2002,
present fairly the financial position and results of operations and cash flows
of the Borrower and Guarantor as at the relevant point in time or for the period
indicated, as applicable. No event or circumstance has
28
occurred since September 30, 2002, which could reasonably be expected to have a
Material Adverse Effect.
4.7 No Material Misstatements. No information, exhibit, statement, or
report furnished to the Lender by or at the direction of the Borrower or the
Guarantor in connection with this Agreement contains any material misstatement
of fact or omits to state a material fact or any fact necessary to make the
statements contained therein not misleading as of the date made or deemed made.
4.8 Liabilities, Litigation, and Restrictions. Other than as listed under
the heading "Liabilities" on Exhibit V attached hereto, the Borrower has no
liabilities, direct, or contingent, which may materially and adversely affect
its business or operations or its ownership of the Collateral. Except as set
forth under the heading "Litigation" on Exhibit V hereto, no litigation or other
action of any nature affecting the Borrower is pending before any Governmental
Authority or, to the best knowledge of the Borrower, threatened against or
affecting the Borrower which might reasonably be expected to result in any
impairment of its ownership of any Collateral or have a Material Adverse Effect.
To the best knowledge of the Borrower, after due inquiry, no unusual or unduly
burdensome restriction, restraint or hazard exists by contract, Requirement of
Law, or otherwise relative to the business or operations of the Borrower or the
ownership and operation of the Collateral other than such as relate generally to
Persons engaged in business activities similar to those conducted by the
Borrower.
4.9 Authorizations; Consents. Except as expressly contemplated by this
Agreement, no authorization, consent, approval, exemption, franchise, permit, or
license of, or filing with, any Governmental Authority or any other Person is
required to authorize or is otherwise required in connection with the valid
execution and delivery by the Borrower of the Loan Documents or any instrument
contemplated hereby, the repayment by the Borrower of the Note and interest and
fees provided in the Note and this Agreement, or the performance by the Borrower
of the Obligations.
4.10 Compliance with Laws. The Borrower and its Property, including,
without limitation, the Mortgaged Property, are in compliance with all
applicable Requirements of Law, including, without limitation, Environmental
Laws, the Natural Gas Policy Act of 1978, as amended, and ERISA, except to the
extent non-compliance with any such Requirements of Law could not reasonably be
expected to have a Material Adverse Effect.
4.11 ERISA. No Reportable Event has occurred with respect to any Single
Employer Plan, and each Single Employer Plan has complied with and been
administered in all material respects in accordance with applicable provisions
of ERISA and the Code. To the best knowledge of the Borrower, (a) no Reportable
Event has occurred with respect to any Multiemployer Plan, and (b) each
Multiemployer Plan has complied with and been administered in all material
respects with applicable provisions of ERISA and the Code. The present value of
all benefits vested under each Single Employer Plan maintained by the Borrower
or any Commonly Controlled Entity (based on the assumptions used to fund such
Plan) did not, as of the last annual valuation date applicable thereto, exceed
the value of the assets of such Plan allocable to such vested benefits. Neither
the Borrower nor any Commonly Controlled Entity has had a complete or partial
withdrawal from any Multiemployer Plan for which there is any withdrawal
liability. As of the most recent valuation date applicable to any Multiemployer
Plan, neither the Borrower nor any Commonly Controlled Entity would become
subject to any liability under ERISA if the Borrower or such Commonly Controlled
29
Entity were to withdraw completely from such Multiemployer Plan. Neither the
Borrower nor any Commonly Controlled Entity has received notice that any
Multiemployer Plan is Insolvent or in Reorganization. To the knowledge of the
Borrower, no such Insolvency or Reorganization is reasonably likely to occur.
Based upon GAAP existing as of the date of this Agreement and current factual
circumstances, the Borrower has no reason to believe that the annual cost during
the term of this Agreement to the Borrower and all Commonly Controlled Entities
for post-retirement benefits to be provided to the current and former employees
of the Borrower and all Commonly Controlled Entities under Plans which are
welfare benefit plans (as defined in Section 3(1) of ERISA) will, in the
aggregate, have a Material Adverse Effect.
4.12 Environmental Laws. To the best knowledge and belief of the Borrower,
except as would not have a Material Adverse Effect, or as described on Exhibit V
under the heading "Environmental Matters:"
(a) no Property of the Borrower is currently on or has ever been on
any Property which is on or has ever been on, any federal or state list of
Superfund Sites;
(b) no Hazardous Substances have been generated, transported, and/or
disposed of by the Borrower at a site which was, at the time of such
generation, transportation, and/or disposal, or has since become, a
Superfund Site;
(c) except in accordance with applicable Requirements of Law or the
terms of a valid permit, license, certificate, or approval of the relevant
Governmental Authority, no Release of Hazardous Substances by the Borrower
or from, affecting, or related to any Property of the Borrower or adjacent
to any Property of the Borrower has occurred; and
(d) no Environmental Complaint has been received by the Borrower.
4.13 Compliance with Federal Reserve Regulations. No transaction
contemplated by the Loan Documents is in violation of any regulations
promulgated by the Board of Governors of the Federal Reserve System, including,
without limitation, Regulations T, U, or X.
4.14 Investment Company Act Compliance. The Borrower is not, nor is the
Borrower directly or indirectly controlled by or acting on behalf of any Person
which is, an "investment company" or an "affiliated person" of an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
4.15 Public Utility Holding Company Act Compliance. The Borrower is not a
"holding company," or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company," within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
4.16 Proper Filing of Tax Returns; Payment of Taxes Due. The Borrower has
duly and properly filed its United States income tax return and all other tax
returns which are required to be filed and has paid all taxes due except such as
are being contested in good faith and as to which adequate provisions and
disclosures have been made. The respective charges and reserves on the books of
the Borrower with respect to taxes and other governmental charges are adequate.
30
4.17 Refunds. Except as described on Exhibit V under the heading "Refunds,"
no orders of, proceedings pending before, or other requirements of, the Federal
Energy Regulatory Commission, the Texas Railroad Commission, or any Governmental
Authority exist which could result in the Borrower being required to refund any
material portion of the proceeds received or to be received from the sale of
hydrocarbons constituting part of the Mortgaged Property.
4.18 Gas Contracts. Except as described on Exhibit V under the heading "Gas
Contracts," the Borrower (a) is not obligated in any material respect by virtue
of any prepayment made under any contract containing a "take-or-pay" or
"prepayment" provision or under any similar agreement to deliver hydrocarbons
produced from or allocated to any of the Mortgaged Property at some future date
without receiving full payment therefor within 90 days of delivery, and (b) has
not produced gas, in any material amount, subject to, and neither the Borrower
nor any of the Mortgaged Properties is subject to, balancing rights of third
parties or subject to balancing duties under governmental requirements, except
as to such matters for which the Borrower has established monetary reserves
adequate in amount to satisfy such obligations and has segregated such reserves
from other accounts.
4.19 Intellectual Property. The Borrower owns or is licensed to use all
Intellectual Property necessary to conduct all business material to its
condition (financial or otherwise), business, or operations as such business is
currently conducted. No claim has been asserted or is pending by any Person with
the respect to the use of any such Intellectual Property or challenging or
questioning the validity or effectiveness of any such Intellectual Property; and
the Borrower knows of no valid basis for any such claim. The use of such
Intellectual Property by the Borrower does not infringe on the rights of any
Person, except for such claims and infringements as do not, in the aggregate,
give rise to any material liability on the part of the Borrower.
4.20 Casualties or Taking of Property. Except as disclosed on Exhibit V
under the heading "Casualties," since September 30, 2002, neither the business
nor any Property of the Borrower has been materially adversely affected as a
result of any fire, explosion, earthquake, flood, drought, windstorm, accident,
strike or other labor disturbance, embargo, requisition or taking of Property,
or cancellation of contracts, permits, or concessions by any Governmental
Authority, riot, activities of armed forces, or acts of God.
4.21 Locations of Borrower. The principal place of business and chief
executive office of the Borrower is located at the address of the Borrower set
forth in Section 8.3 or at such other location as the Borrower may have, by
proper written notice hereunder, advised the Lender, provided that such other
location is within a state in which appropriate financing statements from the
Borrower in favor of the Lender have been filed.
