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EXHIBIT 10.1
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FINANCING AGREEMENT
Dated as of April 15, 1998
Between
ENERGY PARTNERS, LTD.
and
ENERGY INCOME FUND, L.P.
THIS FINANCING AGREEMENT IS TO BE
GOVERNED BY MASSACHUSETTS LAW
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TABLE OF CONTENTS
Page No.
FINANCING AGREEMENT...............................................................................................1
ARTICLE 1 DEFINITIONS.....................................................................................1
1.1 Definitions............................................................................1
1.2 Accounting Terms......................................................................11
1.3 Petroleum Terms.......................................................................11
1.4 Singular and Plural...................................................................11
1.5 Amendment of Defined Instruments......................................................11
ARTICLE 2 THE LOANS .....................................................................................12
2.1 Development Loan......................................................................12
2.2 The Notes.............................................................................13
2.3 Interest..............................................................................13
2.4 Interest Upon Default.................................................................14
2.5 Repayment of Principal and Interest on the Development Loan...........................14
2.6 Optional Prepayment...................................................................14
2.7 Payment Procedure.....................................................................15
2.8 Overriding Royalty....................................................................15
2.9 Collateral/Indebtedness Ratio.........................................................16
ARTICLE 3 ADDITIONAL FINANCING RIGHT OF FIRST REFUSAL....................................................17
3.1 Additional Financing Right of First Refusal...........................................17
ARTICLE 4 SECURITY AND ASSIGNMENT........................................................................19
4.1 Collateral............................................................................19
4.2 Assignment............................................................................21
4.3 Limitation on Recourse................................................................23
ARTICLE 5 REPRESENTATIONS AND WARRANTIES.................................................................25
5.1 Organization; Charter and Bylaws of Borrower..........................................25
5.2 Authority of Borrower.................................................................25
5.3 No Violation..........................................................................25
5.4 Litigation............................................................................25
5.5 Financial Statements..................................................................26
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5.6 Compliance with Licenses and Laws.....................................................26
5.7 Investments and Guaranties............................................................26
5.8 Title to Properties...................................................................26
5.9 Casualties; Taking of Properties......................................................27
5.10 ERISA.................................................................................27
5.11 Environmental Liabilities.............................................................27
5.12 Taxes.................................................................................28
5.13 No Event of Default...................................................................28
5.14 Investment Company Act................................................................29
5.15 Public Utility Holding Company Act....................................................29
5.16 Location of Business and Offices......................................................29
5.17 No Misstatement.......................................................................29
5.18 Foreign Person........................................................................29
5.19 Arrangements Relating to Operations and Production....................................29
5.20 Gas Contracts.........................................................................29
5.21 No Indebtedness to Shareholders, Officers, Directors or Affiliates....................29
5.22 Capitalization........................................................................29
5.23 Organization of EIF...................................................................30
5.24 Authority of EIF......................................................................30
ARTICLE 6 THE CLOSINGS; CONDITIONS PRECEDENT.............................................................31
6.1 Time and Place of Closings............................................................31
6.2 Conditions Precedent to the Development Loan Closing. ...............................31
(a) Corporate Documents..................................................31
(b) Representations and Warranties True..................................32
(c) Compliance with Covenants............................................32
(d) Absence of Event of Default..........................................32
(e) Opinion of Borrower's Counsel........................................32
(f) Financial Condition..................................................32
(g) Legal Matters. .....................................................32
(h) Access to Information; Due Diligence. ..............................33
(i) Loan Documents.......................................................33
(j) Stock Certificate....................................................33
(k) Capitalization.......................................................33
(l) Other Matters........................................................34
(m) Development Plan and Budget..........................................34
(n) Security Instruments Recorded. .....................................34
(o) Title................................................................34
(p) No Liens.............................................................34
(q) Overriding Royalty Interests.........................................34
(r) Transfer Orders and Letters in Lieu..................................34
(s) Executed Contracts and Instruments...................................34
(t) Purchasers of Production.............................................35
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(u) Operator of the Properties...........................................35
(v) Assignment of Lien on the Properties.................................35
(w) Operating Agreements and/or Oil and Gas Leases for the Properties....35
(x) Escrow Account.......................................................35
(y) Approved Transactions................................................36
(z) Absence of Event of Default..........................................36
6.3 Conditions Precedent to Release of Funds from Escrow Account..........................36
(a) Project Status Report................................................36
(b) Request for Escrow Disbursement......................................36
(c) Miscellaneous........................................................37
6.4 Termination...........................................................................37
ARTICLE 7 COVENANTS OF BORROWER..........................................................................38
7.1 Punctual Payment and Performance......................................................38
7.2 Records and Accounts..................................................................38
7.3 Financial Statements, Certificates and Information....................................38
7.4 Corporate Existence; Maintenance of Collateral........................................40
7.5 Title to Properties...................................................................40
7.6 Mineral Interests.....................................................................40
7.7 Contract Approval.....................................................................40
7.8 Insurance.............................................................................41
7.9 Taxes and Other Claims................................................................41
7.10 Inspection of Properties and Books....................................................41
7.11 Compliance with Laws, Contracts, Licenses and Permits.................................42
7.12 Litigation............................................................................42
7.13 Further Assurances....................................................................42
7.14 Notices...............................................................................42
7.15 Use of Proceeds.......................................................................42
7.16 Dividends, Distributions and Redemptions..............................................43
7.17 Nature of Business....................................................................43
7.18 Restrictions on Liens.................................................................43
7.19 Collateral Sales......................................................................43
7.20 Sale or Discount of Receivables.......................................................43
7.21 Affiliate Transactions................................................................43
7.22 Financial Covenants...................................................................43
7.23 Key Employees.........................................................................44
7.24 Environmental Laws Compliance.........................................................44
7.25 Company Name and Address..............................................................45
7.26 Mergers and Sales of Assets...........................................................45
7.27 Change of Control.....................................................................45
7.28 Operation of Assets...................................................................45
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7.29 Borrower as Operator..................................................................45
7.30 ERISA Compliance......................................................................46
7.31 Additional Information................................................................46
7.32 No Loans or Guarantees to Officers, Directors, or Shareholders/Partners...............46
7.33 Salaries and Bonuses..................................................................46
7.34 Foreclosure...........................................................................47
7.35 Updates to Purchasers of Production Information.......................................47
7.36 No Issuance of Equity.................................................................47
ARTICLE 8 EVENTS OF DEFAULT; ACCELERATION................................................................48
ARTICLE 9 INDEMNIFICATION................................................................................51
9.1 Environmental Indemnity...............................................................51
9.2 GENERAL INDEMNITY.....................................................................52
ARTICLE 10 EXPENSES.......................................................................................54
ARTICLE 11 NOTICES; MISCELLANEOUS.........................................................................55
11.1 Notices...............................................................................55
11.2 Miscellaneous.........................................................................56
(a) ENTIRE AGREEMENT.....................................................56
(b) GOVERNING LAW........................................................56
(c) Headings.............................................................56
(d) Parties in Interest..................................................57
(e) No Third Party Beneficiaries.........................................57
(f) Severability.........................................................57
(g) Counterparts.........................................................57
(h) Renewal, Extension or Rearrangement..................................57
(i) Cumulative Rights....................................................57
(j) Consents, Amendments, Waivers, Etc. ................................57
(k) Jurisdiction.........................................................58
(l) WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC. ........................58
(m) Agent for Service....................................................58
EXHIBITS................................................................................................60
SCHEDULES...............................................................................................61
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FINANCING AGREEMENT
FINANCING AGREEMENT ("Agreement"), dated as of this 15th day of April,
1998, by and between Energy Partners, Ltd., a Delaware corporation
("Borrower"), and Energy Income Fund, L.P., a Delaware limited partnership
("EIF").
RECITALS
WHEREAS, Borrower intends to enter into an agreement with Chevron
U.S.A. Production Company ("Chevron") to conduct a drilling program on Main
Pass Blocks 122 and 133, Offshore Louisiana (the "Chevron Agreement");
WHEREAS, Borrower intends to enter into agreements relating to the
development, production and management of oil and gas properties (along with
the Chevron Agreement, the "Proposed Oil and Gas Agreements") and certain
working capital of Borrower;
WHEREAS, Borrower has requested EIF to make a loan described herein as
the "Development Loan" to Borrower to finance a portion of the costs relating
to Borrower's obligations under the Proposed Oil and Gas Agreements that
satisfy certain conditions ("Approved Transactions");
WHEREAS, Borrower has agreed to pledge all its interests in certain
oil and gas properties described in the Proposed Oil and Gas Agreements and
other assets and items described in Section 4.1 herein as collateral for the
loan;
WHEREAS, as a condition to EIF entering into this Agreement and as
consideration hereunder, Borrower has agreed to sell EIF a fifty percent (50%)
equity interest in Borrower pursuant to a Stock Purchase Agreement;
WHEREAS, as a condition to EIF entering this Agreement and as
consideration hereunder, Borrower and Borrower's shareholders have agreed to
enter into a Stockholders' Agreement with EIF;
WHEREAS, EIF is willing to make the requested loans on the terms and
conditions hereinafter specified;
NOW, THEREFORE, in consideration of the premises, and other good and
valuable consideration the adequacy of which is expressly acknowledged, the
parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. The following terms shall have the meanings set forth
herein:
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"Additional Financings" shall have the meaning set forth in Section
2.1(b).
"Additional Loan" shall have the meaning set forth in Section 3.1.
"Affiliate" shall mean, with respect to any Person, any other Person
that directly, or indirectly through one or more intermediaries, controls or is
controlled by or is under common control with such Person and any other Person
that is an officer, director, or full time employee of such other Person.
"AFE" shall mean, with respect to each development project to be paid
for by Borrower with the proceeds of a portion of the Development Loan, a
document that is referred to as the
Authority for Expenditure. Such document must have received all
required approvals of the participating working interest owners as required by
any applicable operating agreement relating to the property to be developed.
"Agreement" shall mean this Financing Agreement (as amended from time
to time), including all exhibits and schedules attached hereto.
"Approved Transactions" shall have the meaning set forth in Section
6.2.
"Base Interest" shall have the meaning set forth in Section 2.3(a).
"Borrower" shall mean Energy Partners, Ltd., a Delaware corporation.
"Business Day" shall mean any day on which national banking
institutions in Massachusetts are open for the transaction of banking business.
"Change of Control" shall mean any transaction that results in, or as
a consequence of which, the power to direct the management or policies, whether
through ownership of voting securities, by merger, by agreement, or otherwise
of Borrower, or Borrower is acquired directly or indirectly by any Person
("Acquiring Person"), or by any group of which such Acquiring Person is a
member. For purposes of this definition, the term "group" has the meaning
ascribed thereto under Section 13(d)(3) of the Securities Exchange Act of 1934,
as amended. Without limiting the generality of the foregoing, the power to
direct the management or policies of Borrower shall be deemed to include any
transaction whereby
(A) any such Acquiring Person or group in which such
Acquiring Person is a member acquires in the aggregate beneficial
ownership of more than fifty percent (50%) of the outstanding voting
securities or other ownership interests carrying voting rights of
Borrower; or
(B) any such Acquiring Person or group in which such
Acquiring Person is a member acquires the right to appoint or cause to
be appointed or elected as a director or
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comparable position of Borrower, any individual named by such
Acquiring Person or group.
"Chevron" shall mean Chevron U.S.A. Production Company.
"Chevron Cash Flow from Operations" shall mean gross cash receipts
from the sale of Hydrocarbons plus any other proceeds attributable to the
Proposed Oil and Gas Agreements less (i) all production, severance and ad
valorem taxes incurred and/or paid to governmental entities, (ii) all lease
royalties and burdens incurred and/or paid which are of record as of the first
Funding, including Overriding Royalty Interests to be conveyed by Borrower to
third parties, if any, (iii) routine operating expenses incurred and/or paid in
connection with the Properties (including without limitation gathering,
transportation and processing fees), (iv) workover expenditures incurred and/or
paid on the Properties that are not funded by EIF, and (v) franchise and income
taxes incurred and/or paid by Borrower.
"Chevron Final Payment Date" shall mean the date three years after the
Initial Funding and shall be the date on which the final installment of
principal and interest on the Chevron Financing is due and payable.
"Chevron Financing" shall have the meaning set forth in Section
2.1(a).
"Chevron Properties" shall mean those properties that make up a
drilling program on Platform A of Main Pass Blocks 122 and 133, Offshore
Louisiana, as more particularly described in Exhibit B hereto.
"Closing" shall mean the Development Loan Closing.
"Closing Date" shall mean the Development Loan Closing Date.
"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations and published interpretations thereunder.
Section references to the Code and its regulations are to those provisions as
in effect at the date of this Agreement, together with any subsequent
provisions of the Code that amend, supplement, or replace the provisions to
which reference is made.
"Collateral" shall have the meaning set forth in Section 4.1.
"Default" shall have the meaning set forth in Section 8.1.
"Default Rate" shall mean the interest rate chargeable upon default,
as described in Section 2.4.
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"Description of Collateral" shall mean a description of the Collateral
owned at the time in question by Borrower, containing such information as may
be acceptable to EIF, and in legally sufficient form for creation of an EIF
Lien thereon.
"Development Loan" shall mean the loan, or loans, made by EIF to
Borrower pursuant to Section 2.1 of this Agreement.
"Development Loan Closing" shall mean the satisfaction of the
conditions precedent to and the funding of any part of the Development Loan, as
set forth in Section 6.2.
"Development Loan Closing Date" shall have the meaning set forth in
Section 6.1.
"Development Note" shall have the meaning set forth in Section 2.2.
"Development Plan and Budget" shall mean a semiannual development plan
and budget prepared by Borrower and approved by EIF that describes each
development project, together with the expected cost, that Borrower desires to
finance with the Loans.
"EIF" shall mean Energy Income Fund, L.P., a Delaware limited
partnership.
"EIF Liens" shall mean Liens in favor of EIF securing the Loans.
"Employee Benefit Plan" shall mean any deferred compensation,
retirement, severance, health or other plan or program constituting an
"employee benefit plan" as defined in Section 3(3) of ERISA maintained or
previously maintained for employees of Borrower or any ERISA Affiliate, or in
which any such employees participate or participated, other than a
Multiemployer Plan. "Employee Benefit Plan" shall include plans that would
otherwise be exempted from Section 3(3) of ERISA by Department of Labor
Regulation Section 2510.3-3 (as plans covering only partners or other
self-employed individuals).
"Energy Partners" shall mean Energy Partners, Ltd., a Delaware
corporation located in New Orleans, Louisiana.
"Environmental Complaint" shall mean any citation, complaint, demand,
order, or notice by any person, association, entity, or governmental authority
alleging, asserting or claiming that Borrower or any of the Properties: (i) is
in material violation of applicable Environmental Laws, (ii) does not comply in
all material respects with applicable Environmental Laws, or (iii) does not
have or maintain all material permits, licenses, and/or approvals required
under applicable Environmental Laws.
"Environmental Laws" shall mean any one or more of the following: (i)
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended by the Superfund Amendment and Reauthorization Act of 1986, 42
U.S.C. Section 9601 et seq.
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("CERCLA"), (ii) the Resource Conservation and Recovery Act, as
amended by the Hazardous and Solid Waste Amendment of 1984, 42 U.S.C. Section
6901 et seq. ("RCRA"), (iii) the Clean Air Act, 42 U.S.C. Section 7401 et seq.,
(iv) the Federal Water Pollution Control Act, 33 U.S.C. Section 1251 et seq.,
(v) the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq., (vi) the
Federal Safe Drinking Water Act, 42 U.S.C. Section Section 300f to 300j-11,
(vii) the Emergency Planning and Community Right-to-Know Act of 1986, 42 U.S.C.
Section 1101 et seq., (viii) the Hazardous Materials Transportation Act, 49
U.S.C. Section 1801 et seq., (ix) the Louisiana Environmental Quality Act
LSA-R.S. 30:2001 et seq., (x) Section XV of Statewide Order 29-B of the
Louisiana Conservation Commission, and (xi) all other foreign, federal, state,
tribal and local laws (whether common or statutory), rules, regulations,
consent agreements, compliance schedules, and orders directly and/or indirectly
relating to public health and safety, air pollution, water pollution, noise
control, wetlands, oceans, waterways, and/or the presence, use, generation,
manufacture, transportation, processing, treatment, handling, discharge,
release, disposal, or recovery of pollutants, contaminants, chemicals, or
industrial, toxic or hazardous substances or materials and/or underground
storage tanks, as each of the foregoing laws, rules, regulations and orders may
be amended, supplemented, and/or reauthorized from time to time.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations and published
interpretations thereunder. Section references to ERISA and its regulations are
to those provisions as in effect at the date of this Agreement, together with
any subsequent provisions of ERISA that amend, supplement, or replace the
provisions to which reference is made.
