CREDIT AGREEMENT
by and between
FRONTIER NATURAL GAS CORPORATION
and
DUKE ENERGY FINANCIAL SERVICES, INC.
Dated as of February 23, 1998
TABLE OF CONTENTS
PAGE
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ARTICLE 1 - DEFINITIONS AND ACCOUNTING TERMS . . . . . . . . . . . . . . . . . . 2
1.1 DEFINED TERMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 ACCOUNTING TERMS . . . . . . . . . . . . . . . . . . . . . . . . . .15
1.3 NUMBER AND GENDER OF WORDS . . . . . . . . . . . . . . . . . . . . .16
ARTICLE 2 - TERMS OF FACILITY. . . . . . . . . . . . . . . . . . . . . . . . . .16
2.1 ADVANCING COMMITMENT . . . . . . . . . . . . . . . . . . . . . . . .16
2.2 ADVANCES AND PAYMENTS UNDER THE NOTE . . . . . . . . . . . . . . . .18
2.3 REPAYMENT PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . .18
2.4 INTEREST RATES . . . . . . . . . . . . . . . . . . . . . . . . . . .19
2.5 PHANTOM OVERRIDES. . . . . . . . . . . . . . . . . . . . . . . . . .20
2.6 GENERAL PROVISIONS RELATING TO INTEREST. . . . . . . . . . . . . . .21
2.7 LOANS TO SATISFY OBLIGATIONS . . . . . . . . . . . . . . . . . . . .22
2.8 VOLUNTARY PREPAYMENT . . . . . . . . . . . . . . . . . . . . . . . .23
ARTICLE 3 - CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . .23
3.1 CONDITIONS OF LENDER . . . . . . . . . . . . . . . . . . . . . . . .23
3.2 FURTHER CONDITIONS TO EACH ADVANCE PURSUANT TO SUBSECTION 2.1(b) . .27
3.3 FURTHER CONDITIONS TO EACH ADVANCE PURSUANT TO SUBSECTION 2.1(c) . .28
3.4 FURTHER CONDITIONS TO EACH ADVANCE PURSUANT TO SUBSECTION 2.1(d) . .29
ARTICLE 4 - REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . .30
4.1 EXISTENCE AND GOOD STANDING. . . . . . . . . . . . . . . . . . . . .30
4.2 DUE AUTHORIZATION. . . . . . . . . . . . . . . . . . . . . . . . . .30
4.3 VALID AND BINDING OBLIGATIONS. . . . . . . . . . . . . . . . . . . .30
4.4 SCOPE AND ACCURACY OF FINANCIAL STATEMENTS . . . . . . . . . . . . .30
4.5 LIABILITIES AND LITIGATION . . . . . . . . . . . . . . . . . . . . .31
4.6 TITLE TO ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . . .31
4.7 AUTHORIZATIONS AND CONSENTS. . . . . . . . . . . . . . . . . . . . .31
4.8 COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . . . . .31
4.9 PROPER FILING OF TAX RETURNS AND PAYMENT OF TAXES DUE. . . . . . . .32
4.10 ERISA COMPLIANCE . . . . . . . . . . . . . . . . . . . . . . . . . .32
4.11 INVESTMENT COMPANY ACT COMPLIANCE. . . . . . . . . . . . . . . . . .32
4.12 PUBLIC UTILITY HOLDING COMPANY ACT COMPLIANCE. . . . . . . . . . . .32
4.13 LIEN PRIORITY. . . . . . . . . . . . . . . . . . . . . . . . . . . .32
4.14 USE OF PROCEEDS. . . . . . . . . . . . . . . . . . . . . . . . . . .33
4.15 FULL DISCLOSURE. . . . . . . . . . . . . . . . . . . . . . . . . . .33
4.16 PLACES OF BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . .33
4.17 SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
ARTICLE 5 - AFFIRMATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . .33
5.1 MAINTENANCE AND ACCESS TO RECORDS. . . . . . . . . . . . . . . . . .33
5.2 QUARTERLY FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . .33
5.3 ANNUAL FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . .34
5.4 COMPLIANCE CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . .34
5.5 RESERVE REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . .34
5.6 PROSPECT REPORT. . . . . . . . . . . . . . . . . . . . . . . . . . .35
5.7 QUARTERLY MEETINGS . . . . . . . . . . . . . . . . . . . . . . . . .35
5.8 PROSPECT INFORMATION . . . . . . . . . . . . . . . . . . . . . . . .35
5.9 SALES AND PRODUCTION REPORTS . . . . . . . . . . . . . . . . . . . .36
5.10 PAYMENT STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . .36
5.11 ADDITIONAL LIENS . . . . . . . . . . . . . . . . . . . . . . . . . .36