4.22 Subsidiaries. The Borrower has no Subsidiaries except those described
on Exhibit V under the heading "Subsidiaries".
4.23 Existing Indebtedness; No Defenses. As of the date hereof, (a) the
Borrower is indebted to the Existing Lender under the Existing Note in the
aggregate principal amount of $5,069,748.71, and (b) the Borrower has no
defenses to, rights of setoff against, claims or counterclaims with respect to,
and no default exists under or with respect to, any of the Existing Loan
Documents or any Indebtedness or obligation of the Borrower to the Existing
Lender.
31
ARTICLE V
AFFIRMATIVE COVENANTS
So long as any Obligation remains outstanding or unpaid or any Commitment
exists, the Borrower shall:
5.1 Maintenance and Access to Records. Keep adequate records, in accordance
with GAAP, of all its transactions so that at any time, and from time to time,
its true and complete financial condition may be readily determined, and
promptly following the reasonable request of the Lender, make such records
available for inspection by the Lender and, at the expense of the Borrower,
allow the Lender to make and take away copies thereof.
5.2 Quarterly Financial Statements; Compliance Certificates. Deliver to the
Lender, (a) on or before the 60/th/ day after the close of each of the first
three quarterly periods of each fiscal year of the Borrower, a copy of the
unaudited consolidated Financial Statements of the Borrower and the unaudited
Financial Statement of the Guarantor as at the close of such quarterly period
and from the beginning of such fiscal year to the end of such period, such
Financial Statements to be certified by a Responsible Officer of the Borrower
and the Guarantor as a fair presentation of the condition of the Borrower,
subject to changes resulting from normal year-end audit adjustments, and (b) on
or before the 60th day after the close of each fiscal quarter, with the
exception of the last fiscal quarter, a Compliance Certificate.
5.3 Annual Financial Statements. Deliver to the Lender, on or before the
90/th/ day after the close of each fiscal year of the Borrower and the
Guarantor, a copy of the annual consolidated unaudited Financial Statements of
the Borrower and audited Financial Statement of the Guarantor and a Compliance
Certificate.
5.4 Oil and Gas Reserve Reports. (a) Deliver to the Lender no later than
April 1 of each year during the term of this Agreement, engineering reports in
form and substance satisfactory to the Lender, certified by any nationally- or
regionally-recognized independent consulting petroleum engineers acceptable to
the Lender as fairly and accurately setting forth (i) 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 January 1 of
the year for which such reserve reports are furnished, (ii) the aggregate
present value of the future net income with respect to such Mortgaged
Properties, discounted at a stated per annum discount rate of proven and
producing reserves, (iii) projections of the annual rate of production, gross
income, and net income with respect to such proven and producing reserves, and
(iv) information with respect to the "take-or-pay," "prepayment," and
gas-balancing liabilities of the Borrower.
(b) Deliver to the Lender no later than October 1 of each year during the
term of this Agreement, engineering reports in form and substance satisfactory
to the Lender prepared by or under the supervision of the chief petroleum
engineer of the Borrower evaluating the Mortgaged Properties as of July 1 of the
year for which such reserve reports are furnished and updating the information
provided in the reports pursuant to Section 5.4(a).
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(c) Each of the reports provided pursuant to this Section shall be
submitted to the Lender together with additional data concerning pricing,
quantities of production from the Mortgaged Properties, volumes of production
sold, purchasers of production, gross revenues, expenses, and such other
information and engineering and geological data with respect thereto as the
Lender may reasonably request.
5.5 Title Opinions; Title Defects. Promptly upon the request of the Lender,
furnish to the Lender title opinions, in form and substance and by counsel
satisfactory to the Lender, or other confirmation of title acceptable to the
Lender, covering Oil and Gas Properties constituting not less than 81% of the
value, determined by the Lender in its sole discretion, of the Mortgaged
Properties; and promptly, but in any event within 60 days after notice by the
Lender of any defect, material in the opinion of the Lender in value, in the
title of the Borrower to any of its Oil and Gas Properties, clear such title
defects, and, in the event any such title defects are not cured in a timely
manner, pay all related costs and fees incurred by the Lender to do so.
5.6 Notices of Certain Events. Deliver to the Lender, immediately upon
having knowledge of the occurrence of any of the following events or
circumstances, a written statement with respect thereto, signed by a Responsible
Officer of the Borrower and setting forth the relevant event or circumstance and
the steps being taken by the Borrower or the Guarantor with respect to such
event or circumstance:
(a) any Default or Event of Default;
(b) any default or event of default under any contractual obligation of
the Borrower or the Guarantor, or any litigation, investigation, or
proceeding between the Borrower or the Guarantor and any Governmental
Authority which, in either case, if not cured or if adversely determined,
as the case may be, could reasonably be expected to have a Material Adverse
Effect;
(c) any litigation or proceeding involving the Borrower or the
Guarantor as a defendant or in which any Property of the Borrower or the
Guarantor is subject to a claim and in which the amount involved is
$100,000.00 or more and which is not covered by insurance or in which
injunctive or similar relief is sought;
(d) the receipt by the Borrower of any written Environmental Complaint
having a Material Adverse Effect;
(e) any actual, proposed, or threatened testing or other investigation
by any Governmental Authority or other Person concerning the environmental
condition of, or relating to, any Property of the Borrower or adjacent to
any Property of the Borrower following any allegation of a violation of an
Environmental Complaint;
(f) any Release of Hazardous Substances by the Borrower or from,
affecting, or related to any Property of the Borrower or adjacent to any
Property of the Borrower except in accordance with applicable Requirements
of Law or the terms of a valid permit, license, certificate, or approval of
the relevant Governmental Authority, or the violation of any Environmental
Law, or the revocation, suspension, or forfeiture of or failure to renew,
any
33
permit, license, registration, approval, or authorization in each such case
which could reasonably be expected to have a Material Adverse Effect;
(g) the change in identity or address of any Person remitting to the
Borrower proceeds from the sale of hydrocarbon production from or
attributable to any Mortgaged Property;
(h) any change in the senior management of the Borrower; and
(i) any other event or condition which could reasonably be expected to
have a Material Adverse Effect.
5.7 Letters in Lieu of Transfer Orders; Division Orders. Promptly upon
request by the Lender at any time and from time to time, and without limitation
on the rights of the Lender pursuant to Section 2.17, execute such letters in
lieu of transfer orders, in addition to the letters signed by the Borrower and
delivered to the Lender in satisfaction of the condition set forth in Section
3.1(g)(v) and/or division and/or transfer orders as are necessary or appropriate
to transfer and deliver to the Lender proceeds from or attributable to any
Mortgaged Property.
5.8 Additional Information. Furnish to the Lender, promptly upon the
request of the Lender, such additional financial or other information concerning
the assets, liabilities, operations, and transactions of the Borrower as the
Lender may from time to time request; and notify the Lender not less than ten
Business Days prior to the occurrence of any condition or event that may change
the proper location for the filing of any financing statement or other public
notice or recording for the purpose of perfecting a Lien in any Collateral,
including, without limitation, any change in its name or the location of its
principal place of business or chief executive office; and upon the request of
the Lender, execute such additional Security Instruments as may be necessary or
appropriate in connection therewith.
5.9 Compliance with Laws. Except to the extent the failure to comply or
cause compliance would not have a Material Adverse Effect, comply with all
applicable Requirements of Law, including, without limitation, (a) the Natural
Gas Policy Act of 1978, as amended, (b) ERISA, (c) Environmental Laws, and (d)
all permits, licenses, registrations, approvals, and authorizations (i) related
to any natural or environmental resource or media located on, above, within, in
the vicinity of, related to or affected by any Property of the Borrower, (ii)
required for the performance of the operations of the Borrower, or (iii)
applicable to the use, generation, handling, storage, treatment, transport, or
disposal of any Hazardous Substances; and cause all employees, crew members,
agents, contractors, subcontractors, and future lessees (pursuant to appropriate
lease provisions) of the Borrower, while such Persons are acting within the
scope of their relationship with the Borrower, to comply with all such
Requirements of Law as may be necessary or appropriate to enable the Borrower to
so comply.
5.10 Payment of Assessments and Charges. Pay all taxes, assessments,
governmental charges, rent, and other Indebtedness which, if unpaid, might
become a Lien against the Property of the Borrower, except any of the foregoing
being contested in good faith and as to which adequate reserve in accordance
with GAAP has been established or unless failure to pay would not have a
Material Adverse Effect.