"ERISA Affiliate" shall mean each person (as defined in Section 3(9)
of ERISA) that, together with Borrower, would be treated as a single employer
under Section 4001(b) of ERISA or that would be deemed to be a member of the
same "controlled group" within the meaning of Section 414(b), (c), (m), and (o)
of the Code (provided, however, that when the subject of the provision is a
Multiemployer Plan only subsections (b) and (c) of Section 414 shall be taken
into account).
"Escrow Account" shall mean the account into which a portion of the
proceeds of the Loans is placed.
"Escrow Agreement" shall mean the agreement pursuant to which a
portion of the proceeds of the Development Loan are placed in escrow and
released to Borrower.
"Event of Default" shall have the meaning set forth in Section 8.1.
"Final Payment Date" shall mean the date on which the final
installment of principal and interest on the Loans (except the Chevron
Financing) is due and payable, which date shall be agreed upon by Borrower and
EIF.
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"Financial Statements" shall the balance sheet and related statements
of income, retained earnings, and cash flow as of the date and for the fiscal
period specified, prepared in comparative form with the preceding corresponding
fiscal period (if any) under GAAP consistently applied.
"Funding" shall mean the funding of any advance under any Loan.
"Funding Date" shall mean the date on which any Funding occurs.
"GAAP" shall mean generally accepted accounting principles as
presently promulgated by the Financial Accounting Standards Board (FASB), as
amended from time to time by FASB or any successor authority.
"Hazardous Materials" shall mean any one or more of the following
substances, wastes and materials:
(a) Any substance, waste or material defined as a "hazardous
substance," "hazardous material," "hazardous waste," "pollutant,"
"contaminant," "toxic material," or "toxic substance," in any of the
applicable Environmental Laws, or in the standards, criteria, rules
and/or regulations promulgated pursuant to any of said Environmental
Laws (including without limitation Hydrocarbons); and
(b) Any substance, waste or material, the presence of which requires
investigation or remediation under any Environmental Laws.
"Hydrocarbons" shall mean oil, gas, casinghead gas, drip gasoline,
natural gasoline, condensate, distillate and all other liquid and gaseous
hydrocarbons produced or to be produced in conjunction therewith, and all
products, by-products and all other substances derived therefrom or the
processing thereof.
"Indebtedness" shall mean, as to any Person, all items that would, in
conformity with GAAP, be classified as liabilities or contingent liabilities of
such Person, but in any event including without limitation (a) all obligations
under leases that have been, or under GAAP are required to be, capitalized, (b)
all indebtedness endorsed (other than for collection or deposit in the ordinary
course of business) or discounted with recourse, and (c) all indebtedness in
effect guaranteed, directly or indirectly, by such Person.
"Indemnified Party" shall have the meaning set forth in Section 9.1.
"Initial Funding" shall mean the Funding of up to $3,466,000 of the
Chevron Financing as set forth in Section 2.1(a)(i)-(v).
"Internal Rate of Return" shall mean the return calculation based on
projected monthly cash flows, which cash flows include (i) projected advances
from EIF; (ii) a repayment schedule
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agreed upon by Borrower and EIF; (iii) income attributable to EIF's overriding
royalty interests as projected in the most recent reserve report prepared by
XxXxxxx Petroleum Consultants, Ltd., or other acceptable engineering firm. An
example of this calculation is attached hereto as Exhibit A.
"Internal Reserve Report" shall mean a report prepared by Borrower's
internal engineers or third party engineers working for Borrower, which report
shall, among other things, (a) identify the xxxxx covered thereby, (b) specify
such engineers' estimate of the total volume of reserves (the "available
reserves") (using the categories "proved developed producing reserves," "proved
developed nonproducing reserves," and "proved and undeveloped reserves")
attributable to the Collateral and (c) set forth such engineers' estimate with
respect to the projected future rate of production of the available reserves.
"Limited Personal Recourse Agreement" shall mean that certain
agreement between Xxxxxxx X. Xxxxxxxx, in his personal capacity, and EIF,
substantially in the form of Exhibit F hereto.
"Loans" shall mean the loans made by EIF to Borrower pursuant to this
Agreement, including the Development Loan.
"Loan Documents" shall mean this Agreement, the Notes, the
Stockholders' Agreement, the Employment and Stock Ownership Agreements, the
Stock Purchase Agreement, the Limited Personal Recourse Agreement, the Escrow
Agreement, all Security Instruments, all documents creating, evidencing, and
perfecting the Overriding Royalty Interests, and all other agreements,
certificates, instruments, or other documents required to be executed and
delivered by Borrower under the terms of this Agreement.
"Mineral Interests" shall mean rights, estates, titles and interests
in and to oil, gas or other mineral (or any combination thereof) leases (and
all extensions, amendments, ratifications and subleases thereof or thereunder)
and any mineral interests, royalty and overriding royalty interests, production
payment and net profits interests, mineral fee interests and rights therein,
including, without limitation, any reversionary or carried interests relating
to the foregoing, together with rights, titles and interests created by or
arising under the terms of any unitization, communitization and pooling
agreements or arrangements, pooling designations and pooling orders, and all
properties, rights and interests covered thereby, whether arising by contract,
by order or by operation of law, which now or hereafter include all or any part
of the foregoing.
"Multiemployer Plan" shall mean a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA.
"Note" shall mean the Development Note.
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"Notes" shall mean the Development Note and any other promissory note
described in this Agreement.
"Overriding Royalty Interests" shall have the meaning set forth in
Section 2.8.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA or other
applicable federal law.
"Permits" shall mean all governmental licenses, permits, certificates,
orders, concessions, grants, franchises, approvals and authorizations necessary
for the conduct of the business of Borrower.
"Permitted Liens" shall mean (a) liens to secure taxes, assessments,
and other governmental charges or claims for labor, material or supplies
(including but not limited to Liens granted under operating agreements) in
respect of obligations not overdue, not delinquent or that are being diligently
contested in good faith and by appropriate proceedings, provided that Borrower
shall have set aside on its books adequate reserves therefor; (b) compulsory
units formed by any government authority; (c) matters affecting title to the
Collateral disclosed in Exhibit C hereto, including, but not limited to,
easements and rights of way granted by Borrower or any of Borrower's
predecessors in title to the Collateral to the extent necessary to conduct
operations thereon; (d) EIF Liens; and (e) liens created by Borrower in favor
of third parties on properties for which Borrower has obtained financing from
sources other than EIF pursuant to Section 3.1.
"Person" shall mean any natural person, sole proprietorship,
corporation, general partnership, limited partnership, limited liability
company, union, association, court, agency, government, tribunal,
instrumentality, commission, arbitrator, board, bureau, or other entity or
authority.
"PMC" shall mean Production Management Corporation a Louisiana
corporation located in Harvey, Louisiana.
"PMC Agreement" shall mean that certain agreement, as amended, between
PMC and Borrower.
"Prohibited Transaction" shall mean any transaction set forth in
Section 406 of ERISA or Section 4975 of the Code.
"Properties" shall mean Borrower's interests in and under the oil and
gas properties described in the Proposed Oil and Gas Agreements, collectively;
but shall not include oil and gas properties acquired by Borrower with
financing from a source other than EIF pursuant to Section 3.1.
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"Proposed Gas Contracts" shall have the meaning set forth in Section
7.7.
"Proposed Oil and Gas Agreements" shall mean those agreements between
Borrower and third parties relating to the development, production and
management of oil and gas properties owned by such third parties, including
without limitation the letter of intent and Farmout Agreement between Borrower
and Chevron.
"Project IRR" shall mean the return calculation based on the projected
monthly cash flows, which cash flows shall include (i) all projected capital
expenditures; (ii) oil and gas revenues by a third party engineering report
acceptable to EIF, which report shall use trailing twelve month average prices
and which report shall be risked by the standard EIF reserve risk parameters
which count proved developed producing reserves at 100%, proved behind pipe
reserves and proved developed nonproducing reserves at 70% and proved
undeveloped reserves at 50%; and (iii) operating expenses and production taxes
as calculated by a third party engineering report acceptable to EIF.
"Reportable Event" shall mean any event described in Section 4043(b)
of ERISA with respect to an Employee Benefit Plan subject to Title IV of ERISA,
other than those as to which the PBGC has waived the notice requirement.
"Request for Escrow Disbursement" shall mean the document
substantially in the form of Exhibit L hereto.
"Requirement of Law" shall mean, as to any Person, the Certificate of
Incorporation and By-laws or other organizational or governing documents of
such Person and any law, treaty, rule or regulation, any determination of an
arbitrator or a court or other governmental authority or agency, or the terms
of any license, permit, certificate, authorization or other direction or
requirement (including, without limitation, any of the foregoing which relate
to energy regulations, drilling or production regulations, occupational, safety
and health standards or controls, and Requirements under the Environmental
Laws), in each case applicable to or binding upon such Person or to which any
of its property is subject.
"Reserve Report" shall mean a report prepared by a firm designated by
EIF on the basis of findings and data as of the last day of each calendar year
and on the basis of product price assumptions equal to the trailing twelve (12)
month weighted average wellhead price held flat for the life of the xxxxx,
which report shall, among other things, (a) identify the xxxxx covered thereby,
(b) specify such engineers' estimate with respect to the total volume of
reserves (the "available reserves") (using the terms or categories "proved
developed producing reserves," "proved developed nonproducing reserves" and
"proved and undeveloped reserves") attributable to the Collateral, (c) set
forth such engineers' estimate with respect to the present worth of the
projected cash flow from such reserves, and (d) set forth such engineers'
estimate with respect to the projected future rate of production of the
available reserves.
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"Royalty Rate" shall have the meaning set forth in Section 2.8.
"Security Instruments" shall mean such instruments or documents that
grant EIF a Lien in the Collateral, including, but not limited to, deeds of
trust or mortgages, security agreements, collateral mortgage notes, collateral
mortgages, collateral assignments, subordination agreements, financing
statements, waivers, assignments and assignments of interests in such
instruments and documents.
"Stock Purchase Agreement" means that certain agreement by and between
Borrower and EIF, attached hereto as Exhibit G.
"Stockholders' Agreement" shall mean that certain agreement by and
among Borrower, EIF, Xxxxxxx X. Xxxxxxxx and the other individuals identified
therein, attached hereto as Exhibit K.
"Termination Event" shall mean (i) a Reportable Event; (ii) the
withdrawal of Borrower or any ERISA Affiliate from a Multiple Employer Plan
during a plan year in which it was a "substantial employer," as such term is
defined in Section 4001(a)(2) of ERISA, or the incurrence of liability by
Borrower or any ERISA Affiliate under Section 4064 of ERISA upon the
termination of a Multiple Employer Plan; (iii) submission to a governmental
authority of a request for a waiver of minimum funding standards required by
ERISA or the Code, with respect to any Employee Benefit Plan; (iv) the
existence or likely creation of a lien under ERISA or the Code on Borrower or
any ERISA Affiliate on account of any Employee Benefit Plan; (v) the disclosure
to affected parties of a notice of intent to terminate an Employee Benefit Plan
under Section 4041 of ERISA other than in a "standard termination" within the
meaning of Section 4041 of ERISA; (vi) the institution of proceedings by the
PBGC to terminate an Employee Benefit Plan under Section 4042 of ERISA; (vii)
any other event or condition that might reasonably constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a trustee
to administer, any Employee Benefit Plan; (viii) the commencement or, to the
knowledge of Borrower, likely commencement of a proceeding against Borrower or
any ERISA Affiliate under Section 515 of ERISA to collect a delinquent
contribution to a Multiemployer Plan; or (ix) any other event or condition
reasonably indicating that Borrower or any ERISA Affiliate will or may incur
any material liability (including any contingent or secondary liability) to or
on account of the termination of or withdrawal from an Employee Benefit Plan or
Multiemployer Plan under Section 4062, 4063, 4064, 4201, or 4204 of ERISA.
"Third Party Lien" shall mean any interest in property or any interest
or right in any contract securing an obligation owed to, or a claim by, a
Person other than the owner of the property, whether such interest is based on
the common law, statute or contract, and including but not limited to the lien
or security interest arising from a mortgage, deed of trust, lease, claim or
right of a mechanic or materialman supplying materials or labor, encumbrance,
pledge, hypothecation, assignment, conditional sale, trust receipt, deposit
arrangement, charge, encumbrance, statute or other security agreement or
arrangement of any kind or nature
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whatsoever creating in favor of any creditor a right in respect of any
particular asset that is prior to the right of any other creditor in respect of
such asset.
"Title Lien" shall also include reservations, exceptions,
encroachments, easements, rights of way, covenants, conditions, restrictions,
leases and other title exceptions and encumbrances affecting property.
"UCC" shall mean La.R.S. 10:1-101 et seq. and the Uniform Commercial
Code as adopted by any other state in which the Collateral is located.
"Unfunded Current Liability" of any Employee Benefit Plan shall mean
the amount, if any, by which the present value of the accrued benefits under
the plan as of the close of its most recent plan year exceeds the value,
determined in accordance with Section 412 of the Code, of the plan's assets.
"Value" when used in reference to the Collateral, shall mean the
discounted present worth of the net revenues from the proved developed
producing oil and gas properties (using a discount rate of 15%) and product
price assumptions equal to the trailing twelve (12) month weighted average
wellhead price held flat for the life of the xxxxx as projected in the most
recent Reserve Report.
"Withdrawal Liability" shall have the meaning given such term under
Part 1 of Subtitle E of Title VI of ERISA.
1.2 Accounting Terms. Accounting terms used herein and not otherwise
defined herein shall be construed in accordance with GAAP.
1.3 Petroleum Terms. As used herein, the terms "proved reserves,"
"proved developed reserves," "proved developed producing reserves," "proved
developed nonproducing reserves" and "proved and undeveloped reserves" shall
have the meaning given such terms from time to time and at the time in question
by the Society of Petroleum Engineers of the American Institute of Mining
Engineers.
1.4 Singular and Plural. Words used herein in the singular, where the
context so permits, shall be deemed to include the plural and vice versa. The
definitions of words in the singular herein shall apply to such words when used
in the plural where the context so permits and vice versa.
1.5 Amendment of Defined Instruments. Unless the context otherwise
requires or unless otherwise provided herein, the terms defined in this
Agreement that refer to a particular agreement, instrument or document also
refer to and include all renewals, extensions, modifications, amendments and
restatements of such agreement, instrument or document, provided that nothing
contained in this section shall be construed to authorize or commit EIF to any
such renewal, extension, modification, amendment or restatement.
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ARTICLE 2
THE LOANS
2.1 Development Loan.
(a) Subject to the terms and conditions set forth in this
Agreement, EIF agrees to make a loan to Borrower (the "Chevron Financing") in
the principal amount of up to Eight Million Two Hundred Sixteen Thousand Two
Hundred Fifty Dollars ($8,216,250) for the following purposes:
(i) up to One Million Five Hundred Forty-One
Thousand Two Hundred Fifty Dollars ($1,541,250) to finance cost of
drilling and completing the first well (Well #6) on the Chevron
Properties;
(ii) up to One Million Three Hundred Seventy
Thousand Dollars ($1,370,000) to be funded into escrow, to drill and
complete the second well on the Chevron Properties;
(iii) up to Two Hundred Thousand Dollars ($200,000)
to provide Borrower with working capital;
(iv) up to Two Hundred Thousand Dollars ($200,000)
to pay EIF's costs and expenses;
(v) up to One Hundred Fifty-Five Thousand Dollars
($155,000) to pay for insurance costs; and
(vi) up to Four Million Seven Hundred Fifty Thousand
Dollars ($4,750,000) to finance the drilling of additional xxxxx on the
Chevron Properties.
(b) Subject to the terms and conditions set forth in this
Agreement, EIF agrees to make additional loans to Borrower ("Additional
Financings") in the aggregate principal amount of up to Eleven Million Seven
Hundred Eighty-Three Thousand Seven Hundred Fifty Dollars ($11,783,750) to
finance costs relating to Borrower's obligations under the Proposed Oil and Gas
Agreements that satisfy certain conditions set forth in Section 6.2 ("Approved
Transactions") and a portion of Borrower's general administrative expenses. The
Additional Financings and the Chevron Financing are collectively referred to as
the "Development Loan" herein.