5.12 STATEMENT OF MATERIAL ADVERSE EFFECT . . . . . . . . . . . . . . . .36
5.13 TITLE DEFECTS. . . . . . . . . . . . . . . . . . . . . . . . . . . .36
5.14 ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . .36
5.15 COMPLIANCE WITH LAWS AND PAYMENT OF TAXES. . . . . . . . . . . . . .36
5.16 MAINTENANCE OF EXISTENCE AND GOOD STANDING . . . . . . . . . . . . .37
5.17 FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . . . . . . .37
5.18 INITIAL EXPENSES OF THE LENDER . . . . . . . . . . . . . . . . . . .37
5.19 SUBSEQUENT EXPENSES OF THE LENDER. . . . . . . . . . . . . . . . . .37
5.20 MAINTENANCE OF TANGIBLE PROPERTY . . . . . . . . . . . . . . . . . .38
5.21 MAINTENANCE OF INSURANCE . . . . . . . . . . . . . . . . . . . . . .38
5.22 RIGHT OF INSPECTION. . . . . . . . . . . . . . . . . . . . . . . . .38
5.23 COMPLIANCE WITH ERISA. . . . . . . . . . . . . . . . . . . . . . . .38
5.24 NOTICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
5.25 HAZARDOUS SUBSTANCES INDEMNIFICATION . . . . . . . . . . . . . . . .39
ARTICLE 6 - NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . .40
6.1 OTHER DEBT OF BORROWER . . . . . . . . . . . . . . . . . . . . . . .40
6.2 GUARANTY OF PAYMENT OR PERFORMANCE . . . . . . . . . . . . . . . . .40
6.3 LOANS, ADVANCES OR INVESTMENTS . . . . . . . . . . . . . . . . . . .40
6.4 MORTGAGES OR PLEDGES OF ASSETS . . . . . . . . . . . . . . . . . . .40
6.5 CANCELLATION OF INSURANCE. . . . . . . . . . . . . . . . . . . . . .40
6.6 SALES OF PROPERTY. . . . . . . . . . . . . . . . . . . . . . . . . .41
6.7 SALE AND LEASEBACK . . . . . . . . . . . . . . . . . . . . . . . . .41
6.8 DIVIDENDS AND DISTRIBUTIONS. . . . . . . . . . . . . . . . . . . . .41
6.9 CHANGES IN CORPORATE STRUCTURE . . . . . . . . . . . . . . . . . . .41
6.10 PAYMENT OF ACCOUNTS PAYABLE. . . . . . . . . . . . . . . . . . . . .41
6.11 TRANSACTIONS WITH AFFILIATES . . . . . . . . . . . . . . . . . . . .41
6.12 LIMITATION ON NEGATIVE PLEDGE CLAUSES. . . . . . . . . . . . . . . .42
6.13 NATURE OF BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . .42
6.14 NO SUBSIDIARIES. . . . . . . . . . . . . . . . . . . . . . . . . . .42
ARTICLE 7 - EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . .42
7.1 EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . .42
7.2 RIGHTS UPON OCCURRENCE OF UNMATURED EVENT OF DEFAULT . . . . . . . .44
7.3 RIGHTS UPON OCCURRENCE OF AN EVENT OF DEFAULT. . . . . . . . . . . .45
ARTICLE 8 - MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . .45
8.1 NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
8.2 AMENDMENTS AND WAIVERS . . . . . . . . . . . . . . . . . . . . . . .46
8.3 INVALIDITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
8.4 SURVIVAL OF AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . .46
8.5 SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . . . . . .46
8.6 RENEWAL, EXTENSION OR REARRANGEMENT. . . . . . . . . . . . . . . . .47
8.7 WAIVERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
8.8 CUMULATIVE RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . .47
8.9 TAXES, ETC . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47
8.10 EXHIBITS; CONFLICTS. . . . . . . . . . . . . . . . . . . . . . . . .47
8.11 TITLES OF ARTICLES, SECTIONS AND SUBSECTIONS . . . . . . . . . . . .47
8.12 JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
8.13 JURY TRIAL WAIVED. . . . . . . . . . . . . . . . . . . . . . . . . .48
8.14 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
8.15 EFFECTIVENESS. . . . . . . . . . . . . . . . . . . . . . . . . . . .48
8.16 DOCUMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .48
8.17 RIGHTS OF THIRD PERSON . . . . . . . . . . . . . . . . . . . . . . .48
8.18 ANNOUNCEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . .49
8.19 CONFIDENTIALITY. . . . . . . . . . . . . . . . . . . . . . . . . . .49