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5.11 Maintenance of Corporate Existence and Good Standing. Maintain its
corporate existence or qualification and good standing in Delaware and in all
jurisdictions wherein the Property now owned or hereafter acquired or business
now or hereafter conducted necessitates same.
5.12 Payment of Note; Performance of Obligations. Pay the Note according to
its terms and do and perform every act and discharge all of its other
Obligations.
5.13 Further Assurances. Promptly cure any defects in the execution and
delivery of any of the Loan Documents and all agreements contemplated thereby,
and execute, acknowledge, and deliver such other assurances and instruments as
shall, in the opinion of the Lender, be necessary to fulfill the terms of the
Loan Documents.
5.14 Initial Fees and Expenses of Counsel to Lender. On the Closing Date,
promptly reimburse the Lender for all reasonable fees and expenses, including
estimated recording fees, of Xxxxxxx Xxxxxx L.L.P., special counsel to the
Lender, in connection with the preparation of this Agreement and all
documentation contemplated hereby, the satisfaction of the conditions precedent
set forth herein, the filing and recordation of Security Instruments, and the
consummation of the transactions contemplated in this Agreement.
5.15 Subsequent Fees and Expenses of Lender. Upon request by the Lender,
promptly reimburse the Lender (to the fullest extent permitted by law) for all
amounts reasonably expended, advanced, or incurred by or on behalf of the Lender
to satisfy any obligation of the Borrower under any of the Loan Documents; to
collect the Obligations; to ratify, amend, restate, or prepare additional Loan
Documents, as the case may be; for the filing and recordation of Security
Instruments; to enforce the rights of the Lender under any of the Loan
Documents; and to protect the Properties or business of the Borrower, including,
without limitation, the Collateral, which amounts shall be deemed compensatory
in nature and liquidated as to amount upon notice to the Borrower by the Lender
and which amounts shall include, but not be limited to (a) all court costs, (b)
reasonable attorneys' fees, (c) reasonable fees and expenses of auditors and
accountants incurred to protect the interests of the Lender, (d) fees and
expenses incurred in connection with the participation by the Lender as a member
of the creditors' committee in a case commenced under any Insolvency Proceeding,
(e) fees and expenses incurred in connection with lifting the automatic stay
prescribed in ss.362 Title 11 of the United States Code, and (f) fees and
expenses incurred in connection with any action pursuant to ss.1129 Title 11 of
the United States Code all reasonably incurred by the Lender in connection with
the collection of any sums due under the Loan Documents, together with interest
at the per annum interest rate equal to the Floating Rate, calculated on a basis
of a calendar year of 365 or 366 days, as the case may be, counting the actual
number of days elapsed, on each such amount from the date of notification that
the same was expended, advanced, or incurred by the Lender until the date it is
repaid to the Lender, with the obligations under this Section surviving the
non-assumption of this Agreement in a case commenced under any Insolvency
Proceeding and being binding upon the Borrower and/or a trustee, receiver,
custodian, or liquidator of the Borrower appointed in any such case.
5.16 Operation of Oil and Gas Properties. Develop, maintain, and operate
its Oil and Gas Properties in a prudent and workmanlike manner in accordance
with industry standards.
35
5.17 Maintenance and Inspection of Properties. Maintain all of its tangible
Properties in good repair and condition, ordinary wear and tear excepted; make
all necessary replacements thereof and operate such Properties in a good and
workmanlike manner; and permit any authorized representative of the Lender to
visit and inspect, at the expense of the Borrower, any tangible Property of the
Borrower.
5.18 Maintenance of Insurance. Maintain insurance with respect to its
Properties and businesses against such liabilities, casualties, risks, and
contingencies as is customary in the relevant industry and sufficient to prevent
a Material Adverse Effect, all such insurance to be in amounts and from insurers
acceptable to the Lender, maintained by Borrower, naming the Lender as loss
payee, and, upon any renewal of any such insurance and at other times upon
request by the Lender, furnish to the Lender evidence, satisfactory to the
Lender, on the Closing Date of the maintenance of such insurance. The Lender
shall have the right to collect, and the Borrower hereby assigns to the Lender,
any and all monies that may become payable under any policies of insurance
relating to business interruption or by reason of damage, loss, or destruction
of any of the Collateral. In the event of any damage, loss, or destruction for
which insurance proceeds relating to business interruption or Collateral exceed
$100,000.00, the Lender may, at its option, apply all such sums or any part
thereof received by it toward the payment of the Obligations, whether matured or
unmatured, application to be made first to interest and then to principal, and
shall deliver to the Borrower the balance, if any, after such application has
been made. In the event of any such damage, loss, or destruction for which
insurance proceeds are $100,000.00 or less, provided that no Default or Event of
Default has occurred and is continuing, the Lender shall deliver any such
proceeds received by it to the Borrower. In the event the Lender receives
insurance proceeds not attributable to Collateral or business interruption, the
Lender shall deliver any such proceeds to the Borrower.
5.19 INDEMNIFICATION. INDEMNIFY AND HOLD THE LENDER AND ITS SHAREHOLDERS,
OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT, AND AFFILIATES AND
EACH TRUSTEE FOR THE BENEFIT OF THE LENDER (COLLECTIVELY THE "LENDER PARTIES")
UNDER ANY SECURITY INSTRUMENT HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS,
LOSSES, DAMAGES, LIABILITIES, FINES, PENALTIES, CHARGES, ADMINISTRATIVE AND
JUDICIAL PROCEEDINGS AND ORDERS, JUDGMENTS, REMEDIAL ACTIONS, REQUIREMENTS AND
ENFORCEMENT ACTIONS OF ANY KIND, AND ALL COSTS AND EXPENSES INCURRED IN
CONNECTION THEREWITH (INCLUDING, WITHOUT LIMITATION, ATTORNEYS' FEES AND
EXPENSES), ARISING DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, FROM (A) THE
PRESENCE OF ANY HAZARDOUS SUBSTANCES ON, UNDER, OR FROM ANY MORTGAGED PROPERTY
OF THE BORROWER, WHETHER PRIOR TO OR DURING THE TERM HEREOF, (B) ANY ACTIVITY
CARRIED ON OR UNDERTAKEN ON OR OFF ANY MORTGAGED PROPERTY OF THE BORROWER,
WHETHER PRIOR TO OR DURING THE TERM HEREOF, AND WHETHER BY THE BORROWER OR ANY
PREDECESSOR IN TITLE, EMPLOYEE, AGENT, CONTRACTOR, OR SUBCONTRACTOR OF THE
BORROWER OR ANY OTHER PERSON AT ANY TIME OCCUPYING OR PRESENT ON SUCH PROPERTY,
IN CONNECTION WITH THE HANDLING, TREATMENT, REMOVAL, STORAGE, DECONTAMINATION,
CLEANUP, TRANSPORTATION, OR DISPOSAL OF ANY HAZARDOUS SUBSTANCES AT ANY TIME
LOCATED OR PRESENT ON OR UNDER SUCH PROPERTY, (C) ANY RESIDUAL CONTAMINATION ON
OR UNDER ANY PROPERTY OF THE BORROWER, (D) ANY
36
CONTAMINATION OF ANY MORTGAGED PROPERTY OR NATURAL RESOURCES ARISING IN
CONNECTION WITH THE GENERATION, USE, HANDLING, STORAGE, TRANSPORTATION OR
DISPOSAL OF ANY HAZARDOUS SUBSTANCES BY THE BORROWER OR ANY EMPLOYEE, AGENT,
CONTRACTOR, OR SUBCONTRACTOR OF THE BORROWER WHILE SUCH PERSONS ARE ACTING
WITHIN THE SCOPE OF THEIR RELATIONSHIP WITH THE BORROWER, IRRESPECTIVE OF
WHETHER ANY OF SUCH ACTIVITIES WERE OR WILL BE UNDERTAKEN IN ACCORDANCE WITH
APPLICABLE REQUIREMENTS OF LAW, OR (E) THE PERFORMANCE AND ENFORCEMENT OF ANY
LOAN DOCUMENT, ANY ALLEGATION BY ANY BENEFICIARY OF A LETTER OF CREDIT OF A
WRONGFUL DISHONOR BY THE LENDER OF A CLAIM OR DRAFT PRESENTED THEREUNDER, OR ANY
OTHER ACT OR OMISSION IN CONNECTION WITH OR RELATED TO ANY LOAN DOCUMENT OR THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING, WITHOUT LIMITATION, ANY OF THE
FOREGOING IN THIS SECTION ARISING FROM NEGLIGENCE, WHETHER SOLE OR CONCURRENT,
ON THE PART OF THE LENDER PARTIES OR ANY OF ITS SHAREHOLDERS, OFFICERS,
DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT, OR AFFILIATES OR ANY TRUSTEE
FOR THE BENEFIT OF THE LENDER UNDER ANY SECURITY INSTRUMENT BUT NOT INCLUDING
ANY OF THE FOREGOING ARISING FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF
THE LENDER PARTIES; WITH THE FOREGOING INDEMNITY SURVIVING SATISFACTION OF ALL
OBLIGATIONS AND THE TERMINATION OF THIS AGREEMENT, UNLESS ALL SUCH OBLIGATIONS
HAVE BEEN SATISFIED WHOLLY IN CASH FROM THE BORROWER AND NOT BY WAY OF
REALIZATION AGAINST ANY COLLATERAL OR THE CONVEYANCE OF ANY PROPERTY IN LIEU
THEREOF, PROVIDED THAT SUCH INDEMNITY SHALL NOT EXTEND TO ANY ACT OR OMISSION BY
THE LENDER WITH RESPECT TO ANY PROPERTY SUBSEQUENT TO THE LENDER BECOMING THE
OWNER OF SUCH PROPERTY AND WITH RESPECT TO WHICH PROPERTY SUCH CLAIM, LOSS,
DAMAGE, LIABILITY, FINE, PENALTY, CHARGE, PROCEEDING, ORDER, JUDGMENT, ACTION,
OR REQUIREMENT ARISES SUBSEQUENT TO THE ACQUISITION OF TITLE THERETO BY THE
LENDER.