(c) Upon (i) satisfaction of each of the conditions set forth
in Article 6, and (ii) providing EIF with written notice not less than twenty
(20) days prior to any Funding, the Development Loan may be funded through one
or more Fundings to finance one or more Approved Transactions; provided
however, that any amounts under the Development Loan
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which are not funded by April 1, 2000, will be canceled effective April 1,
2000. Each Additional Funding shall be documented by either an amendment to
this Agreement or by a side letter between EIF and Borrower, at the discretion
of EIF.
2.2 The Notes. The Development Loan shall be evidenced by the
promissory note of Borrower in substantially the form of Exhibit E hereto (the
"Development Note") to be dated the date of this Financing Agreement. Every
term contained in the Note shall be deemed incorporated into this Agreement. To
the extent any provision of the Note shall be deemed to be inconsistent with
the provisions of this Agreement, however, the provisions of this Agreement
shall control.
2.3 Interest.
(a)The unpaid principal amounts advanced under the Loans
(whether to Borrower, into the Escrow Account or to a third party at Borrower's
request), plus any accrued but unpaid interest, outstanding from time to time
shall bear interest at the rate of twelve percent (12%) per annum ("Base
Interest") for the actual number of days such amount is outstanding based on a
360-day year.
(b) It is the intention of the parties hereto to comply with
all applicable usury laws; accordingly, it is agreed that notwithstanding any
provisions to the contrary in this Agreement, the Notes or any other Loan
Documents, in no event shall such Loan Documents require the payment or permit
the collection of interest (which term, for purposes hereof, shall include any
amount which, under applicable law, is deemed to be interest, whether or not
such amount is characterized by the parties as interest) in excess of the
maximum amount permitted by such laws. If any excess of interest is
unintentionally contracted for, charged or received under the Notes or under
the terms of any other Loan Documents, or in the event the maturity of the
indebtedness evidenced by the Notes is accelerated in whole or in part, or in
the event that all or part of the principal or interest of the Notes shall be
prepaid, so that the amount of interest contracted for, charged or received
under the Notes or under any of the other Loan Documents, on the amount of
principal actually outstanding from time to time under the Notes shall exceed
the maximum amount of interest permitted by the applicable usury laws, then in
any such event (i) the provisions of this paragraph shall govern and control,
(ii) neither Borrower nor any other person or entity now or hereafter liable
for the payment thereof, shall be obligated to pay the amount of such interest
to the extent that it is in excess of the maximum amount of interest permitted
by such applicable usury laws, (iii) any such excess which may have been
collected shall be either applied as a credit against the then unpaid principal
amount thereof or refunded to Borrower at EIF's option, and (iv) the effective
rate of interest shall be automatically reduced to the maximum lawful rate of
interest allowed under the applicable usury laws as now or hereafter construed
by the courts having jurisdiction thereof. It is further agreed that without
limitation of the foregoing, all calculations of the rate of interest
contracted for, charged or received under the Notes or under such other Loan
Documents which are made for the purpose of determining whether such rate
exceeds the maximum lawful rate of interest, shall be made, to the extent
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permitted by applicable laws, by amortizing, prorating, allocating and
spreading in equal parts during the period of the full stated term of the Loan
evidenced thereby, all interest at any time contracted for, charged or received
from Borrower or otherwise by EIF in connection with such Loan.
2.4 Interest Upon Default. Upon the occurrence and during the
continuation of an Event of Default, any unpaid principal amount of the Loans,
and any overdue interest, shall bear interest at a rate of fifteen percent
(15%) per annum, computed for the actual number of days such amount is
outstanding based on a 360-day year (the "Default Rate").
2.5 Repayment of Principal and Interest on the Development Loan.
(a) EIF and Borrower agree that all Chevron Cash Flow From
Operations attributable to the Chevron Properties shall be used to repay the
Chevron Financing by applying such funds first to interest, then to principal,
and thereafter to the overriding royalty interest until EIF achieves an
Internal Rate of Return of 20% and the Chevron Financing is repaid in full.
Payments under this Section 2.5(a) shall be due and payable on the fifteenth
(15th) day of each month (or the next business day) in an amount equal to the
Chevron Cash Flow From Operations for the prior month. Each such payment shall
be accompanied by a schedule showing how that payment was calculated. If the
revenues from the Chevron Properties cease prior to the achievement by EIF of
an Internal Rate of Return of 20%, Borrower shall not be liable for the
difference between the amount actually paid to EIF and the amount that would
have been paid to EIF if the 20% Internal Rate of Return had been achieved.
(b) EIF and Borrower agree that, upon any Funding under the
Development Loan other than the Chevron Financing, Borrower authorizes EIF to
affix a payment schedule to the Development Note as evidence of (1) the amount
of the Development Note then outstanding, and (2) the schedule according to
which Borrower must pay principal and Base Interest on such outstanding amount,
as agreed to between the parties prior to the advance. Such payments shall be
due in arrears on the first day of each month, unless such day is not a
Business Day, in which event payment shall be due on the first Business Day
thereafter. All unpaid principal and accrued and unpaid interest shall be due
and payable on the Final Payment Date. Upon each additional advance, the
amortization schedule shall be revised to include the repayment of the
additional principal and interest over the remaining term of the Development
Loan.
(c) Under no circumstances shall this Agreement be
interpreted as establishing a revolving credit facility.
2.6 Optional Prepayment.
(a) Until the second anniversary of the Initial Funding
hereunder, no optional prepayment may be made unless and until Borrower has
consummated an initial public offering
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of securities issued by Borrower which results in net proceeds to the Borrower
of at least $30,000,000 ("Initial Public Offering").
(b) After the second anniversary of the Initial Funding
hereunder, Borrower may prepay the loans, in full upon sixty (60) days written
notice to EIF ("Notice Date")
2.7 Payment Procedure. All cash payments made by Borrower under the
Notes or this Agreement shall be made to EIF and wired to the following account
prior to 12:00 o'clock noon, Eastern time, on the date that such payment is
required or permitted to be made:
First National Bank of Boston
ABA# 000-000-000
Worldwide Custody/Canton
Energy Income Fund, L.P. - Account #0000000
Borrower shall provide EIF with notice of Borrower's intent to wire payments
into the above- mentioned account at least twenty-four (24) hours before such
payments are deposited into such account. Notice to EIF shall be given by
facsimile, with the notice addressed as follows:
Xxxxxxx X. Xxxxxx
Energy Income Fund, L.P.
Facsimile No.: (000) 000-0000
Any payment received by EIF after 12:00 o'clock noon, Eastern time, on any day
shall be considered for all purposes (including the calculation of interest, to
the extent permitted by applicable law) as having been made on the next
following Business Day. Payments shall be first applied to costs and expenses
due EIF pursuant to Articles 2 and 10 of this Agreement, then to accrued
interest on the Notes, and then to principal.
2.8 Overriding Royalty. In consideration of EIF's agreement to make
the Loans, Borrower at Closing shall assign to EIF overriding royalty interests
at the rate specified in Section 2.8(a) hereinbelow (the "Royalty Rate") in and
to the gross revenues (calculated after payment of state severance taxes)
received by Borrower from the sale of Hydrocarbons produced from Borrower's
interests in the Properties, which includes all of Borrower's net profit
interests (the "Overriding Royalty Interests").
(a) The Royalty Rate shall be three percent (3%), except with
respect to the Chevron Financing, which is subject to the provisions of Section
2.5(a).
(b) The Overriding Royalty Interests shall be effective as of
the first day of the month in which the Funding of the Development Loan Closing
Date occurs, at 7:00 a.m., local time. All subsequent Overriding Royalty
Interests shall be effective as of the date of Borrower's acquisition of each
of the Properties, unless the relevant purchase and sale agreement provides for
an earlier effective date.
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(c) Such Overriding Royalty Interests shall be evidenced by
appropriate instruments of conveyance in form and substance satisfactory to EIF
and its counsel. The assignment by Borrower to EIF of the Overriding Royalty
Interests is intended to be and shall be an absolute and unconditional
assignment and not merely a pledge or creation of a lien or security interest,
and shall be perpetual and survive the payment or satisfaction of the Loans.
(d) At the request of EIF, Borrower shall execute,
acknowledge and deliver transfer orders or letters in lieu thereof directing
all purchasers of production to make payment to EIF of proceeds attributable to
the Overriding Royalty Interests.
(e) All proceeds received by Borrower that shall be due to
EIF shall be held by Borrower under the terms of an express trust for the
benefit of EIF, and shall be paid to EIF as set forth in Section 2.5(a). Any
amounts not paid when due shall bear, and Borrower agrees to pay, interest at
the rate of fifteen percent (15%) per annum computed for the actual number of
days such amount is outstanding based on a 360-day year, or the rate as
provided under applicable law, whichever is higher.
2.9 Collateral/Indebtedness Ratio. It is expressly understood and
agreed by and between EIF and Borrower that EIF is lending money to Borrower
pursuant to this Agreement on the condition that Borrower's total outstanding
Indebtedness to EIF shall not as of January 1 of each year exceed 80% of the
Value of the Collateral. As of January 1 of each year, should EIF, based on the
most recent Reserve Report, determine at any time that the total outstanding
Indebtedness of Borrower to EIF exceeds 80% of the Value of the Collateral, EIF
shall so notify Borrower, and Borrower shall have ninety (90) days to cure the
deficiency. If Borrower fails to cure the deficiency on or before expiration of
the 90-day cure period, Borrower shall immediately (i) make a mandatory
prepayment of principal and interest to EIF equal to the amount necessary to
cause the total outstanding Indebtedness to be less than or equal to 80% of the
Value of the Collateral, or (ii) grant and convey to, and create in favor of,
EIF, perfected first priority EIF Liens in, to, and on all of Borrower's right,
title and interest in additional collateral that is both satisfactory in nature
and value to EIF in its sole discretion, and sufficient in value to raise the
Value of the Collateral such that the total outstanding Indebtedness shall be
less than or equal to 80% of the Value of the Collateral.
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ARTICLE 3
ADDITIONAL FINANCING RIGHT OF FIRST REFUSAL
3.1 Additional Financing Right of First Refusal. Until the Loans are
paid in full, Borrower hereby grants EIF the right of first refusal to provide
additional financing to Borrower for the purpose of acquiring interests,
including without limitation contract rights, in additional oil and gas
properties or gathering and processing assets or developing by industry
accepted methods (including infill drilling, well deepening and recompletion of
behind pipe zones) additional oil and gas reserves on the Properties and any
other interests acquired by Borrower, subject to the following terms and
conditions:
(a) Prior to EIF funding the full $20,000,000 of the
Development Loan to Borrower and in the event that Borrower determines, either
directly or through an Affiliate, to seek or obtain financing from any Person
other than EIF to make capital expenditures for the purposes set forth herein,
it shall so notify EIF. Any such notice shall be accompanied by relevant
geological, geophysical and engineering studies, environmental assessments,
cost estimates, and other information and data on the basis of which Borrower
proposes to proceed with such acquisition or development. EIF shall have the
right, in its sole discretion, for a period of thirty (30) days after receipt
of the notice from Borrower, to elect by written notice to Borrower to make
loans to Borrower (any such loan referred to as an "Additional Loan") for
eighty percent (80%) of such acquisition and development costs (or such lesser
percentage as may be agreed to between EIF and Borrower), provided that EIF
will be required to be in a position to advance funds within thirty (30) days
after it notifies Borrower of its election to provide such financing.
(i) If EIF elects to make an Additional Loan,
Borrower will accept such Additional Loan to finance eighty percent
(80%) (or such lesser percentage as may be agreed to between EIF and
Borrower) of such acquisition and development costs on terms and
conditions substantially similar to the terms and conditions set forth
in this Agreement, except that EIF shall not receive any additional
equity interest in Borrower unless otherwise agreed to by Borrower in
writing.
(ii) If EIF determines not to provide the Additional
Loan or fails to notify Borrower of its election to do so within thirty
(30) days after receipt of notice from Borrower, Borrower may proceed
to obtain financing from other sources.
(b) After EIF has funded the full $20,000,000 of the
Development Loan to Borrower and in the event that Borrower determines, either
directly or through an Affiliate, to seek or obtain financing from any Person
other than EIF to make capital expenditures for the purposes set forth herein,
it shall so notify EIF. Any such notice shall be accompanied by relevant
geological, geophysical and engineering studies, environmental assessments,
cost estimates, and other information and data on the basis of which Borrower
proposes to proceed with such acquisition or development.
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(i) EIF shall have the right, in its sole
discretion, for a period of thirty (30) days after receipt of the
notice from Borrower, to elect by written notice to Borrower to make an
Additional Loan for an amount up to Twenty Million Dollars
($20,000,000) on the same terms and conditions as contained herein,
except that EIF shall not receive any additional equity interest in
Borrower unless otherwise agreed to by Borrower in writing.
(ii) If EIF determines not to provide the Additional
Loan or fails to notify Borrower of its election to do so within the
thirty day period, EIF shall have the right to match any financing
commitment obtained by Borrower from other sources on competitive terms
(including reimbursement to Borrower for reasonable third party loan
origination costs incurred by Borrower in obtaining third party
financing) within fifteen (15) days until the Loans are repaid in full.
(c) Nothing contained in this Article 3 shall be construed to
create any obligation or commitment by EIF to make an Additional Loan. Any
Additional Loan shall be subject to the negotiation and execution of definitive
loan documentation satisfactory to EIF and Borrower. If EIF elects to make an
Additional Loan, on the terms set forth in Section 3.1(b), or other mutually
agreed terms, Borrower shall not seek or obtain financing from any other source
with respect to such expenditures.
(d) EIF may, at its sole discretion, assign all of its rights
under this Article 3 to an Affiliate of EIF.
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ARTICLE 4
SECURITY AND ASSIGNMENT
The provisions of this Article 4 shall terminate upon the payment in
full of the Loans and satisfaction in full of any and all other obligations
owing to EIF under this Agreement.