5.20 Hedging. Subject to the provisions of Section 6.1, Borrower shall
enter into Commodity Hedge Agreements to hedge a minimum of 50% of its projected
natural gas production based on proved producing reserves as determined by the
Lender at each scheduled semi-annual Borrowing Base review with a Person
acceptable to the Lender on a rolling 18 month period. The Borrower will enter
into such hedging agreements within five (5) Business Days of the Closing.
ARTICLE VI
NEGATIVE COVENANTS
So long as any Obligation remains outstanding or unpaid or any Commitment
exists, the Borrower will not:
6.1 Indebtedness. Create, incur, assume, or suffer to exist any
Indebtedness, whether by way of loan or otherwise in excess of $100,000 in the
aggregate outstanding at any time; provided, however, the foregoing restriction
shall not apply to (a) the Obligations, (b) unsecured accounts
37
payable incurred in the ordinary course of business, which are not unpaid in
excess of 60 days beyond invoice date or are being contested in good faith and
as to which such reserve as is required by GAAP has been made, accrued or
deferred taxes and other liabilities not constituting borrowed money, (c) crude
oil, natural gas, or other hydrocarbon floor, collar, cap, price protection, or
swap agreements, in form and substance and with a Person acceptable to the
Lender, provided that (i) each commitment issued under such agreement must also
be approved by the Lender, (ii) such agreements shall not be entered into with
respect to Mortgaged Properties constituting more than 75% of the present value
of estimated future net revenues, computed using a discount factor of 9%, of all
proved developed producing Mortgaged Properties, and (iii) that the floor prices
in such agreements are not less than the prices used by the Lender in its most
recent Borrowing Base determination, (d) Rate Management Transactions, in form
and substance and with a Person acceptable to the Lender, (e) Indebtedness
secured by Permitted Liens, or subject to Section 6.14 to reimburse Guarantor
for general and administrative expenses and oil and gas operating expenses
incurred on behalf of the Borrowers.
6.2 Contingent Obligations. Create, incur, assume, or suffer to exist any
Contingent Obligation in excess of $100,000 in the aggregate outstanding at any
time; provided, however, the foregoing restriction shall not apply to (a)
performance guarantees and performance surety or other bonds provided in the
ordinary course of business, (b) trade credit incurred or operating leases
entered into in the ordinary course of business, or (c) plugging and abandonment
obligations in regard to the Main Pass 35 property not to exceed $7,500,000 in
the aggregate.
6.3 Liens. Create, incur, assume, or suffer to exist any Lien in excess of
$100,000 in the aggregate outstanding at any time on any of its Oil and Gas
Properties or any other Property, whether now owned or hereafter acquired;
provided, however, the foregoing restrictions shall not apply to Permitted
Liens.
6.4 Sales of Assets. Without the prior written consent of the Lender, sell,
transfer, or otherwise dispose of, in one or any series of transactions, assets,
whether now owned or hereafter acquired in excess of $100,000 per year.
6.5 Leasebacks. Enter into any agreement to sell or transfer any Mortgaged
Property and thereafter rent or lease as lessee such Property or other Property
intended for the same use or purpose as the Property sold or transferred.
6.6 Sale or Discount of Receivables. Except to minimize losses on bona fide
debts previously contracted, discount or sell with recourse, or sell for less
than the greater of the face or market value thereof, any of its Note receivable
or accounts receivable.
6.7 Loans or Advances. Make or agree to make or allow to remain outstanding
any loans or advances to any Person in excess of $100,000; provided, however,
the foregoing restrictions shall not apply to (a) advances or extensions of
credit in the form of accounts receivable incurred in the ordinary course of
business and upon terms common in the industry for such accounts receivable, or
(b) advances to employees of the Borrower for the payment of expenses in the
ordinary course of business.
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6.8 Investments. Acquire Investments in, or purchase or otherwise acquire
all or substantially all of the assets of, any Person; provided, however, the
foregoing restriction shall not apply to the purchase or acquisition of (a) Oil
and Gas Properties, (b) Investments in the form of (i) debt securities issued or
directly and fully guaranteed or insured by the United States Government or any
agency or instrumentality thereof, with maturities of no more than one year,
(ii) commercial paper of a domestic issuer rated at the date of acquisition at
least P-2 by Xxxxx'x Investor Service, Inc. or A-2 by Standard & Poor's
Corporation and with maturities of no more than one year from the date of
acquisition, or (iii) repurchase agreements covering debt securities or
commercial paper of the type permitted in this Section, certificates of deposit,
demand deposits, eurodollar time deposits, overnight bank deposits and bankers'
acceptances, with maturities of no more than one year from the date of
acquisition, issued by or acquired from or through the Lender or any bank or
trust company organized under the laws of the United States or any state thereof
and having capital surplus and undivided profits aggregating at least
$100,000,000.00, (c) other short-term Investments similar in nature and degree
of risk to those described in clause (b) of this Section, or (d) money-market
funds.
6.9 Dividends and Distributions. Unless otherwise approved by the Lender,
declare, pay, or make, whether in cash or other Property of the Borrower, any
dividend or distribution on or purchase, redeem, or otherwise acquire for value,
any share of any class of its capital stock; provided, however, the foregoing
restriction shall not apply to dividends paid in capital stock of the Borrower.
6.10 Transactions with Affiliates. Directly or indirectly, enter into any
transaction (including the sale, lease, or exchange of Property or the rendering
of service) with any of its Affiliates, other than upon fair and reasonable
terms no less favorable than could be obtained in an arm's length transaction
with a Person which was not an Affiliate.
6.11 Lines of Business. Expand, on its own or through any Subsidiary, into
any line of business other than those in which the Borrower is engaged as of the
date hereof.
6.12 Erisa Compliance. Permit any Plan maintained by it or any Commonly
Controlled Entity to (a) engage in any Prohibited Transaction, (b) incur any
"accumulated funding deficiency," as such term is defined in Section 302 of
ERISA, or (c) terminate 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
assume an obligation to contribute to any Multiemployer Plan; or acquire any
Person or the assets of any Person which has now or has had at any time an
obligation to contribute to any Multiemployer Plan.
6.13 Current Ratio. Permit, as of the close of any fiscal quarter, the
ratio of Current Assets to Current Liabilities to be less than 1.00 to 1.00.