4.1 Collateral. All of the properties, interests and rights described
below in this Section 4.1 are herein collectively referred to as the
"Collateral." To secure full and complete payment and performance of the Loans
and performance of Borrower's obligations hereunder and under the other Loan
Documents, Borrower hereby grants and conveys to, and creates in favor of, EIF,
perfected first priority EIF Liens, in, to, and on all of Borrower's right,
title and interest, whether now owned or hereafter acquired, in the following
items and types of property:
(a) The oil and gas leases, fee interests, Mineral Interests,
working interests, operating interests, net revenue interests, production
payment interests, royalty interests and any other rights, title, estates or
interests in the Properties of whatever kind or character and any additions,
replacements, or substitutions thereto; it being intended by Borrower and EIF
to cover and affect hereby all interests Borrower may now own or hereinafter
acquire in and to the Properties, including new leases that are contiguous or
adjacent to Collateral leases;
(b) All presently existing and future unitization,
communitization, pooling agreements and declarations of pooled units and the
units created thereby (including all units created under orders, regulations,
rules or other acts of any Federal, State or other governmental agency having
jurisdiction and any pooling agreements, units, or similar arrangement created
solely among working interest owners pursuant to operating agreements or
otherwise) which may affect all or any portion of the Properties including,
without limitation, the properties now or hereafter pooled or unitized with the
Properties;
(c) All Hydrocarbons in and under and which may be produced
and saved from or attributable to the Properties, the lands pooled or unitized
therewith, including Borrower's interest in Hydrocarbons from time to time
located in storage or transportation facilities in or near the site of any gas
plants or in tanks or other storage facilities owned, operated or used by
Borrower in connection with all or any portion of the Collateral and Borrower's
interest in all rents, issues, profits, proceeds, products, revenues and other
income from or attributable to the Properties, the lands pooled or unitized
therewith and Borrower's interests therein which are subjected or required to
be subjected to the liens and security interests of this Agreement;
(d) All tenements, hereditaments, appurtenances and
properties in anyway appertaining, belonging, affixed or incidental to the
Properties, rights, titles, interests and estates described or referred to in
paragraphs (a), (b) and (c) above, which are now owned or which may hereafter
be acquired by Borrower, including, without limitation, any and all property,
real or personal, now owned or hereafter acquired and situated upon, used, held
for use, or useful in
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connection with the operating, working or development of any of such Properties
or the lands pooled or unitized therewith (excluding drilling rigs, trucks,
automotive equipment or other personal property which may be taken to the
premises for the purpose of drilling a well or for other similar temporary
uses) and including any and all oil xxxxx, gas xxxxx, injection xxxxx or other
xxxxx, buildings, structures, field separators, liquid extraction plants, plant
compressors, pumps, pumping units, pipelines, sales and flow lines, gas
processing plants and all compressors, scrubbers, absorbers, dehydrators,
tanks, reabsorbers, accumulators, stills, condensers, cooling towers,
regulators, meters, heaters, coolers, deethanizers, depropanizers,
debutanizers, boilers, pumps, heat exchangers, valves, controls, pipes and
lines, floating racks, heating, lighting and power plants, transmission lines,
buildings, housing and improvements, together with all other machinery,
equipment and apparatus of whatsoever character or description located on the
lands above-described or located elsewhere and used in the operation, conduct
and maintenance of such gas processing plants, all pipeline gathering systems
utilized in connection with such gas processing plants, together with all
equipment, fittings, fixtures, pipe, machinery, pumps, appliances, valves,
meters, tanks and other personal or real property appertaining to the said
pipeline gathering systems, field gathering systems, salt water disposal
facilities, tanks and tank batteries, and all other fixtures, valves, fittings,
machinery and parts, engines, boilers, meters, apparatus, equipment,
appliances, tools, implements, cables, wires, towers, casing, tubing and rods,
surface leases, rights-of-way, easements, servitudes, licenses tenements,
hereditaments, appurtenances and other surface and subsurface rights together
with all additions, substitutions, replacements, accessions and attachments to
any and all of the foregoing properties;
(e) All operating agreements, production sales or other
contracts, farmout agreements, farm-in agreements, area of mutual interest
agreements, equipment leases and other agreements and contracts which relate to
any of the Properties or interests in the Properties or to the production,
sale, purchase, exchange, processing, handling, storage, transporting or
marketing of the Hydrocarbons from or attributable to such Properties or
interests;
(f) All geological, geophysical, engineering, accounting,
legal and other information and rights therein and thereto in the possession of
Borrower or to which Borrower has access or has any rights therein concerning
the Properties including, without limitation, lease files, abstracts of title,
title opinions, geological and geophysical information (unless such geological
or geophysical information is restricted as to transfer or use by an existing
license or agreement concerning proprietary rights identified in this
Agreement), reserve or reservoir studies and well logs, engineering data and
reports, production records and all magnetic media and computer data relating
to the Collateral;
(g) All rights of Borrower to liens and security interests
securing payment of proceeds from the sale of production from the Collateral;
together with Borrower's interest in any and all renewals and extensions of any
of the Properties' rights, titles, interests or estates; Borrower's interest in
all contracts and agreements supplemental to or amendatory of or in
substitution for the contracts and agreements described or referred to in this
Agreement; and any
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and all additional interests of any kind hereafter acquired by Borrower in and
to the Properties' rights, titles, interests or estates;
(h) All accounts, contract rights, inventory, general
intangibles, insurance contracts and insurance proceeds constituting a part of,
relating to or arising out of those portions of the Collateral which are
described in paragraphs (a) through (g) above and Borrower's interest in all
proceeds and products of all such portions of the Collateral and payments in
lieu of production (such as "take or pay" payments), whether such proceeds or
payments are goods, money, documents, instruments, chattel paper, securities,
accounts, general intangibles, fixtures, real property, or other assets;
(i) All proceeds and payments attributable to all judgments
entered by courts (by agreement or otherwise), in contract or tort, arising out
of or attributable to the ownership of any of the Collateral;
(j) All of Borrower's right, title and interest in the Escrow
Agreement and all funds deposited and held by the Escrow Agent in the Escrow
Account; and
(k) All cancellation or termination rights under the New
Agreements;
together with any and all corrections or amendments to, or renewals, extensions
or ratifications of, any of the same, or of any instrument relating thereto,
and all rights-of-way, franchises, easements, tenements, hereditaments and
appurtenances now existing or in the future obtained in connection with any of
the aforesaid, with all reversions, remainders, rents, revenues, issues,
proceeds, earnings, incomes, products and profits thereof, and all proceeds
from the sale of any of the aforesaid, and all the estate, title, interests,
rights and claims whatsoever, at law as well as in equity, which Borrower now
has or may hereafter acquire in and to the aforesaid, and all other interest of
every kind and character in all of the real and personal properties
respectively above described or referred to which Borrower may now own or at
any time hereafter acquire (including, without limitation, all interests which
Borrower may now or at any time hereafter own in the Hydrocarbons and other
minerals in and under the Properties), and all other things of value and
incident thereto which Borrower might at any time have or be entitled to, all
the aforesaid properties, rights and interests, together with any additions
thereto which may be subjected to the lien of this instrument by means of
supplements hereto.
Any additional right, title or interest which Borrower may hereafter
acquire or become entitled to in the Collateral shall inure to the benefit of
and be covered by this Agreement and constitute "Collateral" the same as if
expressly described and conveyed herein.
4.2 Assignment. Borrower hereby absolutely and unconditionally
TRANSFERS, ASSIGNS, WARRANTS and CONVEYS to EIF, effective as of the date of
the Initial Funding at 7:00 a.m. local time, all of the interest of Borrower in
all Hydrocarbons and all other minerals which are thereafter produced, saved or
sold from the Properties, or allocated thereto pursuant to
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pooling or unitization of oil and gas leases or otherwise, all revenues and
proceeds from the sale thereof (the "Proceeds of Runs"), including all payments
in lieu of production such as "take or pay" payments and settlements, and all
accounts, contract rights, and other general intangibles under which such
proceeds may arise. Borrower shall deliver to EIF signed letters in lieu of
transfer order executed in blank, substantially in the form of Exhibit H. The
following terms and conditions shall apply to the Proceeds of Runs:
(a) EIF shall have the right, exercisable upon an Event of
Default, and afterwards from time to time unless and until the Default is
cured, to give written or telegraphic notice (in the form of a transfer order
of letter in lieu signed by Borrower or any other form of notice signed by EIF)
to all of the parties producing, purchasing, taking, processing or receiving
any Hydrocarbons and other minerals produced or to be produced from or
allocated to Borrower's share of the Properties, or having in their possession
any such Hydrocarbons and other minerals belonging to Borrower or such proceeds
for which they or others are accountable to EIF by virtue of the provisions of
this Section 4.2, to hold and dispose of such Hydrocarbons and other minerals
for the account of EIF and to make payment of such proceeds directly to EIF at
its principal office, and EIF shall thereafter receive, collect and retain, as
part of the Properties, all such Hydrocarbons and other minerals, all for the
benefit and further security of the Loans.
(b) In the event that, for its convenience, EIF should elect,
with respect to particular properties or contracts constituting the Properties,
not to exercise immediately upon an Event of Default its right to receive
payment to it directly of all or any portion of the assigned Proceeds of Runs
or production, then the oil or gas purchasers, or other persons obligated to
make such payment shall continue to make payment of such proceeds to Borrower
until such time as they are notified by EIF. At such time, EIF shall also
notify Borrower that EIF has made such written or telegraphic demand. Any
failure to notify shall not in any way waive the right of EIF to receive any
payments not theretofore paid out to Borrower before the giving of written or
telegraphic notice. In this regard, then, at the request of EIF, payments are,
for a period or periods of time, paid to Borrower, EIF shall nevertheless have
the right, effective upon notice, to require that any future payments be again
made to EIF.
(c) All parties producing, purchasing or receiving any such
Hydrocarbons or other minerals, or having such, or proceeds therefrom, in their
possession for which they or others are accountable to EIF by virtue of the
provisions of this Section, are authorized and directed to treat and regard EIF
as the assignee and transferee of Borrower and entitled in Borrower's place and
stead to receive such Hydrocarbons and other minerals and all proceeds
therefrom; and said parties and each of them shall be fully protected in so
treating and regarding EIF, and shall be under no obligation to see to the
application by EIF of any such proceeds or payments received by it.
(d) The foregoing provisions of this Section 4.2 shall
constitute an absolute and present assignment of all of Borrower's interest in
the Hydrocarbons. EIF grants to Borrower a conditional license to receive and
sell such Hydrocarbons and the proceeds therefrom, and to
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use the same in accordance with the terms of this Financing Agreement until EIF
delivers written notice to purchasers of production (if any) as provided
hereinabove at which time such conditional license shall terminate without
further notice or action on the part of EIF. The existence or exercise of such
conditional license shall not operate to subordinate this assignment, in whole
or in part, to any subsequent assignment by Borrower permitted hereunder, and
any such subsequent assignment by Borrower shall be subject to the rights of
EIF hereunder.
4.3 Limitation on Recourse. Except as set forth below, the Notes shall
be without recourse to Borrower and EIF shall look solely to the Collateral for
the payment of such principal and interest and shall not seek a deficiency or
other personal judgment against Borrower in the event that any sale of the
Collateral shall be insufficient to satisfy the Loans. Nothing herein contained
shall, however, impair any right, remedy or security of EIF with respect to the
Collateral under any Loan Document, nor limit Borrower's obligations to perform
any of Borrower's other obligations hereunder, including without limitation
Borrower's obligation to indemnify EIF as set forth in Article 9.
(a) Borrower shall be fully and personally liable for all
amounts owed to EIF with respect to this Agreement and the Loans upon the
occurrence of any one of the following events:
(i) fraud, breach of trust, or any intentional
material misrepresentation by Borrower in the Loan Documents or the
Security Instruments, or any other documents or instruments evidencing,
securing or relating to the Loans;
(ii) any attempt by Borrower to communicate in any
manner with the purchasers of production from the Collateral after the
delivery to such purchasers of a letter in the form of Exhibit H in an
attempt to hinder or interfere with the rights of EIF as stated in
Section 4.2 above and as restated in the Security Instruments;
(iii) any attempt by Borrower to hinder or interfere
with the exercise of the power of sale granted in any of the Security
Instruments, including without limitation the filing of a lis pendens,
the initiation of any lawsuit or the requesting of injunctive relief
from any court or tribunal, having the effect of hindering or delaying
the exercise by EIF and/or Trustee of any right or remedy under this
Agreement or any Security Instrument;
(iv) after an Event of Default, Borrower shall fail
or refuse to execute and deliver to EIF within thirty (30) days any
instrument reasonably requested by EIF and prepared at its expense,
which is necessary to fully vest title to the Properties in EIF or the
purchaser(s) of all or part of the Properties pursuant to any sale as
provided for in the Security Instruments;
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(v) the failure of Borrower to apply substantially
all of the funds advanced under the Loan Documents for the purposes for
which the advance was requested;
(vi) a bankruptcy petition shall be filed with
respect to Borrower or any actual or purported transferee or assignee
of all or a portion of Borrower's interest in the Collateral, the Loan
Documents or the Leases, whether filed by Borrower or any other Person,
unless such bankruptcy petitions is dismissed within sixty (60) days
from the date of filing.
(b) In addition to any liability under paragraph (a) above,
Borrower shall be fully and personally liable to EIF for all damages, costs,
expenses and liabilities of any kind or character arising out of or in any
manner connected with any of the following events:
(i) waste of a material nature to any part of the
Properties caused by Borrower's gross negligence or willful and wanton
neglect or abuse of the Collateral or failure to exert reasonable
control appropriate under the circumstances;
(ii) failure to pay taxes (except where taxes are
being disputed in good faith), insurance, assessments, charges for
labor or materials, or other charges, fees or assessments that can
create or result in liens (unless such lien is adequately bonded) on
any portion of the Collateral;
(iii) any breaches of warranty or defects of title
of the Collateral, other than Permitted Liens;
(iv) any breach of warranty or representation
contained in the Loan Documents, or failure to perform any covenant or
other agreement contained in the Security Instruments, or any indemnity
contained in the Security Instruments;
(v) failure to return to or reimburse EIF for all
monies received by Borrower from the purchasers of production for
monies attributable to production after receipt by any such purchaser
of a letter in the form of Exhibit H;
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ARTICLE 5
REPRESENTATIONS AND WARRANTIES
BORROWER REPRESENTS AND WARRANTS TO EIF AS FOLLOWS:
5.1 Organization; Charter and Bylaws of Borrower. Borrower is a
corporation validly existing and in good standing under the laws of its state
of incorporation and has the requisite corporate power to own, lease and
operate its properties and to carry on its business as now being conducted.
Borrower is duly qualified to do business and is in good standing in each
jurisdiction in which the character or location of the properties owned or
leased by Borrower or the nature of the business conducted by Borrower makes
such qualification materially necessary or advisable.
5.2 Authority of Borrower. Borrower has the requisite corporate power
to execute, deliver and perform the Loan Documents, and to consummate the
transactions contemplated thereby. The execution and delivery of the Loan
Documents by Borrower and the consummation of the transactions contemplated
thereby have been duly authorized by all necessary action on the part of
Borrower. Each of the Loan Documents has been duly executed and delivered by
Borrower and constitutes a legal, valid and binding obligation of Borrower and
is enforceable against Borrower in accordance with its terms except (i) that
such enforcement may be subject to bankruptcy, insolvency, moratorium or
similar laws affecting creditors' rights and (ii) that the remedy of specific
performance and injunctive and other forms of equitable relief are subject to
certain equitable defenses and to the discretion of the court before which any
proceedings therefor may be brought.
5.3 No Violation. The execution and delivery of the Loan Documents by
Borrower do not, and the performance of the Loan Documents will not, (i)
conflict with or result in a breach of certificate of organization, the bylaws
or other governing documents of Borrower, or (ii) violate, or conflict with, or
constitute a default under, or (except for EIF Liens created pursuant to the
Loan Documents) result in the creation or imposition of any security interest,
mortgage, pledge, lien, encumbrance, claim, restriction, or other charge upon
any property or assets of Borrower under any mortgage, indenture or agreement
to which Borrower is a party or by which the property or assets of Borrower is
bound, or (iii) violate any Requirement of Law, the effect of which violation
would be material and adverse to the business, assets or financial condition of
Borrower, or (iv) violate any permit, concession, grant, franchise, license, or
other governmental authorization or approval necessary for the appropriate
conduct of the business of Borrower, the effect of which violation would be
material and adverse to the business, assets or financial condition of
Borrower.
5.4 Litigation. Except as provided in Schedule 5.4 hereto, there are
no actions, suits, proceedings or governmental investigations or inquiries
pending of which Borrower has been advised, or to the knowledge of Borrower
threatened against Borrower or any of its Affiliates or their respective
properties, assets, operations or businesses (i) that might prevent or
interfere with the consummation of the transactions contemplated hereunder or
(ii) that might, singly or in the
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aggregate, result in any material adverse effect on the prospects, results of
operation, properties, liabilities, assets, financial condition or business of
Borrower. In the event any such actions, suits, proceedings, claims or
assessments arise or are asserted prior to any Funding Date, Borrower shall
promptly notify EIF of the same.
5.5 Financial Statements. The Financial Statements of Borrower
heretofore delivered to EIF by Borrower, if any, fairly represent the financial
condition of Borrower as of the date thereof and for the periods reflected
therein. Since the date of such Financial Statements, there has been no
material adverse change in the assets, business, financial condition or
prospects of Borrower.
5.6 Compliance with Licenses and Laws. Except as disclosed in writing
to EIF by Borrower, Borrower possesses all Permits, and Borrower is in
compliance with the Permits and all Requirements of Law except where the
failure to possess any Permits or the failure to be in compliance with the
Permits or Requirements of Law would not, singly or in the aggregate, have a
material adverse effect on the business, assets, financial condition or
operations of Borrower. There are no proceedings pending or, to the knowledge
of Borrower, threatened that may result in the revocation, cancellation, or
suspension or any materially adverse modification of any of the aforementioned
Permits. Borrower has not received any written notice to the effect that, or
otherwise been advised that, it is not in compliance with any Permit or
Requirement of Law. Except as set forth in Schedule 5.6 hereto, no consent,
approval or authorization of, or declaration, filing or registration with, any
United States federal, state, or local governmental or regulatory authority is
required to be made or obtained by Borrower in connection with the execution,
delivery and performance of any Loan Document or the consummation by Borrower
of the transactions contemplated thereunder.
5.7 Investments and Guaranties. At the date of this Agreement,
Borrower has not made investments in, advances to or guaranties of the
obligations of any Person not otherwise disclosed on the Financial Statements.
5.8 Title to Properties. Subject to the rights of Borrower and the
terms and provisions of the Proposed Oil and Gas Agreements:
(a)At the Development Loan Closing Date and at each Funding
Date, (i) Borrower shall have full authority to create EIF Liens on the
Collateral, and (ii) all Mineral Interests that comprise a part of the
Collateral will be valid, subsisting and in full force and effect, and all
rentals, royalties and other amounts due and payable in respect thereof will
have been duly paid or accounted for.
(b) Except as specifically disclosed in Schedule 5.8(b), at
the Development Loan Closing Date and at each Funding Date, Borrower's
ownership interest in the Collateral shall consist of good and marketable
title, free and clear of all Third Party Liens.