6.14 General and Administrative Expenses. Permit, as of the close of any
fiscal quarter, Borrower's general and administrative expenses to exceed 30% of
net revenue at December 31, 2002, and 25% thereafter.
6.15 Maximum Liability to Equity Ratio. Permit, as of the close of any
fiscal quarter, the ratio of Maximum Liability to Equity to be more than 1.00 to
1.00.
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6.16 Debt Service Coverage Ratio. Permit, as of the close of any fiscal
quarter, the ratio of (a) EBITDA to (b) Debt Service to be less than 1.25 to
1.00 on a rolling four-quarter basis.
ARTICLE VII
EVENTS OF DEFAULT
7.1 Enumeration of Events of Default. Any of the following events
shall constitute an Event of Default:
(a) default shall be made in the payment when due of any
installment of principal or interest under this Agreement or the Note
or in the payment when due of any fee or other sum payable under any
Loan Document and such default as to interest or fees only shall have
continued for three business days and such default as to Fees or other
amounts payable shall have continued for ten business days.
(b) default shall be made by the Borrower or the Guarantor in the
due observance or performance of any of their respective obligations
under the Loan Documents, and such default shall continue for 30 days
after the earlier of notice thereof to the Borrower by the Lender or
knowledge thereof by the Borrower;
(c) any representation or warranty made by the Borrower or the
Guarantor in any of the Loan Documents proves to have been untrue in
any material respect or any representation, statement (including
Financial Statements), certificate, or data furnished or made to the
Lender in connection herewith proves to have been untrue in any
material respect as of the date the facts therein set forth were stated
or certified;
(d) default shall be made by the Borrower or the Guarantor (as
principal or Guarantor or other surety) in the payment or performance
of any bond, debenture, note, Commodity Hedge Agreement, Rate
Management Transaction, or other Indebtedness or under any credit
agreement, loan agreement, indenture, promissory note, or similar
agreement or instrument executed in connection with any of the
foregoing, and such default shall remain unremedied for in excess of
the period of grace, if any, with respect thereto;
(e) either the Borrower or the Guarantor shall (i) apply for or
consent to the appointment of a receiver, trustee, or liquidator of it
or all or a substantial part of its assets, (ii) file a voluntary
petition commencing an Insolvency Proceeding, (iii) make a general
assignment for the benefit of creditors, (iv) be unable, or admit in
writing its inability, to pay its debts generally as they become due,
or (v) file an answer admitting the material allegations of a petition
filed against it in any Insolvency Proceeding;
(f) an order, judgment, or decree shall be entered against either
the Borrower or the Guarantor by any court of competent jurisdiction or
by any other duly authorized authority, on the petition of a creditor
or otherwise, granting relief in any Insolvency Proceeding or approving
a petition seeking reorganization or an arrangement of its debts or
appointing a receiver, trustee, conservator, custodian, or liquidator
of it or all or any
40
substantial part of its assets, and such order, judgment, or decree
shall not be dismissed or stayed within 60 days;
(g) the levy against any significant portion of the Property of
the Borrower or the Guarantor, or any execution, garnishment,
attachment, sequestration, or other writ or similar proceeding which is
not permanently dismissed or discharged within 90 days after the levy;
(h) a final and non-appealable order, judgment, or decree shall be
entered against the Borrower or the Guarantor for money damages and/or
Indebtedness due in an amount in excess of $100,000, and such order,
judgment, or decree shall not be dismissed or stayed within 60 days;
(i) either the Borrower or the Guarantor shall have (i) concealed,
removed, or diverted, or permitted to be concealed, removed, or
diverted, any material portion of its Property, with intent to hinder,
delay, or defraud its creditors or any of them, (ii) made or suffered a
transfer of any material portion of its Property which may be
fraudulent under any bankruptcy, fraudulent conveyance, or similar law,
(iii) made any transfer of its Property to or for the benefit of a
creditor at a time when other creditors similarly situated have not
been paid, or (iv) suffered or permitted, while insolvent, any creditor
to obtain a Lien upon any of its Property through legal proceedings or
distraint which is not vacated within 30 days from the date thereof;
(j) any Security Instrument shall for any reason not, or cease to,
create valid and perfected first-priority Liens subject to Permitted
Liens against the Collateral purportedly covered thereby and failure by
the Borrower to cure any such defect within 30 days; or
(k) the occurrence of a Material Adverse Effect and the same shall
remain unremedied for in excess of 30 days after notice given by the
Lender.
7.2 Remedies. (a) Upon the occurrence of an Event of Default specified
in Sections 7.1(f) or 7.1(g), immediately and without notice, (i) all
Obligations shall automatically become immediately due and payable, without
presentment, demand, protest, notice of protest, default, or dishonor, notice of
intent to accelerate maturity, notice of acceleration of maturity, or other
notice of any kind, except as may be provided to the contrary elsewhere herein,
all of which are hereby expressly waived by the Borrower; (ii) the Commitment
shall immediately cease and terminate unless and until reinstated by the Lender
in writing; and (iii) the Lender is hereby authorized at any time and from time
to time, without notice to the Borrower (any such notice being expressly waived
by the Borrower), to set-off and apply any and all deposits (general or special,
time or demand, provisional or final) held by the Lender and any and all other
indebtedness at any time owing by the Lender to or for the credit or account of
the Borrower against any and all of the Obligations although such Obligations
may be unmatured.
(b) Upon the occurrence of any Event of Default other than those
specified in Sections 7.1(f) or 7.1(g), (i) the Lender may, by notice to the
Borrower, declare all Obligations immediately due and payable, without
presentment, demand, protest, notice of protest, default, or dishonor, notice of
intent to accelerate maturity, notice of acceleration of maturity, or other
notice of any kind, except as may be provided to the contrary elsewhere herein,
all of which are hereby
41
expressly waived by the Borrower; (ii) the Commitment shall immediately cease
and terminate unless and until reinstated by the Lender in writing; and (iii)
the Lender is hereby authorized at any time and from time to time, without
notice to the Borrower (any such notice being expressly waived by the Borrower),
to set-off and apply any and all deposits (general or special, time or demand,
provisional or final) held by the Lender and any and all other indebtedness at
any time owing by the Lender to or for the credit or account of the Borrower
against any and all of the Obligations although such Obligations may be
unmatured.
(c) Upon the occurrence of any Event of Default, the Lender may, in
addition to the foregoing in this Section, exercise any or all of its rights and
remedies provided by law or pursuant to the Loan Documents.
ARTICLE VIII
MISCELLANEOUS
8.1 Transfers; Participations. The Lender with the consent of the
Borrower, which consent will not be unreasonably withheld and only if there is
no occurrence and continuance of an Event of Default, otherwise Lender may
without the consent of the Borrower, at any time, sell, transfer, assign, or
grant participations in the Obligations or any portion thereof; and the Lender
may forward to each Transferee and prospective Transferee all documents and
information relating to such Obligations, whether furnished by the Borrower or
otherwise obtained, as the Lender determines necessary or desirable. The
Borrower agrees that each Transferee, regardless of the nature of any transfer
to it, may exercise all rights (including, without limitation, rights of
set-off) with respect to the portion of the Obligations held by it as fully as
if such Transferee were the direct holder thereof, subject to any agreements
between such Transferee and the transferor to such Transferee.
8.2 Survival of Representations, Warranties, and Covenants. All
representations and warranties of the Borrower and all covenants and agreements
herein made shall survive the execution and delivery of the Note and the
Security Instruments and shall remain in force and effect so long as any
Obligation is outstanding or any Commitment exists.
8.3 Notices and Other Communications. Except as to verbal notices
expressly authorized herein, which verbal notices shall be confirmed in writing,
all notices, requests, and communications hereunder shall be in writing
(including by telecopy). Unless otherwise expressly provided herein, any such
notice, request, demand, or other communication shall be deemed to have been
duly given or made when delivered by hand, or, in the case of delivery by mail,
three days following deposit in the mail, certified mail, return receipt
requested, postage prepaid, or, in the case of telecopy notice, when receipt
thereof is acknowledged orally or by written confirmation report, addressed as
follows:
(a) if to the Lender, to:
42
Guaranty Bank, FSB
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxxx Xxxxxxxxxxxx
Telecopy: (000) 000-0000
(b) if to the Borrower, to:
Harken Exploration Company
Xplor Energy, Inc.