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5.9 Casualties; Taking of Properties. Since the date of the Financial
Statements, neither the business nor the properties of Borrower have 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 domestic or foreign government or any agency
thereof, riot, activities of armed forces or acts of God or of any public
enemy.
5.10 ERISA. Neither Borrower nor any ERISA Affiliate maintains,
contributes to or is obligated to contribute to, nor has either Borrower or any
ERISA Affiliate ever maintained, contributed to or been obligated to contribute
to, any Employee Benefit Plan. Neither Borrower nor any ERISA Affiliate has any
liability (whether actual or conditional, with respect to its assets or
otherwise) to or resulting from any Employee Benefit Plan sponsored or
maintained by a Person that is not the Borrower or any ERISA Affiliate. Neither
Borrower nor any ERISA Affiliate has or has had any obligations under any
collective bargaining agreement. The persons classified by Borrower as
independent contractors do satisfy and have satisfied the requirements of law
to be so classified, and the Borrower has fully and accurately reported their
compensation on IRS Forms 1099 when required to do so.
5.11 Environmental Liabilities. Subject to the rights of Borrower and
the terms and provisions of the Proposed Oil and Gas Agreements:
(a) To the best of Borrower's knowledge, the Properties are
and at all times have been operated in compliance with all applicable
Environmental Laws; and to the best of Borrower's knowledge, no condition
exists with respect to the Collateral or other property owned or operated by
Borrower or any Affiliate of Borrower that would or could reasonably be
expected to subject Borrower, any Affiliate of Borrower, or EIF to any material
damages (including without limitation, actual, consequential, exemplary and
punitive damages), liability (absolute or contingent, determined or
determinable), penalties, injunctive relief or cleanup costs under any
applicable Environmental Laws, or that require or could reasonably be expected
to require cleanup, removal, remedial action or other response by Borrower, any
Affiliate of Borrower, or EIF pursuant to applicable Environmental Laws.
(b) Borrower has not received and, to the best of Borrower's
knowledge, none of its Affiliates have received, and none of Borrower's or its
Affiliates' predecessors in title to the Properties have received, any notice
from a governmental agency asserting or alleging a violation of any
Environmental Laws as they relate to the Properties.
(c) There are no pending or threatened suits, actions, claims
or proceedings against Borrower or its Affiliates or, to the best of Borrower's
knowledge, Borrower's or its Affiliates' predecessors in title, arising from or
related to, directly or indirectly, any Environmental Laws as they relate to
the Properties.
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(d) Neither Borrower, any Affiliate of Borrower, nor to the
best of Borrower's knowledge, any part of the Properties, Borrower's
predecessors, or any Affiliate's predecessors is subject to any judgment,
decree, order or citation related to or arising out of any Environmental Laws,
and neither Borrower nor any Affiliate has been named or listed as a
potentially responsible party by any governmental or other entity in a matter
arising under or relating, directly or indirectly, to any Environmental Laws.
(e) Borrower has obtained or caused to be obtained all
permits, licenses, and approvals required under all Environmental Laws to
operate the Properties.
(f) There are not now, nor to the best of Borrower's
knowledge have there ever been, Hazardous Materials discharged, leaked, spilled
or released in, on, to, from or at the Properties or other properties owned or
operated by Borrower or any of its Affiliates or stored, treated, or recycled
at or in tanks or other facilities thereon or related thereto which give rise
or could reasonably be expected to give rise to liability under any
Environmental Laws.
(g) The use which Borrower makes and intends to make of the
Properties will not result in: (i) the use or storage of any Hazardous
Materials on, in or in connection with the Properties, or disposal of any
Hazardous Materials from the Properties except in compliance with all
applicable Environmental Laws, or (ii) the treatment, processing, discharge or
release of any Hazardous Materials on, in, to or from the Properties except in
compliance with all applicable Environmental Laws.
(h) To the best of Borrower's knowledge, there are no
underground storage tanks, surface impoundments, or wastewater injection xxxxx
located on or in the Properties; or if such structures do exist, to Borrower's
knowledge they are in compliance with Environmental Laws.
5.12 Taxes. Borrower has filed or caused to be filed within the times
and within the manner prescribed by law, all federal, state, local and foreign
tax returns and tax reports that are required to be filed by, or with respect
to, Borrower. Such returns and reports reflect accurately all liability for
taxes of Borrower for the periods covered thereby, and all federal, state,
local and foreign income, profits, franchise, sales, use, occupancy, excise and
other taxes and assessments (including interest and penalties) payable by, or
due from, Borrower have been fully paid or adequately disclosed and fully
provided for in the books and Financial Statements of Borrower to the extent
required by GAAP. No examination of any tax return of Borrower is currently in
progress, and there are no unpaid taxes in any material amount claimed to be
overdue by the taxing authority of any jurisdiction. There are no outstanding
agreements or waivers extending the statutory period of limitation applicable
to any tax return of Borrower.
5.13 No Event of Default. No Default or Event of Default has occurred
and is continuing.
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5.14 Investment Company Act. Borrower is not an "investment company"
or a company "controlled" by an "investment company," within the meaning of the
Investment Company Act of 1940, as amended.
5.15 Public Utility Holding Company Act. Borrower is not a "holding
company," or a "subsidiary company" of a "holding company," or an "affiliate"
of a "holding company" or of a "subsidiary company" of a "holding company," or
a "public utility" within the meaning of the Public Utility Holding Company Act
of 1935, as amended.
5.16 Location of Business and Offices. Borrower's principal place of
business and chief executive office are located at the address indicated in
Section 11.1.
5.17 No Misstatement. No information, exhibit or report furnished to
EIF by Borrower in connection with the negotiation of this Agreement contains
any material misstatement of fact or omits to state any material fact necessary
to make the statement contained therein not misleading.
5.18 Foreign Person. Borrower is not a non-resident alien, foreign
corporation, foreign partnership, foreign trust, foreign estate or foreign
person within the meaning of Sections 1445 or 7701 of the Internal Revenue Code
of 1986, as amended, or the regulations thereto.
5.19 Arrangements Relating to Operations and Production. Borrower has
made arms- length arrangements with respect to operations, marketing, sales,
transportation, treating and processing, and any other arrangements necessary
to dispose of the Hydrocarbons to be produced from the Properties. Borrower is
not in breach of any such arrangements.
5.20 Gas Contracts. 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 Properties at some future
date without receiving full payment therefor at the time of delivery and (b)
has not produced gas in any material amount subject to, and neither Borrower
nor any of the Properties is subject to, balancing rights of third parties or
balancing duties under Requirements of Law, except as set forth in Schedule
5.20.
5.21 No Indebtedness to Shareholders, Officers, Directors or
Affiliates. Except as set forth on Schedule 5.21, Borrower owes no Indebtedness
to any Affiliate of Borrower, or any shareholder, officer, or director or
Affiliate of such person.
5.22 Capitalization. The authorized capital of Borrower consists of
10,000 shares of common stock, no par value (the "Shares"), of which 5,000
Shares are issued and outstanding as of the date hereof (the "Capital") and the
5,000 additional Shares will be issued and outstanding at the time of the
Initial Funding pursuant to the Stock Purchase Agreement. Borrower has no other
Shares or capital stock of any class or other equity securities authorized,
issued or
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outstanding. Borrower has reserved a sufficient number of authorized Shares for
issuance pursuant to this Agreement and the Stock Purchase Agreement. Except as
set forth in Schedule 5.22, there are no outstanding or authorized options,
warrants, calls, subscriptions, rights, agreements or commitments of any
character obligating Borrower to issue any Shares or securities convertible
into or exchangeable for or evidencing the right to purchase or subscribe for
any Capital of Borrower.
EIF REPRESENTS AND WARRANTS TO BORROWER AS FOLLOWS:
5.23 Organization of EIF. EIF is validly existing and in good standing
under the laws of its state of its formation and has the requisite power to
carry on its business as now being conducted. EIF is duly qualified to do
business and is in good standing in each jurisdiction in which the nature of
the business conducted by EIF makes such qualification materially necessary or
advisable.
5.24 Authority of EIF. EIF has the requisite power to execute, deliver
and perform under this Agreement, and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary action on the part of EIF. This Agreement has been duly
executed and delivered by EIF and constitutes a legal, valid and binding
obligation of EIF and is enforceable against EIF in accordance with its terms
except (i) that such enforcement may be subject to bankruptcy, insolvency,
moratorium or similar laws affecting creditors' rights and (ii) that the remedy
of specific performance and injunctive and other forms of equitable relief are
subject to certain equitable defenses and to the discretion of the court before
which any proceedings therefor may be brought.
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ARTICLE 6
THE CLOSINGS; CONDITIONS PRECEDENT
6.1 Time and Place of Closings. The closing of the Development Loan
(the "Development Loan Closing") will take place at the offices of Associated
Energy Managers, Inc., 000 Xxxxxx Xxxx, Xxxxxxxxxx, Xxxxxxxxxxxxx on April 15,
1998 and in New Orleans, Louisiana on a mutually agreeable date thereafter (the
"Development Loan Closing Date"), or at such other time and place as the
parties may agree. The funding of each subsequent Funding under the Development
Loan will take place at such time as may be specified by EIF and at such place
as the parties may mutually agree.
6.2 Conditions Precedent to the Development Loan Closing. The
obligations of EIF to close under the Development Loan and any Fundings
thereunder (including without limitation any Funding into the Escrow Account)
are subject to the following conditions precedent, one or more of which may be
waived by EIF with respect to any particular Funding in EIF's sole discretion:
(a) Corporate Documents. At or prior to each Funding Date,
Borrower shall have delivered or caused to be delivered to EIF:
(i) a certificate of the Secretary of State of
Borrower's state of incorporation dated not earlier than the tenth
(10th) day preceding the applicable Funding Date, to the effect that
Borrower is a corporation validly existing and in good standing under
the laws of such state as of such date;
(ii) a certificate of the Secretary of State of each
state where Borrower is required to qualify to do business (including
without limitation, the states where the Collateral is located), dated
not earlier than the tenth (10th) day preceding the applicable Funding
Date, to the effect that Borrower is a corporation duly licensed or
qualified to do business in such state and is in good standing as a
foreign corporation under the laws of such state as of such date; and
(iii) certificates of the Secretary or Assistant
Secretary, or such other authorized officer, of Borrower including (A)
copies of the certificate of incorporation, bylaws and other governing
documents of Borrower as then in effect or a certification that there
has been no change in such instruments since the last such
certification delivered to EIF pursuant to this Agreement, (B) duly
enacted resolutions of Borrower's board of directors in form and
substance satisfactory to EIF approving the Loan Documents and
authorizing officers of Borrower to execute and deliver instruments
required to be delivered hereunder as a condition precedent to the
Funding, or a certification that there has been no amendment or
revocation of such resolutions since the last such certification
delivered to EIF pursuant to this Agreement, and (C) specimen
signatures of the officers of Borrower authorized to sign such
instruments to the extent such specimen signatures have not previously
been delivered to EIF.
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(b) Representations and Warranties True. The representations
and warranties of Borrower contained in this Agreement shall be true on and as
of each Funding Date, except for inaccuracies that are not in the aggregate
material, and Borrower shall have delivered to EIF a certificate signed on
Borrower's behalf by its President or other appropriate officer dated as of the
Funding Date to such effect.
(c) Compliance with Covenants. Borrower shall have performed,
and be in compliance with, in all material respects, all of its agreements and
covenants under this Agreement and Borrower shall have delivered to EIF a
certificate signed on Borrower's behalf by its President or other appropriate
officer dated as of the Funding Date to such effect.
(d) Absence of Event of Default. No Default or Event of
Default shall exist, and Borrower shall have delivered to EIF a certificate
signed on Borrower's behalf by its President or other appropriate officer dated
as of the Funding Date to such effect.
(e) Opinion of Borrower's Counsel. At or prior to each
Funding, EIF shall have received an opinion or opinions of counsel, dated as of
the relevant Funding Date, substantially in the form of Exhibit I.
(f) Financial Condition. Borrower shall have furnished such
information concerning the financial condition and reputation of Borrower as
EIF shall reasonably request, including without limitation, the information
requested in the form of Officer's Certificate and the Financial Covenants
Calculations set forth in Exhibit J, and such information shall be satisfactory
to EIF and its representatives. Such information shall include evidence that
there has been no material adverse change in the financial condition of
Borrower since the immediately preceding Funding Date. There shall not then be
pending against Borrower any petition in bankruptcy, whether voluntary or
otherwise, any assignment for the benefit of creditors, any petition seeking
reorganization or arrangement under the bankruptcy, insolvency, reorganization
or similar laws of the United States or of any state thereof, or any other
action affecting the rights of creditors of Borrower brought under the
aforesaid laws. Borrower shall have delivered to EIF a certificate signed on
Borrower's behalf by its President or other appropriate officer dated as of the
Funding Date to such effect.
(g) Legal Matters. All proceedings in connection with the
Loans, all documents incident thereto, and all legal matters in connection with
the transactions by Borrower to be financed hereunder shall be satisfactory in
form and substance to EIF and EIF's counsel, and EIF shall have received all
approvals, opinions or documents that EIF or its counsel may reasonably have
requested in connection with the Funding, all in form and substance
satisfactory to EIF.
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(h) Access to Information; Due Diligence. EIF and its
representatives shall have had access to such information and records of
Borrower as EIF shall have reasonably requested, including without limitation
leases and other records relating to the Properties and all contract files
pertaining to oil and gas production from the Properties, all technical data
(including, but not limited to, logs, seismic data, drilling reports,
production reports, and test results), and all such information and records
shall be satisfactory to EIF and its representatives.
(i) Loan Documents. EIF shall have received the following
instruments, each duly and validly executed and delivered by Borrower:
(i) the Development Note;
(ii) the Escrow Agreement;
(iii) the Stockholders' Agreement in substantially
the form of Exhibit K;
(iv) the Stock Purchase Agreement in substantially
the form of Exhibit G;
(v) the Limited Personal Recourse Agreement in
substantially the form of Exhibit F;
(vi) the letter of intent for Farmout Agreement --
Workover Package Main Pass 133 "A" Platform, Offshore Louisiana between
Borrower and Chevron;
(vii) Farmout Agreement between Borrower and
Chevron;
(viii) blank letters in lieu of transfer order; and
(ix) such other agreements, certificates,
instruments or other documents as EIF may reasonably request to
evidence or carry out the transactions contemplated by this Agreement.
(j) Stock Certificate. EIF shall have received from Borrower
a certificate or certificates for 5,000 Shares of Borrower's Common Stock,
which represents fifty percent (50%) of the equity of Borrower on a fully
diluted basis.
(k) Capitalization. Unless approved by Borrower's Board of
Directors consistent with its Bylaws, Borrower shall have no other shares of
capital stock of any class or other equity or debt securities authorized,
issued or outstanding on the date hereof, except as set forth in Section 5.22.
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(l) Other Matters. EIF shall have received from Borrower such
other agreements, certificates, instruments and documents as EIF may reasonably
request to evidence or carry out the transactions contemplated by this
Agreement.
(m) Development Plan and Budget. Borrower shall have
delivered to EIF the Development Plan and Budget (including AFEs for all
contemplated projects) for any acquisitions and development to be made with the
proceeds of the Development Loan.
(n) Security Instruments Recorded. Security Instruments or
requisite evidence of the security interests created thereby, containing a
Description of the Collateral, shall have been executed and delivered for
filing in such places and in such form as may be necessary to perfect EIF's
security interest in the Collateral.
(o) Title. EIF shall have received an opinion in form and
substance satisfactory to EIF and its counsel, stating the fee, surface,
working and net revenue interests in the Properties attributable to the parties
to the Proposed Oil and Gas Agreements and such other information, including
title abstracts and copies of all other information available to Borrower
reasonably requested by EIF and its counsel with respect to title to such
properties, and EIF and its counsel shall be satisfied with the state of title
to such properties.
(p) No Liens. Borrower shall have furnished evidence
satisfactory to EIF and its counsel that any Third Party Liens (other than
Permitted Liens) affecting the Collateral have been discharged, released, or
adequately bonded if being reasonably contested, prior to, or will be
discharged or released concurrently with, the Development Loan Closing.
(q) Overriding Royalty Interests. Borrower shall have duly
and validly executed and delivered to EIF all documents, in form and substance
satisfactory to EIF, and such documents shall have been filed in such places,
necessary or appropriate to effect the assignment and conveyance of the
Overriding Royalty Interests.
(r) Transfer Orders and Letters in Lieu. Borrower shall
furnish to EIF copies of all Division Orders and Transfer Orders signed by
Borrower and stating its interest in the Hydrocarbons comprising the
Collateral, as applicable.
(s) Executed Contracts and Instruments. Borrower shall have
executed and delivered to EIF the following contracts and instruments in form
and content satisfactory to EIF and its counsel:
(i) the PMC Agreement (except in connection with the
Chevron Financing);
(ii) any and all Proposed Oil and Gas Agreements;
and
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(iii) all Security Instruments;
(t) Purchasers of Production. Borrower shall furnish to EIF
at the Closing and upon the Funding, and updates pursuant to Section 7.36, the
following information (as applicable):
(i) The name, address, telephone number and fax
number of all purchasers of production or third parties making payments
to Borrower for Hydrocarbons produced from the Properties from the
Collateral, including the name of the person responsible for effecting
changes of ownership at such purchaser.
(ii) The owner number assigned to Borrower by each
such purchaser of production or third parties making payments to
Borrower for Hydrocarbons produced from the Properties.
(iii) The property number assigned by each purchaser
of production or third parties making payments to Borrower for
Hydrocarbons produced from the Properties to each property comprising
the Collateral of Borrower.
(iv) The net revenue-decimal interest of Borrower
assigned by each purchaser of production or third parties making
payments to Borrower for Hydrocarbons produced from the Properties in
each property on which the purchaser is remitting payments to Borrower.
(v) Copies of all division orders signed by Borrower
with each purchaser of production or third parties making payments to
Borrower for Hydrocarbons produced from the Properties.
(u) Operator of the Properties. Borrower shall have obtained
all necessary consents and approvals to become the operator of the Collateral
xxxxx, if applicable.
(v) Assignment of Lien on the Properties. EIF shall have
received a first priority lien on all of the Properties in form and content
satisfactory to EIF and its counsel.
(w) Operating Agreements and/or Oil and Gas Leases for the
Properties. Borrower shall have delivered an executed copy of the oil and gas
leases, if requested, and operating agreements for each of the Properties, if
applicable.
(x) Escrow Account. Borrower shall have entered into an
Escrow Agreement in the form of Exhibit D with EIF.
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(y) Approved Transactions. Each proposed project for which
Borrower intends to use the proceeds of a Funding satisfies all of the
following (in such case the proposed project is referred to as an "Approved
Transaction"):
(i) the project will generate a Project IRR of
twenty percent (20%) to Borrower and an Internal Rate of Return of
sixteen percent (16%) to EIF.
(ii) Borrower's total outstanding Indebtedness to
EIF shall not, as a result of this Funding exceed, 80% of the Value of
the Collateral;
(iii) the Proposed Oil and Gas Agreements are
sufficient to grant to EIF a valid and sufficient security interest in
the Collateral as determined by EIF and its counsel in their sole
discretion; and
(iv) the cost recovery percentages of any Proposed
Oil and Gas Agreement shall be at least 150% or Borrower shall receive
an equity interest in the subject properties of at least 50% over the
term of such Proposed Oil and Gas Agreement.
(z) Absence of Event of Default. No Default or Event of
Default shall exist, and Borrower shall have delivered to EIF a certificate
signed on Borrower's behalf by its President or other appropriate officer dated
as of the Funding Date to such effect.
6.3 Conditions Precedent to Release of Funds from Escrow Account.
Provided that no Default or Event of Default shall exist, EIF agrees to direct
the Escrow Agent to release certain funds from the Escrow Account provided that
Borrower shall have provided the following items:
(a) Project Status Report. EIF shall have received the
information required in Schedule 6.3 hereto for each of the development or
acquisition projects for which such release of funds is sought at least seven
(7) days prior to the date proposed by Borrower for the release of such funds
and must be in conformance with the Development Plan and Budget, or otherwise
approved by EIF. Borrower shall not materially amend any AFE if the amendment
would cause the AFE to not conform to the Development Plan and Budget without
obtaining EIF's prior written consent.
(b) Request for Escrow Disbursement. Upon completion of the
work contemplated by the AFE (or prior to completion if payables become due
during the project), Borrower shall submit a Request for Escrow Disbursement,
together with supporting documentation. Provided the amounts specified in the
Request for Escrow Disbursement do not exceed 110% of the amounts set forth in
the AFE, then EIF shall instruct the Escrow Agent to disburse payments directly
to Borrower or to third parties in the amounts specified by written
instructions executed by EIF. If actual costs exceed 110% of the AFE amounts
approved by EIF,
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then such additional amounts will be disbursed if approved by EIF and such
approval shall not be unreasonably withheld.
(c) Miscellaneous. All proceedings in connection with the
Loans and all documents incident thereto shall be satisfactory in form and
substance to EIF and EIF's counsel.
6.4 Termination. If no Funding shall have occurred under this
Agreement within 120 days from the date herein above first written, then this
Agreement and the obligations of the Parties hereunder shall, with no further
action of either Party, be terminated, unless otherwise agreed to by the
Parties in writing. Upon termination under this Section 6.4, EIF shall release
any and all security interests created hereunder on Borrower's property and
shall cancel the Development Note.
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ARTICLE 7
COVENANTS OF BORROWER
Borrower hereby covenants and agrees that, so long as the Loans are
outstanding or any party has any obligations pursuant to this Agreement or any
other Loan Document:
7.1 Punctual Payment and Performance. Borrower shall duly and
punctually pay the principal and interest on the Loans, the overriding royalty
payments and all other amounts provided for in this Agreement, or any other
Loan Document, and shall perform all its obligations and covenants under all
Loan Documents.
7.2 Records and Accounts. Borrower shall keep records and books of
account in accordance with GAAP and shall maintain adequate accounts and
reserves for all taxes (including income taxes) and loan amortization.
7.3 Financial Statements, Certificates and Information. Borrower shall
deliver to EIF:
(a) As soon as available, but in any event within one hundred
twenty (120) days after the end of each fiscal year of the Company, a copy of
the audited Financial Statements of the Company, all in reasonable detail,
accompanied by an opinion of an accounting firm selected by the Company and
satisfactory to EIF, which opinion shall state that such accounting firm's
audit was conducted in accordance with generally accepted auditing standards;
together with a written statement from such accountants to the effect that they
have read a copy of this Agreement, and that, in making the examination
necessary for their audit opinion, they have obtained no knowledge of any
Default or Event of Default, or, if such accountants have obtained knowledge of
any then existing Default or Event of Default, they shall disclose in such
statement any such Default or Event of Default; provided that such accountants
shall not be liable to EIF for failure to obtain knowledge of any Default or
Event of Default;
(b) As soon as available, but in any event within forty-five
(45) days after the end of each quarterly fiscal period, the unaudited
Financial Statements of the Company for such period, all in reasonable detail,
together with a certification by the principal financial or accounting officer
of Borrower that the information contained in such Financial Statements is
presented in accordance with GAAP;
(c) Simultaneously with the delivery of the Financial
Statements referred to in (b) above, a certification by the principal financial
or accounting officer of Borrower that (i) a review of the activities of
Borrower has been made under such officer's supervision with a view to
determining whether Borrower has fulfilled all obligations under the Loan
Documents; (ii) Borrower has fulfilled all obligations under such Loan
Documents and all representations made herein or therein continue to be true
and correct (or specifying the nature of any change), or if Borrower shall be
in Default, specifying any Default and the nature and status thereof; and (iii)
to
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the extent requested from time to time by EIF, Borrower has complied with any
and all of its representations or obligations under such Loan Documents. The
certificate shall also include Borrower's calculation of the financial
covenants set forth in Section 7.22 of this Agreement.
(d) As soon as practicable, but in any event not later than
forty-five (45) days after the end of each fiscal quarter of Borrower, a report
(in a form reasonably satisfactory to EIF) from the principal financial or
accounting officer of Borrower that (i) itemizes each expenditure of the
proceeds of the Loans during such fiscal quarter, on a well-by-well, project-
by-project and asset-by-asset basis, and (ii) certifies that such expenditures,
when aggregated with all prior expenditures of the proceeds of the Loans, do
not exceed one hundred ten percent (110%) of the projected acquisition and
development costs approved by EIF prior to funding the Loans. If the
development costs for any well or project shall have exceeded one hundred ten
percent (110%) of the projected development costs approved by EIF for such well
or project, then the Principal Accounting Officer shall identify such well(s)
or projects and shall explain the reason(s) for such cost overruns.
(e) By January 15 of each year, Borrower shall provide
information (with an effective date as of December 1 of the prior year)
necessary for a Reserve Report to be prepared by a firm designated by EIF, or
such other independent engineering firm as shall be mutually agreeable to EIF
and Borrower (with the cost of preparing such report to be borne by Borrower).
(f) Promptly after receipt by Borrower, copies of any other
independent reserve reports with respect to the Collateral;
(g) Promptly after preparation by Borrower, copies of any
Internal Reserve Report with respect to the Collateral;
(h) Within ninety (90) days of the close of Borrower's fiscal
year, an annual operations report, and, within forty-five (45) days of the
close of each fiscal quarter of Borrower, a quarterly operations statement,
each setting forth for the applicable period the production results of the
Properties on a well-by-well and asset-by-asset basis, and, within ten (10)
days of the end of any calendar month, a report describing the volumes of
production of Hydrocarbons for the most recent month for which information is
available and any other material operating developments and any other
information of the type that would be provided a working interest owner;
(i) Within forty-five (45) days of the end of any of
Borrower's fiscal quarters, a report listing each Collateral well or property
and Borrower's then current decimal ownership interest therein if a change has
occurred during such fiscal quarter;
(j) Borrower shall deliver to EIF, at least fifteen (15) days
prior to July 1 and January 1 of each calendar year, a Development Plan and
Budget, acceptable to EIF in its sole discretion, and a general and
administrative budget that includes the salaries and bonuses of each
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officer and significant employee, together with all consulting fees and
arrangements, all of which shall be approved by EIF; and failure to (i) comply
with such budget, or (ii) submit it to EIF for approval shall constitute an
Event of Default pursuant to this Agreement; and Borrower shall not use any
proceeds of any Loan to pay any salaries, consulting fees or other
arrangements, unless such proceeds are specifically allocated to such purpose
in the Article 2; and
(k) From time to time, such engineering data and other
information regarding the business, affairs, oil and gas properties, and other
assets or financial condition of Borrower as EIF may reasonably request.
7.4 Corporate Existence; Maintenance of Collateral. Borrower shall do
or cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence, rights and franchises, except when failure to
do so would not have a material adverse effect on Borrower. Borrower shall
cause all of the Collateral and its business to be maintained and kept, in
accordance with sound field practices, in good condition, repair and working
order and supplied with all necessary equipment and shall cause to be made all
necessary repairs, renewals, replacements, betterments, and improvements
thereof.
7.5 Title to Properties. Title to the Collateral shall be maintained
free and clear of all Third Party Liens. Borrower shall warrant and forever
defend its right, title and interest in and to the Collateral against the
claims and demands of every Person whatsoever claiming or which may claim the
same or any part thereof.
7.6 Mineral Interests. Borrower shall continuously maintain and
perpetuate all Mineral Interests now owned or hereafter acquired by Borrower
that are Collateral under this Agreement, in accordance with the best usage and
custom in the industry and in compliance (in all material respects) with
applicable Requirements of Law.
(a) Borrower, if it has the requisite title and interest
therein, shall not (i) permit the surrender, abandonment, release or
termination, in whole or in part, of any Mineral Interest now owned or
hereafter acquired by Borrower which is Collateral at such time, unless
Borrower reasonably determines that continuation of such Mineral Interest would
not be economically prudent and gives EIF forty-five (45) days' notice of such
determination, or (ii) enter into any agreement related to, or any amendment or
modification of, any Mineral Interest now owned or hereafter acquired by
Borrower subject to this Agreement, or any operating agreement, unit agreement,
easement, license, franchise, permit or other similar contract or agreement of
any character in respect to title to or operation of such Mineral Interests,
without EIF's consent, which consent will not be unreasonably withheld.
7.7 Contract Approval. Borrower, if it has the requisite title and
interest therein, shall submit to EIF for its review and approval at least ten
(10) days in advance of the date Borrower intends to enter into a contract
(including a modification or amendment of any existing contract), each proposed
contract for the sale and/or transportation of gas or other Hydrocarbons
produced
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from the Properties if such contract was not in effect as of the date of this
Agreement and has a term of ninety (90) days or more ("Proposed Gas
Contracts"). Borrower shall not enter into any Proposed Gas Contracts that
establish pricing and have a term of one year or more or make deliveries
thereunder without obtaining EIF's prior written approval, which approval shall
not be unreasonably withheld if EIF's security position is not adversely
affected thereby.
7.8 Insurance. Borrower shall acquire and continue to maintain, with
financially sound and reputable insurers, insurance with respect to its
properties and business against such liabilities, casualties, risks and
contingencies and in such types and amounts as is customary in the case of
Persons engaged in the same or similar businesses and similarly situated;
provided, that Borrower shall maintain liability insurance in the amount of not
less than $5,000,000 with a deductible not to exceed $25,000. Borrower shall
furnish or cause to be furnished copies of binders relating to such insurance to
EIF prior to funding and from time to time a summary of the insurance coverage
of Borrower in form and substance reasonably satisfactory to EIF and if
requested will furnish EIF copies of the applicable policies. In the case of any
fire, accident or other casualty causing loss or damage to the properties of
Borrower, the proceeds of such policies shall be used (i) to repair or replace
the damaged property, or (ii) subject to EIF's prior written consent and
notwithstanding any restriction on prepayment, to prepay the Loans without
premium or penalty.
7.9 Taxes and Other Claims. Subject to the terms and provisions of the
Proposed Oil and Gas Agreements, Borrower shall duly pay and discharge before
the same shall become overdue all taxes, assessments and other governmental
charges imposed upon Borrower and its properties, sales and activities, or any
part thereof, or upon the income or profits therefrom, or burdening the
Properties or Collateral, as well as all claims for labor, materials, or
supplies, including all such claims incurred in connection with operation of
the Properties or Collateral or the drilling of xxxxx thereon or the
production, storing or marketing of gas or other Hydrocarbons therefrom, which
if unpaid might by law become a lien or charge upon any of its property;
provided, however, that any such tax, assessment, charge, levy or claim need
not be paid if the validity or amount thereof shall currently be contested by
Borrower in good faith by appropriate proceedings and if Borrower shall have
set aside on its books adequate reserves with respect thereto; and provided,
further, that Borrower shall pay all such taxes, assessments, charges, levies
or claims forthwith upon the commencement of proceedings to foreclose any
material lien which may have attached as security therefor.
7.10 Inspection of Properties and Books. Borrower shall permit EIF and
its authorized representatives to (a) visit and inspect any of its properties
and to examine its books and records (and to make copies thereof and extracts
therefrom, provided that EIF will preserve the confidentiality of any
information derived therefrom), and (b) discuss the affairs, finances and
accounts of Borrower with, and to be advised as to the same by, the officers of
Borrower, independent accountants, and independent engineers all at such
reasonable times and intervals as EIF may reasonably request.
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7.11 Compliance with Laws, Contracts, Licenses and Permits. Borrower
shall comply with (i) all Permits and Requirements of Law, (ii) the provisions
of its charter documents and bylaws, (iii) all agreements and instruments by
which it or any of its properties may be bound, and (iv) all applicable
decrees, orders, and judgments, except in each case where noncompliance would
not have a material adverse effect on the business, assets or financial
condition of Borrower. If at any time while any Loan or any Note is
outstanding, any authorization, consent, approval, permit or license from any
officer, agency or instrumentality of any government shall become necessary or
required in order that Borrower may fulfill any of its obligations hereunder,
Borrower shall immediately take all reasonable steps within its power to obtain
such authorization, consent, approval, permit or license and furnish EIF with
evidence thereof.
7.12 Litigation. Borrower shall promptly give EIF notice of all legal
or arbitral proceedings, and of all proceedings before any governmental or
regulatory authority or agency, to which Borrower is a party or which
materially affects Borrower and of which Borrower is aware, except for
proceedings before any governmental or regulatory authority or agency occurring
in the ordinary course of Borrower's business, and that would not have a
material adverse effect upon Borrower's business or the Collateral if
determined adversely to Borrower.
7.13 Further Assurances. Borrower shall cooperate with EIF and execute
such further instruments and documents as EIF shall reasonably request to carry
out to EIF's satisfaction the transactions contemplated by this Agreement or
the Loan Documents, including, without limitation, curing any defects in the
Loan Documents and executing and delivering to EIF such further instruments and
documents appropriate to further evidence and more fully describe the
Collateral, to correct any omissions in the Loan Documents, to fully state the
security obligations described in this Agreement or the Loan Documents, to
perfect, protect or preserve any EIF Liens created pursuant to any of the Loan
Documents, or to make any recordings, to file any notices, or to obtain any
consents appropriate to carry out the transactions contemplated by this
Agreement or the Loan Documents.