Harken Energy West Texas, Inc.
South Coast Exploration Co.
Xplor Energy SPV-1, Inc.
Harken Gulf Exploration Company
000 Xxxxxxxx Xxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attention: Xxxx Xxxxxxxx
Telecopy: (000) 000-0000
(c) if to the Guarantor, to:
Harken Energy Corporation
000 Xxxxxxxx Xxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attention: Xxxx Xxxxxxxx
Telecopy: (000) 000-0000
Any party may, by proper written notice hereunder to the others, change
the individuals or addresses to which such notices to it shall thereafter be
sent.
8.4 Parties in Interest. All covenants and agreements herein contained
by or on behalf of the Borrower or the Lender shall be binding upon and inure to
the benefit of the Borrower or the Lender, as the case may be, and their
respective legal representatives, successors, and assigns.
8.5 Rights of Third Parties. All provisions herein are imposed solely
and exclusively for the benefit of the Lender, the Borrower and the Guarantor.
No other Person shall have any right, benefit, priority, or interest hereunder
or as a result hereof or have standing to require satisfaction of provisions
hereof in accordance with their terms, and any or all of such provisions may be
freely waived in whole or in part by the Lender at any time if in its sole
discretion it deems it advisable to do so.
8.6 Renewals; Extensions. All provisions of this Agreement relating to
the Note shall apply with equal force and effect to each promissory note
hereafter executed which in whole or in part represents a renewal or extension
of any part of the Indebtedness of the Borrower under this Agreement, the Note,
or any other Loan Document.
43
8.7 No Waiver; Rights Cumulative. No course of dealing on the part of
the Lender, its officers or employees, nor any failure or delay by the Lender
with respect to exercising any of its rights under any Loan Document shall
operate as a waiver thereof. The rights of the Lender under the 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 the Borrower contained herein. In the
event the 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
shall have the effect of precluding the Lender from thereafter declaring such
inability to be an Event of Default as hereinabove provided.
8.8 Survival Upon Unenforceability. In the event any one or more of
the provisions contained in any of the Loan Documents or in any other instrument
referred to herein or executed in connection with the Obligations 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 any Loan Document or of any other instrument referred to herein or executed
in connection with such Obligations.
8.9 Amendments; Waivers. Neither this Agreement nor any provision
hereof may be amended, waived, discharged, or terminated orally, but only by an
instrument in writing signed by the party against whom enforcement of the
amendment, waiver, discharge, or termination is sought.
8.10 Controlling Agreement. In the event of a conflict between the
provisions of this Agreement and those of any other Loan Document, the
provisions of this Agreement shall control.
8.11 Disposition of Collateral. Notwithstanding any term or provision,
express or implied, in any of the Security Instruments, the realization,
liquidation, foreclosure, or any other disposition on or of any or all of the
Collateral shall be in the order and manner and determined in the sole
discretion of the Lender; provided, however, that in no event shall the Lender
violate applicable law or exercise rights and remedies other than those provided
in such Security Instruments or otherwise existing at law or in equity.
8.12 GOVERNING LAW. THIS AGREEMENT, AND THE NOTE AND THE GUARANTY SHALL
BE DEEMED TO BE CONTRACTS MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH
AND GOVERNED BY THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO
PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW; PROVIDED, HOWEVER, THAT CHAPTER
345 OF THE TEXAS FINANCE CODE (WHICH REGULATES CERTAIN REVOLVING CREDIT LOAN
ACCOUNTS AND REVOLVING TRIPARTY ACCOUNTS) SHALL NOT APPLY.
8.13 JURISDICTION AND VENUE. ALL ACTIONS OR PROCEEDINGS WITH RESPECT
TO, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO, OR
FROM THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE LITIGATED, AT THE SOLE
DISCRETION AND ELECTION OF THE LENDER, IN COURTS HAVING SITUS IN HOUSTON, XXXXXX
COUNTY, TEXAS. THE BORROWER HEREBY SUBMITS TO THE JURISDICTION OF ANY LOCAL,
44
STATE, OR FEDERAL COURT LOCATED IN HOUSTON, XXXXXX COUNTY, TEXAS, AND HEREBY
WAIVES ANY RIGHTS IT MAY HAVE TO TRANSFER OR CHANGE THE JURISDICTION OR VENUE OF
ANY LITIGATION BROUGHT AGAINST IT BY THE LENDER IN ACCORDANCE WITH THIS SECTION.
8.14 WAIVER OF RIGHTS TO JURY TRIAL. THE BORROWER, GUARANTOR AND THE
LENDER HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY, IRREVOCABLY, AND
UNCONDITIONALLY WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT,
PROCEEDING, COUNTERCLAIM, OR OTHER LITIGATION THAT RELATES TO OR ARISES OUT OF
ANY OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE ACTS OR OMISSIONS OF THE
LENDER IN THE ENFORCEMENT OF ANY OF THE TERMS OR PROVISIONS OF THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT OR OTHERWISE WITH RESPECT THERETO. THE PROVISIONS OF
THIS SECTION ARE A MATERIAL INDUCEMENT FOR THE LENDER ENTERING INTO THIS
AGREEMENT.
8.15 ENTIRE AGREEMENT. THIS AGREEMENT AMENDS, RESTATES, AND REPLACES
THE EXISTING CREDIT AGREEMENT AND CONSTITUTES THE ENTIRE AGREEMENT BETWEEN THE
PARTIES HERETO WITH RESPECT TO THE SUBJECT HEREOF AND SHALL SUPERSEDE ANY PRIOR
AGREEMENT BETWEEN THE PARTIES HERETO, WHETHER WRITTEN OR ORAL, RELATING TO THE
SUBJECT HEREOF, INCLUDING, WITHOUT LIMITATION, THE EXISTING CREDIT AGREEMENT AND
THE DISCUSSION TERM SHEET DATED JUNE 19, 2002, FROM THE LENDER TO THE BORROWER.
FURTHERMORE, IN THIS REGARD, THIS AGREEMENT AND THE OTHER WRITTEN LOAN DOCUMENTS
REPRESENT, COLLECTIVELY, THE FINAL AGREEMENT AMONG THE PARTIES THERETO AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF SUCH PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG SUCH
PARTIES.
8.16 Counterparts. For the convenience of the parties, this Agreement
may be executed in multiple counterparts, each of which for all purposes shall
be deemed to be an original, and all such counterparts shall together constitute
but one and the same Agreement.
8.17 Release by Borrower. Notwithstanding the assignment made and
evidenced by the Assignment and the assumption by the Lender of certain
obligations and liabilities of the Existing Lender pursuant thereto, the
Borrower hereby releases and discharges the Lender from all obligations, claims,
losses, causes of action, and liabilities, of whatsoever kind or nature, whether
heretofore or hereafter accruing, whether now known or unknown, arising under or
in connection with any Existing Loan Document or any act or omission by the
Existing Lender under or in connection with any Existing Loan Document;
provided, however, nothing set forth in this Section shall relieve the Lender
from its obligations and liabilities under the Loan Documents (other than the
Assignment) to which it is a party.
45
IN WITNESS WHEREOF, this Agreement is deemed executed effective as of
the date first above written.
BORROWER:
HARKEN EXPLORATION COMPANY
XPLOR ENERGY, INC.
HARKEN ENERGY WEST TEXAS, INC.
SOUTH COAST EXPLORATION CO.
XPLOR ENERGY SPV-1, INC.
HARKEN GULF EXPLORATION COMPANY
By: /s/ Xxxx Xxxxxxxx
--------------------------------------------
Xxxx Xxxxxxxx
Executive Vice President and Chief Financial
Officer
GUARANTOR:
HARKEN ENERGY CORPORATION
By: /s/ Xxxx Xxxxxxxx
--------------------------------------------
Xxxx Xxxxxxxx
Executive Vice President and Chief Financial
Officer
46
LENDER:
GUARANTY BANK, FSB
By: /s/ Xxxxxxxx Xxxxxxx
----------------------------------------
Xxxxxxxx Xxxxxxx
Vice President
47
EXHIBIT I
[FORM OF NOTE]
PROMISSORY NOTE
$20,000,000.00 Houston, Texas December 6, 2002
FOR VALUE RECEIVED and WITHOUT GRACE, the undersigned ("Maker")
promises to pay to the order of GUARANTY BANK, FSB ("Payee"), at its banking
quarters in Houston, Xxxxxx County, Texas, the sum of TWENTY MILLION DOLLARS
($20,000,000.00), or so much thereof as may be advanced against this Note
pursuant to the Credit Agreement dated of even date herewith by and between
Maker and Payee (as amended, restated, or supplemented from time to time, the
"Credit Agreement"), together with interest at the rates and calculated as
provided in the Credit Agreement.