7.14 Notices. Borrower shall promptly after acquiring knowledge
thereof notify EIF in writing of the occurrence of any Default or Event of
Default and of any material adverse change in the business, assets or financial
condition of Borrower. If any Person shall give any notice or take any other
action in respect of a claimed default (whether or not constituting an Event of
Default) under this Agreement or any other note, evidence of indebtedness,
indenture or other obligation to which or with respect to which Borrower is a
party or obligor, whether as principal or surety, Borrower shall forthwith give
written notice thereof to EIF, describing the notice or action and the nature
of the claimed default. Borrower shall promptly after acquiring knowledge
thereof notify EIF in writing of the occurrence of any event, liability or
circumstance that would likely have a material adverse effect on any of the
Properties.
7.15 Use of Proceeds. Borrower shall use the proceeds of the Loans for
the purposes set forth in this Agreement. Upon EIF's request, Borrower shall
maintain any funds that have been advanced for such purposes, but not expended,
in a segregated account at a depository
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institution satisfactory to EIF and, upon EIF's request, will deliver copies of
all invoices for expenditure of such funds to EIF. Borrower shall not, without
EIF's prior written approval, make any expenditure of any Loan in an amount in
excess of 110% of the amount stated in the AFE pertaining to such expenditure
that was approved by EIF.
7.16 Dividends, Distributions and Redemptions. Borrower shall not
declare or pay any dividend, purchase, redeem or otherwise acquire for value
any of its interests now or hereafter outstanding (except as set forth in the
Stockholders' Agreement), or return any capital or make any other distribution
to its shareholders.
7.17 Nature of Business. Borrower shall not engage in any business
other than oil and gas development, production, processing, transportation and
marketing, and business activities ancillary thereto.
7.18 Restrictions on Liens. Subject to the rights of Borrower and the
terms and provisions of the Proposed Oil and Gas Agreements, Borrower shall not
create or incur, or suffer to be created or incurred or to exist, any Third
Party Lien or Title Lien (other than EIF Liens or Permitted Liens) upon any of
the Collateral, whether now owned or hereafter acquired, or upon the proceeds,
income or profits therefrom, and shall pay all vendor payables and other trade
payables when due.
7.19 Collateral Sales. Except as set forth in Sections 7.6 and 7.7, or
after approval by the Board of Directors voting as set forth in the Bylaws,
Borrower shall not sell, lease, assign, transfer or otherwise dispose of any of
the Collateral, except for sales of Hydrocarbons in the ordinary course of
Borrower's business.
7.20 Sale or Discount of Receivables. Borrower shall not discount or
sell any of its notes receivable or accounts receivable.
7.21 Affiliate Transactions. Except as set forth in Schedule 7.21,
Borrower shall not engage in any transaction with any of its Affiliates, except
on terms no less favorable to Borrower than are obtainable in arms-length
transactions with third parties.
7.22 Financial Covenants.
(a) As of January 1, 1999, EIF and Borrower shall determine
whether Borrower can maintain a certain ratio of Borrower's total liabilities
to its shareholders' equity.
(b) As of the last day of each fiscal quarter starting with
the second quarter of 1998, the ratio of Borrower's (i) current assets to (ii)
current liabilities, exclusive of any portion of the Loans that has been
classified as current, shall not be less than 1 to 1. This calculation will
exclude from current liabilities payables included in approved AFEs that have
not been funded by EIF.
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(c) As of the last day of each fiscal quarter, the ratio of
Borrower's (i) net income before income taxes, plus interest expense,
depreciation, and amortization deducted in determining such net income to (ii)
total debt service expense, shall not be less than 1.15 to 1, starting with the
third quarter of 1998; provided, however, that this ratio shall not apply to
the Chevron Financing.
(d) Borrower shall not incur any additional debt including
without limitation capital or financing leases (excluding trade payables
incurred in the ordinary course of business) without the prior written consent
of EIF.
7.23 Key Employees. Borrower shall continue to employ Xxxxxxx X.
Xxxxxxxx as its President and Chief Executive Officer and each other employee
who owns equity in Borrower with substantially the same responsibilities as of
the date of this Agreement; or Borrower shall employ a suitable replacement of
similar competence for such individual(s). Xx. Xxxxxxxx, and the other
employees of Borrower identified in the Stockholders' Agreement or who become a
party thereto, shall in the aggregate at all times own not less than fifty
percent (50%) of the issued and outstanding common stock of Borrower.
7.24 Environmental Laws Compliance. At any time during which Borrower
is operator or engaged in or supervising work done on the Properties, subject
to the rights of Borrower and the terms and provisions of the Proposed Oil and
Gas Agreements, Borrower shall:
(a) Comply with all applicable Environmental Laws as they
relate to the Properties and shall maintain and obtain, or cause to be
maintained and obtained, all permits, licenses, and approvals now or hereafter
required under all applicable Environmental Laws as they relate to the
Properties;
(b)Not do or permit anything to be done that will subject the
Properties, Borrower or EIF to any liability under any applicable Environmental
Laws as they relate to the Properties, assuming disclosure to governmental
authorities of all relevant facts, conditions and circumstances, if any,
pertaining to the Properties;
(c) Promptly notify EIF in writing of any Environmental
Complaint relating to the Properties which is known to Borrower, or any other
existing, pending, or threatened investigation or inquiry by any governmental
authority relating to the Properties known to Borrower and in connection with
any applicable Environmental Laws;
(d) Take, or cause to be taken, all steps necessary to
determine that no Hazardous Materials have been: (i) used or stored on, in or
in connection with any Properties that Borrower acquires with any funds that
Borrower receives from EIF in accordance with this Agreement, or disposed from
such Properties, or (ii) treated, processed, discharged, or released
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on, to, in or from such Properties, except, in each case, in full compliance
with all applicable Environmental Laws;
(e) Not cause or permit: (i) the use or storage of Hazardous
Materials on, in or in any manner in connection with the Properties, or (ii)
the treatment, processing, discharge, or release of any Hazardous Materials on,
to, in or from the Properties, except, in each case, in full compliance with
all applicable Environmental Laws;
(f) Keep, or cause the Properties to be kept, free of any and
all Hazardous Materials, and shall remove the same (or if removal is prohibited
by applicable law, shall take whatever action is required by applicable law)
promptly upon discovery of such Hazardous Materials at Borrower's sole cost and
expense, except in full compliance with all applicable Environmental Laws; and
(g) Provide, upon EIF's reasonable request, at any time, and
from time to time, inspections, tests and audits of the Properties from an
engineering or consulting firm approved by EIF indicating the presence or
absence of Hazardous Materials on the Properties and compliance with all
applicable Environmental Laws.
7.25 Company Name and Address. Borrower shall not change its name,
except as set forth on Schedule 7.25, or change the address of its principal
place of business or executive office unless it has provided not less than
thirty (30) days' prior written notice to EIF of such change.
7.26 Mergers and Sales of Assets. Without the prior written approval
of EIF which will not be unreasonably withheld, Borrower shall not merge or
consolidate with or into any other entity unless Borrower is the surviving
entity and no Event of Default has occurred or will occur as a result of such
merger or consolidation. Borrower shall not lease, sell or transfer all, or
substantially all, of its property, assets or business to any other Person, or
dispose of or sell any material portion of its assets, property or business, or
dispose of any equity in any subsidiary.
7.27 Change of Control. Borrower shall not permit a Change of Control
to occur and shall notify EIF within five (5) business days of obtaining
information that a Change in Control may occur or is contemplated by any
Person, except if EIF is the party gaining control.
7.28 Operation of Assets. Borrower shall operate, or (if Borrower is
not the operator thereof) shall use its best efforts to cause the operator
thereof to operate, the Properties and all xxxxx hereafter drilled upon or
affecting the Properties continuously, in good and workmanlike manner, in
accordance with the best usages of operators of leases in the area where the
Properties are located and in accordance with the rules and regulations of all
Requirements of Law.
7.29 Borrower as Operator. Borrower shall use its best efforts to
become and remain the operator of the Properties, as applicable.
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7.30 ERISA Compliance. Borrower covenants and agrees with EIF that, so
long as this Agreement shall remain in effect, unless EIF otherwise consents in
writing, which consent shall not be unreasonably withheld, such Borrower will
not:
(a) Adopt any new Employee Benefit Plan, fund, or other
arrangement that would be subject to Title IV or Section 302 of ERISA or
Section 412 of the Code; or
(b) Adopt or incur any obligation to contribute to any
Multiemployer Plan.
7.31 Additional Information. For so long as the Loans remain
outstanding, Borrower shall permit EIF to substantially participate in, and
influence the conduct of, management of Borrower through the exercise of any
and all of the following rights.
(a) promptly provide to EIF such information as EIF shall
reasonably request regarding Borrower's business, financial condition and
prospects;
(b) if EIF reasonably believes that financial or other
developments affecting Borrower have impaired or are likely to impair
Borrower's ability to perform its obligations under this Agreement, permit EIF,
upon request, reasonable access to Borrower's management and/or Board of
Directors to present its views with respect to such developments;
(c) provide to EIF the financial information required in
Section 7.3 of this Agreement; and
(d) permit EIF to make the examinations and inspections of
properties, books and records, and to consult with Borrower's officers, as
required in Section 7.10 of this Agreement.
7.32 No Loans or Guarantees to Officers, Directors, or
Shareholders/Partners. Except as set forth on Schedule 5.21, Borrower shall
not, directly or indirectly, make any guarantee, loan, advance, extension of
credit, commitment to fund, or commitment to satisfy in any way, any debt,
liability, or other obligation to any Person, including its officers,
directors, employees, shareholders, partners or any Affiliate of such person,
including, without limitation (a) an obligation to any bank under any letter of
credit, (b) an obligation to maintain working capital or equity capital of the
business other than the initial investment, or (c) an obligation to otherwise
maintain the net worth or solvency of the business, with respect to any
business in which Borrower are engaged other than the business described in
Section 7.17. Except for payments made to EIF pursuant to this Agreement,
Borrower shall not make any repayment or take any other action covered by this
Section 7.32 without the prior written consent of EIF.
7.33 Salaries and Bonuses. Subject to the following conditions,
Borrower's Board of Directors shall be responsible for setting and controlling
the salaries and bonuses of each officer
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and significant employee. The aggregate sum of all salaries and bonuses paid in
fiscal year 1998 shall be in accordance with Section 7.3(j).
7.34 Foreclosure. After an Event of Default, Borrower agrees that it
will not permit or attempt in any way to hinder or interfere with the exercise
of the power of sale granted in any of the Security Instruments, including
without limitation the filing of a lis pendens, the initiation of any lawsuit
or the requesting of injunctive relief from any court or tribunal, or any other
action which would have the effect of hindering or delaying the exercise by EIF
of any right or remedy under this Agreement or any Security Instrument, and
Borrower shall execute and deliver to EIF any instrument reasonably requested
by EIF and prepared at its expense, which is necessary to fully vest title to
the Properties in EIF or the purchaser(s) of all or part of the Properties
pursuant to any sale as provided for in the Security Instruments.
7.35 Updates to Purchasers of Production Information. Borrower shall
notify EIF in writing and within thirty (30) days of any changes to the
information provided in Section 6.2(t) or within five (5) days of receiving a
written request for such information from EIF.
7.36 No Issuance of Equity. Except after approval by the Board of
Directors voting as set forth in the Bylaws, for so long as the Loans remain
outstanding, Borrower shall not issue any Shares or other classes of securities
(whether equity or debt), or any options, warrants, calls, subscriptions,
rights, agreements or commitments of any character obligating Borrower to issue
any Capital or securities convertible into or exchangeable for or evidencing
the right to purchase or subscribe for any Capital of Borrower without the
prior written approval of EIF.
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ARTICLE 8
EVENTS OF DEFAULT; ACCELERATION
8.1 If any of the following events (an "Event of Default," or, if the
giving of notice or the lapse of time or both is required, then, prior to such
notice and/or lapse of time, a "Default") shall occur:
(a) Borrower shall fail to make any payment of principal or
interest on any Loan within five (5) Business Days after the date that such
payment is due;
(b) Borrower shall fail to pay any fees, overriding royalty
payments or other sums due hereunder or under any Loan Document within ten (10)
days after the date that any such payment is due;
(c) Borrower shall fail to either (i) make a prepayment to
EIF, or (ii) grant and convey to EIF additional collateral, in compliance with
the terms of Section 2.9 of this Agreement within five (5) Business Days after
the date on which Section 2.9 requires Borrower to take such action;
(d) Borrower shall fail to perform any other term, covenant
or agreement contained herein or in any Loan Document and such failure shall
continue for thirty (30) days after written notice of such failure has been
given to Borrower by EIF;
(e) An event of default entitling EIF to accelerate any other
loan from EIF to Borrower shall occur;
(f) Any representation or warranty of Borrower in this
Agreement or in any document or instrument delivered pursuant to or in
connection with this Agreement or any other Loan Document shall prove to have
been false in any material respect upon the date when made;
(g) Borrower shall default in the payment of any principal of
or interest on any Indebtedness aggregating $100,000 or more beyond any period
of grace provided with respect thereto unless the validity or amount of such
Indebtedness shall currently be contested by Borrower in good faith by
appropriate proceedings and unless Borrower shall have set aside on its books
adequate reserves with respect thereto; or any other event shall occur which is
specified in any note, agreement, indenture or other document evidencing or
relating to any such Indebtedness if the effect of such event is to cause or to
permit the holder or holders of such Indebtedness to cause (assuming the giving
of any notice and the lapse of any time period commencing on the giving of
notice) such Indebtedness to become due prior to its stated maturity;
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(h) Borrower shall: (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian, trustee
or liquidator of itself or of all or a substantial part of its property; (ii)
be generally unable to pay its debts as such debts become due; (iii) make a
general assignment for the benefit of its creditors; (iv) commence a voluntary
case under the United States Bankruptcy Code (as now or hereafter in effect);
(v) file a petition seeking to take advantage of any other law of any
jurisdiction relating to bankruptcy, insolvency, reorganization, winding-up, or
composition or readjustment of debts; (vi) fail to controvert in a timely and
appropriate manner, or acquiesce in writing to, any petition filed against
Borrower in an involuntary case under the United States Bankruptcy Code; or
(vii) take any action for the purpose of effecting any of the foregoing;
(i) A proceeding or case shall be commenced, without the
application or consent of Borrower, in any court of competent jurisdiction,
seeking (i) Borrower's liquidation, reorganization, dissolution or winding-up,
or the composition or readjustment of its debts, (ii) the appointment of a
trustee, receiver, custodian, liquidator or the like of Borrower or of all or
any substantial part of its assets, or (iii) similar relief in respect of
Borrower under any law of any jurisdiction relating to bankruptcy, insolvency,
reorganization, winding-up, or the composition or readjustment of its debts,
and such proceeding or case shall continue undismissed, or an order, judgment
or decree approving or ordering any of the foregoing shall be entered and
continue unstayed and in effect for a period of sixty (60) days; or an order
for relief against Borrower shall be entered in an involuntary case under any
bankruptcy, insolvency, reorganization, winding-up, composition, readjustment
of debt, dissolution or liquidation or similar law of any jurisdiction; or
(j) A Change of Control of Borrower shall occur without the
consent of EIF;
(k) There shall remain in force, undischarged, unsatisfied or
unstayed, for more than sixty (60) days, any final judgment against Borrower
that, with other outstanding final judgments, undischarged, against Borrower
exceeds in the aggregate $100,000;
(l) Any breach of a representation, warranty, or covenant
contained herein regarding any Employee Benefit Plan that, in the opinion of
EIF, could subject Borrower to any tax, penalty or other liability; any
Employee Benefit Plan or Multiemployer Plan shall fail to maintain the minimum
funding standard required for any plan year or part thereof or extension of any
amortization period is sought or granted under Section 412 of the Code; any
Employee Benefit Plan or Multiemployer Plan is, shall have been, or is likely
to be terminated or the subject of termination proceedings under ERISA; any
Prohibited Transaction shall occur involving any Employee Benefit Plan; any
Termination Event shall occur with respect to any Employee Benefit Plan; any
Employee Benefit Plan shall have an Unfunded Current Liability; provided that
there shall result from any such event or events the imposition of a lien upon
the assets of Borrower or any ERISA Affiliate, the granting of a security
interest, or a liability or a material risk of incurring a liability to the
PBGC or a Multiemployer Plan or an Employee Benefit Plan or a trustee appointed
under ERISA or a penalty under Section 4971 of the Code (or any combination
thereof), which, in the opinion of EIF, will have an adverse effect on the
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business, operations, condition (financial or otherwise) or prospects of
Borrower or any ERISA Affiliate.