Reference is hereby made to the Credit Agreement for matters governed
thereby, including, without limitation, availability of the Maker to receive
advances under this Note and certain events which will entitle the holder hereof
to accelerate the maturity of all amounts due hereunder. Capitalized terms used
but not defined in this Note shall have the meanings assigned to such terms in
the Credit Agreement.
This Note is issued pursuant to and is payable as provided in the
Credit Agreement. Subject to compliance with applicable provisions of the Credit
Agreement, Maker may at any time pay the full amount or any part of this Note
without the payment of any premium or fee, but such payment shall not, until
this Note is fully paid and satisfied, excuse the payment as it becomes due of
any payment on this Note provided for in the Credit Agreement.
The Note is issued, in whole or in part, in renewal and extension, but
not in novation or discharge, of the remaining principal balance of the Existing
Note.
Without being limited thereto or thereby, this Note is secured by the
Security Instruments.
THIS NOTE SHALL BE GOVERNED AND CONTROLLED BY THE LAWS OF THE STATE OF
TEXAS WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF RELATING TO CONFLICTS OF LAW;
PROVIDED, HOWEVER, THAT CHAPTER 345 OF THE TEXAS FINANCE CODE (WHICH REGULATES
CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRIPARTY ACCOUNTS) SHALL
NOT APPLY TO THIS NOTE.
BORROWER:
HARKEN EXPLORATION COMPANY
XPLOR ENERGY, INC.
HARKEN ENERGY WEST TEXAS, INC.
SOUTH COAST EXPLORATION CO.
I-i
XPLOR ENERGY SPV-1, INC.
HARKEN GULF EXPLORATION COMPANY
By: ____________________________________________
Xxxx Xxxxxxxx
Executive Vice President and Chief Financial
Officer
I-ii
EXHIBIT II
[FORM OF BORROWING REQUEST]
GUARANTY BANK, FSB
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxxx X. Xxxxxxxxxxxx
Re: Credit Agreement dated as of December 6, 2002, by and between Harken
Exploration Company, XPLOR Energy, Inc., Harken Energy West Texas,
Inc., South Coast Exploration Co., XPLOR Energy SPV-1, Inc., and
Harken Gulf Exploration Company and Guaranty Bank, FSB (as amended,
restated, or supplemented from time to time, the "Credit Agreement")
Ladies and Gentlemen:
Pursuant to the Credit Agreement, the Borrower hereby makes the
requests indicated below:
1. Loans
(a) Amount of new Loan: $______
(b) Requested funding date:________, 20
(c) $_____________ of such Loan is to be a Floating Rate Loan;
$________________ of such Loan is to be a LIBO Rate Loan.
(d) Requested Interest Period for LIBO Rate Loan: ____ months.
2. Continuation or conversion of LIBO Rate Loan maturing on _____:
(a) Amount to be continued as a LIBO Rate Loan is $___________, with an
Interest Period of ____ months;
(b) Amount to be converted to a Floating Rate Loan is $____________; and
3. Conversion of Floating Rate Loan:
(a) Requested conversion date:________, 20____.
(b) Amount to be converted to a LIBO Rate Loan is $______, with an
Interest Period of _____ months.
The undersigned certifies that [s]he is the [______] of the Borrower,
has obtained all consents necessary, and as such [s]he is authorized to execute
this request on behalf of the Borrower. The undersigned further certifies,
represents, and warrants on behalf of the Borrower that the
II-i
Borrower is entitled to receive the requested borrowing, continuation, or
conversion under the terms and conditions of the Credit Agreement.
Each capitalized term used but not defined herein shall have the
meaning assigned to such term in the Credit Agreement.
Very truly yours,
HARKEN EXPLORATION COMPANY
XPLOR ENERGY, INC.
HARKEN ENERGY WEST TEXAS, INC.
SOUTH COAST EXPLORATION CO.
XPLOR ENERGY SPV-1, INC.
HARKEN GULF EXPLORATION COMPANY
By: _____________________________________________
Xxxx Xxxxxxxx
Executive Vice President and Chief Financial
Officer
II-ii
EXHIBIT III
[FORM OF COMPLIANCE CERTIFICATE]
____________, 2002
GUARANTY BANK, FSB
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxxx X. Xxxxxxxxxxxx
Re: Credit Agreement dated as of December 6, 2002, by and between Harken
Exploration Company, XPLOR Energy,Inc., Harken Energy West Texas,
Inc., South Coast Exploration Co., XPLOR Energy SPV-1, Inc., and
Harken Gulf Exploration Company and Guaranty Bank, FSB (as amended,
restated, or supplemented from time to time, the "Credit Agreement")
Ladies and Gentlemen:
Pursuant to applicable requirements of the Credit Agreement, the
undersigned, as a Responsible Officer of the Borrower, hereby certifies to you
the following information as true and correct as of the date hereof or for the
period indicated, as the case may be:
[1. To the best of the knowledge of the undersigned, no Default or
Event of Default exists as of the date hereof or has occurred since
the date of our previous certification to you, if any.]
[1. To the best of the knowledge of the undersigned, the following
Defaults or Events of Default exist as of the date hereof or have
occurred since the date of our previous certification to you, if any,
and the actions set forth below are being taken to remedy such
circumstances:]
2. The compliance of the Borrower with the financial covenants of the
Credit Agreement, as of the close of business on ____________, is
evidenced by the following:
(a) Section 6.13. Current Ratio. Permit, as of the close of any
fiscal quarter, the ratio of Current Assets to Current Liabilities to
be less than 1.00 to 1.00.
Actual
___ 1.0
(b) Section 6.14: General and Administrative Expenses. Permit, as of
the close of any fiscal quarter, Borrower's general and
administrative expenses to exceed 30% of net revenue at December 31,
2002, and 25% thereafter.
III-i
Actual
___ 1.0
(c) Section 6.15: Maximum Liability to Equity Ratio. Permit, as of
the close of any fiscal quarter, the ratio of Maximum Liability to
Equity to be more than 1.00 to 1.00.
Actual
$_________
(d) Section 6.16: Debt Service Coverage Ratio: Permit, as of the
close of any fiscal quarter, the ratio of (a) EBITDA to (b) Debt
Service to be less than 1.25 to 1.00 on a rolling four-quarter basis.
Actual
3. No Material Adverse Effect has occurred since the date of the
Financial Statements dated as of ______________.
Each capitalized term used but not defined herein shall have the meaning
assigned to such term in the Credit Agreement.
Very truly yours,
HARKEN EXPLORATION COMPANY
XPLOR ENERGY, INC.
HARKEN ENERGY WEST TEXAS, INC.
SOUTH COAST EXPLORATION CO.
XPLOR ENERGY SPV-1, INC.
HARKEN GULF EXPLORATION COMPANY
By:_____________________________________________
Xxxx Xxxxxxxx
Executive Vice President and Chief Financial
Officer
III-ii
EXHIBIT IV
[FORM OF OPINION OF COUNSEL]
______________, 2002
GUARANTY BANK, FSB
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxxx X. Xxxxxxxxxxxx
Re: Credit Agreement dated as of December 6, 2002, by and between Harken
Exploration Company, XPLOR Energy,Inc., Harken Energy West Texas,
Inc., South Coast Exploration Co., XPLOR Energy SPV-1, Inc., and
Harken Gulf Exploration Company and Guaranty Bank, FSB (as amended,
restated, or supplemented from time to time, the "Credit Agreement")
Ladies and Gentlemen:
We have acted as counsel to Harken Exploration Company, XPLOR Energy, Inc.,
Harken Energy West Texas, Inc., South Coast Exploration Co., XPLOR Energy SPV-1,
Inc., and Harken Gulf Exploration Company, and (collectively the "Borrower") and
Harken Energy Corporation (the "Guarantor") in connection with the transactions
contemplated in the Credit Agreement. This Opinion is delivered pursuant to
Section 3.1(m) of the Credit Agreement, and the Lender is hereby authorized to
rely upon this Opinion in connection with the transactions contemplated in the
Credit Agreement. Each capitalized term used but not defined herein shall have
the meaning assigned to such term in the Credit Agreement.
In our representation of the Borrower and the Guarantor, we have examined
an executed counterpart of each of the following (the "Loan Documents"):
(a) the Credit Agreement;
(b) the Note;
(c) the Guaranty;
(d) Mortgage, Deed of Trust, Indenture, Security Agreement,
Assignment of Production, and Financing Statement dated of even date
herewith from the Borrower in favor of the Lender (the "Mortgage"); and
(e) Financing Statements from the Borrower, as debtor[s], constituent
to the Mortgage (the Financing Statement").
We have also examined the originals, or copies certified to our
satisfaction, of such other records of the Borrower and the Guarantor,
certificates of public officials and officers of the Borrower and the Guarantor,
agreements, instruments, and documents as we have deemed necessary as a basis
for the opinions hereinafter expressed.
IV-i
In making such examinations, we have, with your permission, assumed:
(a) the genuineness of all signatures to the Loan Documents other
than those of the Borrower and the Guarantor;
(b) the authenticity of all documents submitted to us as originals
and the conformity with the originals of all documents submitted to us as
copies;
(c) the Lender is authorized and has the power to enter into and
perform its obligations under the Credit Agreement;
(d) the due authorization, execution, and delivery of all Loan
Documents by each party thereto other than the Borrower and the Guarantor;
and
(e) the Borrower has title to all Property covered or affected by the
Mortgage.
Based upon the foregoing and subject to the qualifications set forth
herein, we are of the opinion that:
1. The Borrower and the Guarantor are corporations duly organized,
legally existing, and in good standing under the laws of their respective
states of incorporation and are duly qualified as foreign corporations and
are in good standing in all jurisdictions wherein the ownership of their
respective Property or the operation of their respective businesses
necessitates same.
2. The execution and delivery by the Borrower of the Credit Agreement
and the borrowings thereunder, the execution and delivery by the Borrower
of the other Loan Documents to which the Borrower is a party, and the
payment and performance of all Obligations of the Borrower thereunder are
within the power of the Borrower, have been duly authorized by all
necessary corporate action, and do not (a) require the consent of any
Governmental Authority, (b) contravene or conflict with any Requirement of
Law, (c) to our knowledge after due inquiry, contravene or conflict with
any indenture, instrument, or other agreement to which the Borrower is a
party or by which any Property of the Borrower may be presently bound or
encumbered, or (d) result in or require the creation or imposition of any
Lien upon any Property of the Borrower other than as contemplated by the
Loan Documents.
3. The execution and delivery of the Guaranty and the other Loan
Documents executed by the Guarantor and the performance of all Obligations
of the Guarantor thereunder are within the power of the Guarantor, have
been duly authorized by all necessary corporate action, and do not (a)
require the consent of any Governmental Authority, (b) contravene or
conflict with any Requirement of Law, (c) to our knowledge after due
inquiry, contravene or conflict with any indenture, instrument, or other
agreement to which the Guarantor is a party or by which any Property of
the Guarantor may be presently bound or encumbered, or (d) result in or
require the creation or imposition of any Lien upon any Property of the
Guarantor other than as contemplated by the Loan Documents.
IV-ii
4. The Loan Documents to which the Borrower is a party
constitute legal, valid, and binding obligations of the Borrower,
enforceable against the Borrower in accordance with their respective
terms.
5. The Loan Documents to which the Guarantor is a party
constitute legal, valid, and binding obligations of the Guarantor,
enforceable against the Guarantor in accordance with their respective
terms.
6. The forms of the Mortgage and the Financing Statement and
the description of the Mortgaged Property (as such term is defined in
the Mortgage and so used herein) situated in the State of Texas (the
"State") satisfy all applicable Requirements of Law of the State and
are legally sufficient under the laws of the State to enable the
Lender to realize the practical benefits purported to be afforded by
the Mortgage.
7. The Mortgage creates a valid lien upon and security
interest in all Mortgaged Property situated in the State to secure
the Indebtedness (as such term is defined in the Mortgage and so used
herein).
8. The Mortgage and the Financing Statement are in
satisfactory form for filing and recording in the offices described
below.
9. The filing and/or recording, as the case may be, of (a)
the Mortgage in the office of the county clerk of each county in the
State in which any portion of the Mortgaged Property is located, and
as a financing statement and utility security instrument in the
office of the Secretary of State of the State, and (b) the Financing
Statement in the Uniform Commercial Code records in each county in
the State in which any portion of the Mortgaged Property is located
are the only recordings or filings in the State necessary to perfect
the liens and security interests in the Mortgaged Property created by
the Mortgage or to permit the Lender to enforce in the State its
rights under the Mortgage. No subsequent filing, re-filing,
recording, or re-recording will be required in the State in order to
continue the perfection of the liens and security interests created
by the Mortgage except that (a) a continuation statement must be
filed with respect to the Mortgage filed as a financing statement in
the office of the Secretary of State of the State and with respect to
the Financing Statement in the Uniform Commercial Code records in
each county in the State in which any portion of the Mortgaged
Property is located, each within six months prior to the expiration
of five years from the date of the relevant initial financing
statement filing, (b) a subsequent continuation statement must be
filed within six months prior to the expiration of each subsequent
five-year period from the date of each initial financing statement
filing, and (c) amendments or supplements to the Mortgage filed as a
financing statement and the Financing Statement and/or additional
financing statements may be required to be filed in the event of a
change in the name, identity, or structure of the Borrower or in the
event the financing statement filing otherwise becomes inaccurate or
incomplete.
10. To our knowledge after due inquiry, except as disclosed
in Exhibit V to the Credit Agreement, no litigation or other action
of any nature affecting the Borrower or the Guarantor is pending
before any Governmental Authority or threatened against the Borrower
or the Guarantor.
IV-iii
11. No authorization, consent, approval, exemption, franchise, permit
or license of, or filing (other than filing of Security Instruments in
appropriate filing offices) with, any Governmental Authority or any other
Person is required to authorize or is otherwise required in connection
with the valid execution and delivery by the Borrower and the Guarantor of
the Loan Documents or any instrument contemplated thereby, or the payment
performance by the Borrower and the Guarantor of the Obligations.
12. No transaction contemplated by the Loan Documents is in violation
of any regulations promulgated by the Board of Governors of the Federal
Reserve System, including, without limitation, Regulations G, T, U, or X.
13. The Borrower is not, nor is the Borrower directly or indirectly
controlled by or acting on behalf of any Person which is, an "investment
company" or an "affiliated person" of an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
14. The Borrower is not a "holding company," or an "affiliate" of a
"holding company" or of a "subsidiary company" of a "holding company,"
within the meaning of the Public Utility Holding Company Act of 1935, as
amended.
The opinions expressed herein are subject to the following qualifications
and limitations:
A. We are licensed to practice law only in the State 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, applicable United States federal law, and the corporation
laws of the State of Delaware.
B. The validity, binding effect, and enforceability of the Loan
Documents may be limited or affected by bankruptcy, insolvency,
moratorium, reorganization, or other similar laws affecting rights of
creditors generally, including, without limitation, statutes or rules of
law which limit the effect of waivers of rights by a debtor or grantor;
provided, however, that the limitations and other effects of such statutes
or rules of law upon the validity and binding effect of the Loan Documents
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, promissory notes, guaranty, and security instruments
generally.
C. The enforceability of the respective obligations of the Borrower
and the Guarantor under the Loan Documents is subject to general
principles of equity (whether such enforceability is considered in a suit
in equity or at law).
This Opinion is furnished by us solely for the benefit of the Lender
in connection with the transactions contemplated by the Loan Documents and is
not to be quoted in whole or in part or otherwise referred to or disclosed in
any other transaction.
Very truly yours,
IV-iv
EXHIBIT V
DISCLOSURES
Section 4.8 Liabilities
None
Litigation
None
Section 4.12 Environmental Matters
None
Section 4.17 Refunds
None
Section 4.18 Gas Contracts
None
Section 4.20 Casualties
None
Section 4.23 Subsidiaries
None
1