Then, and in any such event, so long as the same may be continuing, EIF may, by
notice in writing to Borrower, declare all amounts owing with respect to this
Agreement and the Notes to be, and they shall thereupon forthwith become,
immediately due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived by Borrower;
provided that in the event of any Event of Default specified in paragraphs (h)
and (i) hereof, all such amounts shall become immediately due and payable
automatically and without any requirement of notice from EIF. In addition, upon
the occurrence of an Event of Default, EIF may exercise any of its rights and
remedies under any of the Security Instruments.
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ARTICLE 9
INDEMNIFICATION
9.1 Environmental Indemnity. Borrower shall indemnify, defend, and
hold harmless EIF, its Affiliates, and their respective directors, officers,
shareholders, partners, employees, consultants and agents (herein individually
called an "Indemnified Party," and collectively called "Indemnified Parties")
from and against, and shall reimburse and pay Indemnified Parties with respect
to, any and all claims, demands, liabilities, losses, damages (including
without limitation actual, consequential, exemplary and punitive damages),
causes of action, judgments, penalties, fees, costs and expenses (including
without limitation attorneys' fees, court costs and legal expenses and
consultant's and expert's fees and expenses) of any and every kind or
character, known or unknown, fixed or contingent, that may be imposed upon,
asserted against, or incurred or paid by or on behalf of any Indemnified Party
on account of, in connection with, or arising out of(a) the breach of any
representation or warranty of Borrower relating to Environmental Laws or
Hazardous Materials, or (b) the failure of Borrower to perform any agreement,
covenant or obligation required to be performed by Borrower relating to
Environmental Laws or Hazardous Materials, (c) any violation of or failure to
comply with any Environmental Law now existing or hereafter occurring, (d) the
removal of Hazardous Materials from the Properties (or if removal is prohibited
by law, the taking of whatever action is required by law), (e) any act,
omission, event or circumstance existing or occurring or resulting from or in
connection with the ownership, construction, occupancy, operation, use or
maintenance of the Properties, regardless of whether the act, omission, event
or circumstance constituted a violation of or failure to comply with any
Environmental Law at the time of its existence or occurrence, and (f) any and
all claims or proceedings (whether brought by private party or governmental
agency) for bodily injury, property damage, abatement or remediation,
environmental damage, or impairment or any other injury or damage resulting
from or relating to any Hazardous Material located upon or migrating into, on,
from or through the Properties (whether or not any or all of the foregoing was
caused by Borrower, a prior owner of the Properties, an operator or prior
operator of the Properties, their respective tenants or subtenants, or any
third party and whether or not the alleged liability is attributable to the
handling, storage, use, treatment, processing, distribution, manufacture,
generation, discharge, transportation or disposal of such Hazardous Material or
the mere presence of such Hazardous Material on the Properties). Without
limiting the generality of the foregoing, it is the intention of Borrower and
Borrower agrees that the foregoing indemnities shall apply to each Indemnified
Party with respect to claims, demands, liabilities, losses, damages (including
without limitation actual, consequential, exemplary and punitive damages),
causes of action, judgments, penalties, fees, costs, court costs and legal
expenses and consultant's and expert's fees and expenses, of any kind or
character, known or unknown, fixed or contingent, that in whole or in part are
caused by or arise out of the negligence of such Indemnified Party; however,
such indemnities shall not apply to any Indemnified Party to the extent the
subject of the indemnification (including punitive damages) is caused by or
arises out of the gross negligence or willful misconduct of such Indemnified
Party; and provided further that such indemnities shall not apply to
consequential damages incurred by the Lender. The foregoing indemnities shall
be perpetual and shall survive the payment or satisfaction of the Loans and the
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release, foreclosure or other termination of the Security Instruments. Any
amount owed by Borrower to EIF and to be paid hereunder by Borrower to EIF or
for which Borrower has indemnified an Indemnified Party shall be a demand
obligation owing by Borrower to EIF and shall bear interest at the Default Rate
until paid, and shall constitute a part of the obligations of Borrower under
this Agreement and shall be indebtedness evidenced by this Agreement and
secured by the Security Instruments.
9.2 GENERAL INDEMNITY. BORROWER AGREES TO INDEMNIFY EIF UPON DEMAND,
FROM AND AGAINST ANY AND ALL LIABILITIES, OBLIGATIONS, PENALTIES, ACTIONS,
JUDGMENTS, SUITS, SETTLEMENTS, COSTS, EXPENSES OR DISBURSEMENTS (INCLUDING
REASONABLE FEES OF ATTORNEYS, ACCOUNTANTS, EXPERTS AND ADVISORS) OF ANY KIND OR
NATURE WHATSOEVER (IN THIS SECTION COLLECTIVELY CALLED "LIABILITIES AND COSTS")
WHICH TO ANY EXTENT (IN WHOLE OR IN PART) MAY BE IMPOSED ON, INCURRED BY, OR
ASSERTED AGAINST EIF GROWING OUT OF, RESULTING FROM OR IN ANY OTHER WAY
ASSOCIATED WITH ANY OF THE COLLATERAL, THE LOAN DOCUMENTS, OR THE TRANSACTIONS
AND EVENTS (INCLUDING THE ENFORCEMENT OR DEFENSE THEREOF) AT ANY TIME
ASSOCIATED THEREWITH OR CONTEMPLATED THEREIN. THE FOREGOING INDEMNIFICATION
SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND COSTS ARE IN ANY WAY OR TO ANY
EXTENT CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY
KIND BY EIF, PROVIDED ONLY THAT EIF SHALL NOT BE ENTITLED UNDER THIS SECTION TO
RECEIVE INDEMNIFICATION FOR THAT PORTION, IF ANY, OF ANY LIABILITIES AND COSTS
(INCLUDING PUNITIVE DAMAGES) WHICH IS PROXIMATELY CAUSED BY ITS OWN INDIVIDUAL
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, AS DETERMINED IN A FINAL JUDGMENT;
PROVIDED THAT SUCH INDEMNITIES SHALL NOT APPLY TO CONSEQUENTIAL DAMAGES
INCURRED BY THE LENDER. IF ANY PERSON (INCLUDING BORROWER OR ANY OF ITS
AFFILIATES) EVER ALLEGES SUCH GROSS NEGLIGENCE OR WILLFUL MISCONDUCT BY EIF,
THE INDEMNIFICATION PROVIDED FOR IN THIS SECTION SHALL NONETHELESS BE PAID UPON
DEMAND, SUBJECT TO LATER ADJUSTMENT OR REIMBURSEMENT, UNTIL SUCH TIME AS A
COURT OF COMPETENT JURISDICTION ENTERS A FINAL JUDGMENT AS TO THE EXTENT AND
EFFECT OF THE ALLEGED GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. ANY AMOUNT OWED
BY BORROWER TO EIF AND TO BE PAID HEREUNDER BY BORROWER TO EIF, OR FOR WHICH
BORROWER HAS INDEMNIFIED AN INDEMNIFIED PARTY, SHALL BE A DEMAND OBLIGATION
OWING BY BORROWER TO EIF AND SHALL BEAR INTEREST AT THE DEFAULT RATE UNTIL
PAID, AND SHALL CONSTITUTE A PART OF THE OBLIGATIONS OF BORROWER UNDER THIS
AGREEMENT AND SHALL BE INDEBTEDNESS EVIDENCED BY THIS AGREEMENT AND SECURED BY
THE SECURITY INSTRUMENTS. AS USED IN THIS SECTION THE TERM "EIF" SHALL REFER
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NOT ONLY TO THE PERSON DESIGNATED AS SUCH IN THIS SECTION BUT ALSO TO EACH
DIRECTOR, OFFICER, PARTNER, AGENT, ATTORNEY, EMPLOYEE, REPRESENTATIVE AND
AFFILIATE OF SUCH PERSON.
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ARTICLE 10
EXPENSES
10.1 Borrower shall pay all reasonable costs and expenses incurred in
connection with (i) EIF's due diligence review, and (ii) the preparation,
execution and delivery, administration, amendment and enforcement of this
Agreement, the Notes, the Loan Documents, the Security Instruments, and any
agreements or documents prepared in connection therewith, including but not
limited to the reasonable fees and out-of-pocket expenses of EIF's attorneys.
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ARTICLE 11
NOTICES; MISCELLANEOUS
11.1 Notices. All notices and other communications made or required to
be given pursuant to this Agreement or the Notes shall be in writing and shall
be deemed given if delivered personally or by facsimile transmission (if
receipt is confirmed by the facsimile operator of the recipient), or delivered
by overnight courier service or mailed by registered or certified mail (return
receipt requested), postage prepaid, to the parties at the following addresses
(or at such other address for a party as shall be specified by like notice;
provided that notices of a change of address shall be effective only upon
receipt thereof):
(i) To Borrower, as follows:
Energy Partners, Ltd.
0000 Xxxxxxx Xxxxxx
Xxxxx 0000
Xxx Xxxxxxx, XX 00000
Attn: Xx. Xxxxxxx X. Xxxxxxxx
Facsimile No.: (000) 000-0000
with a copy to:
Xxxxxx & Xxxxx, LLC
1000 Whitney Bank Building
000 Xx. Xxxxxxx Xxxxxx
Xxx Xxxxxxx, XX 00000
Attn: X. Xxxxxxxx Xxxxx, Esq.
Facsimile No.: (000) 000-0000
(ii) To EIF:
Energy Income Fund, L.P.
000 Xxxxxx Xxxx
Xxxxxxxxxx, XX 00000
Attn: Xx. Xxxxxx X. Xxxxxxx
Facsimile No.: (000) 000-0000
Copies of all notices other than reports or other routine
communications shall be delivered to:
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Xxxxxx, Xxxxxx & Xxxxxxxxx
0000 X Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000
Attn: Xxxxxx X. Xxxxx, Esq.
Facsimile No.: (000) 000-0000
Any notice hereunder delivered in person or by facsimile (if receipt
is confirmed by the facsimile operator of the recipient) shall be deemed given
on the date thereof, any notice by registered or certified mail shall be deemed
given three days after the date of mailing; and any notice by overnight courier
shall be deemed given two days after shipment or the date of receipt, whichever
is earlier.
11.2 Miscellaneous.
(a) ENTIRE AGREEMENT. THIS AGREEMENT SUPERSEDES ALL PRIOR
AGREEMENTS BETWEEN THE PARTIES (WRITTEN OR ORAL) AND IS INTENDED AS A COMPLETE
AND EXCLUSIVE STATEMENT OF THE TERMS OF THE AGREEMENT BETWEEN THE PARTIES. THIS
AGREEMENT MAY BE AMENDED OR MODIFIED ONLY BY A WRITTEN INSTRUMENT DULY EXECUTED
BY THE PARTIES.
(b) GOVERNING LAW. THIS AGREEMENT AND THE NOTES ARE CONTRACTS
UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND TOGETHER WITH ALL
MATTERS ARISING UNDER OR GROWING OUT OF THIS AGREEMENT OR THE NOTES SHALL FOR
ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH LAWS OF THE
COMMONWEALTH OF MASSACHUSETTS, WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF
LAWS, EXCEPT AS TO ENFORCEMENT OF THE SECURITY INSTRUMENTS. IN ADDITION, EXCEPT
AS TO THE VALIDITY AND ENFORCEMENT OF THE SECURITY INSTRUMENTS: BORROWER AND
EIF AGREE THAT THE TRANSACTIONS CONTEMPLATED HEREBY ("TRANSACTIONS") BEAR A
REASONABLE RELATIONSHIP TO THE COMMONWEALTH OF MASSACHUSETTS AND THAT THE LAW
OF THE COMMONWEALTH OF MASSACHUSETTS GOVERNS (I) ISSUES RELATING TO THE
TRANSACTIONS, INCLUDING THE VALIDITY AND ENFORCEABILITY OF AN AGREEMENT
RELATING TO SUCH TRANSACTIONS OR A PROVISION OF AN AGREEMENT, AND (II) THE
INTERPRETATION OR CONSTRUCTION OF AN AGREEMENT RELATING TO THE TRANSACTIONS OR
A PROVISION OF AN AGREEMENT.
(c) Headings. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
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(d) Parties in Interest. All the terms of this Agreement and
the Notes shall be binding upon and inure to the benefit of and be enforceable
by the parties hereto and their respective successors and assigns; provided,
that Borrower may not assign or transfer its rights hereunder without the
express prior written consent of EIF.
(e) No Third Party Beneficiaries. Except as expressly
provided herein, nothing in this Agreement shall entitle any person other than
Borrower or EIF or their respective successors and assigns permitted hereby to
any claim, cause of action, remedy or right of any kind.
(f) Severability. Any term or provision of this Agreement
that is invalid or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the remaining terms
and provisions of this Agreement in such or any other jurisdiction, so long as
the purposes of this Agreement can still be accomplished in the manner
anticipated by Borrower and EIF, or Borrower and EIF can agree to an acceptable
modification to this Agreement. If any provision of this Agreement is so broad
as to be unenforceable, such provision shall be interpreted to be only so broad
as is enforceable.
(g) Counterparts. This Agreement may be executed in any
number of counterparts, no one of which needs to be executed by both parties,
and this Agreement shall be binding upon both parties with the same force and
effect as if both parties had signed the same document, and each such signed
counterpart shall constitute an original of this Agreement.
(h) Renewal, Extension or Rearrangement. All provisions of
this Agreement and of any Security Instruments relating to the Notes or Loans
shall apply with equal force and effect to each and all promissory notes
hereinafter executed that in whole or in part represent a renewal, extension
for any period, increase or rearrangement of any part of the Loans originally
represented by the Notes or of any part of such other Indebtedness.
(i) Cumulative Rights. The rights and remedies of EIF under
the Notes, this Agreement, each Security Instrument and each other Loan
Document shall be cumulative, and the exercise or partial exercise of any such
right or remedy shall not preclude the exercise of any other right or remedy.
(j) Consents, Amendments, Waivers, Etc. Except as otherwise
expressly provided in this Agreement, any consent or approval required or
permitted by this Agreement to be given by EIF may be given, and any term of
this Agreement or of any other instrument related hereto or mentioned herein
may be amended, and the performance or observance by Borrower of any terms of
this Agreement or such other instrument or the continuance of any Default or
Event of Default may be waived (either generally or in a particular instance
and either retroactively or prospectively) with, but only with, the express
written consent of EIF. No waiver shall extend to or affect any obligation not
expressly waived or impair any right consequent thereon. No course
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of dealing or delay or omission on the part of EIF in exercising any right
shall operate as a waiver thereof or otherwise be prejudicial thereto. No
notice to or demand upon Borrower shall entitle Borrower to other or further
notice or demand in similar or other circumstances.
(k) Jurisdiction. Any judicial proceeding brought against any
of the parties hereto, with respect to this Agreement, may be brought in any
court of competent jurisdiction in the Commonwealth of Massachusetts,
irrespective of where such party may be located at the time of such proceeding,
and by execution and delivery of this Agreement, each of the parties hereto
hereby consents to the jurisdiction of any such court and waives any defense or
opposition to such jurisdiction.
(l) WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC. EACH PARTY
HEREBY (a) KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLY WAIVES, TO
THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR DIRECTLY OR INDIRECTLY AT
ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH THE LOAN DOCUMENTS OR ANY
TRANSACTION CONTEMPLATED THEREBY OR ASSOCIATED THEREWITH, BEFORE OR AFTER
MATURITY OF THE LOANS; (b) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT
PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH
LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR
DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (c) CERTIFIES THAT NO
PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT,
IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS; AND (d)
ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE OTHER
LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION.
(m) Agent for Service. Borrower hereby appoints CT
Corporation as its agent to receive on its behalf service of process in
connection with this Agreement in the Commonwealth of Massachusetts.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement under seal as
of the date first set forth above.
ENERGY PARTNERS, LTD.
By: /s/ XXXXXXX X. XXXXXXXX
-------------------------------------
Xxxxxxx X. Xxxxxxxx
President and Chief Executive Officer
ENERGY INCOME FUND, L.P.
By: EIF General Partner, L.L.C.,
its General Partner
By: /s/ XXXXXX X. XXXXXXX
-------------------------------------
Xxxxxx X. Xxxxxxx
A Managing Director