8.20 SURVIVAL OF CERTAIN COVENANTS. . . . . . . . . . . . . . . . . . . .50
8.21 GOVERNING LAW. . . . . . . . . . . . . . . . . . . . . . . . . . . .50
CREDIT AGREEMENT
This CREDIT AGREEMENT, dated as of February 23, 1998, is by and
between FRONTIER NATURAL GAS CORPORATION, an Oklahoma corporation (the
"BORROWER"), and DUKE ENERGY FINANCIAL SERVICES, INC., a Delaware corporation
(the "LENDER").
W I T N E S S E T H T H A T:
The Borrower, Aspect Resources LLC, a Colorado limited liability
company ("ASPECT"), and Esenjay Petroleum Corporation, a Texas corporation
("ESENJAY"), have entered into that certain Acquisition Agreement and Plan of
Exchange Regarding the Acquisition of Certain Assets of Esenjay Petroleum
Corporation and Aspect Resources LLC by Frontier Natural Gas Corporation dated
January 19, 1998 (the "EXCHANGE AGREEMENT") whereby Aspect and Esenjay intend to
exchange certain oil and gas prospects in various stages of development for and
in consideration of common stock of the Borrower. The closing of such
transaction is subject to approval by the Securities and Exchange Commission of
the form of proxy statement to be presented to the existing shareholders of
common stock of the Borrower and then approval of such transaction by such
shareholders. Upon obtaining such approvals, such transaction shall close and
become effective and thereafter the Borrower desires to raise additional capital
by selling additional shares of its common stock to the public.
Prior to such transactions closing and becoming effective and the
raising of such additional capital, the Borrower projects it will incur
obligations in connection with certain oil and gas prospects presently owned by
the Borrower and Esenjay will incur obligations in connection with certain oil
and gas prospects presently owned by Esenjay and intended to be contributed to
the Borrower pursuant to the terms of the Exchange Agreement.
In order to facilitate the transactions contemplated by the Exchange
Agreement, the Borrower has requested the Lender to extend credit to the
Borrower in order to enable it to borrow from time to time on or before July 30,
1998 sums not to exceed, either singularly or cumulatively, $7,800,000.00 to be
used for the repayment of certain indebtedness the Borrower owes Aspect, for the
payment of development costs of certain oil and gas prospects, by the Borrower
as loans to Esenjay for Esenjay to develop certain oil and gas prospects and to
repay holders of all of the Borrower's existing preferred stock. The Lender
agrees to extend such credit to the Borrower upon the terms and subject to the
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained and of the loans and commitment hereinafter referred
to, the Borrower and the Lender agree as follows:
ARTICLE 1
DEFINITIONS AND ACCOUNTING TERMS
1.1 DEFINED TERMS. As used in this Agreement, the following terms have
the following meanings:
"ADVANCE" means a direct advance of immediately available funds
by the Lender to the Borrower or funds advanced to another Person for
and on behalf of and at the direction of the Borrower pursuant to
Section 2.1 of this Agreement.
"AFFILIATE" means any Person controlling, controlled by, or under
common control with, any other Person. For purposes of this
definition, "control" (including "controlled by" and "under common
control with") means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies
of such Person, whether through the ownership of voting securities or
otherwise.
"AGREEMENT" means this Credit Agreement and all exhibits and
schedules hereto, as the same may be amended from time to time
according to the terms hereof.
"ASPECT" has the meaning indicated in the recitals hereof.
"ASPECT DEBT" means the Debt of the Borrower owed Aspect, being
$500,000.00 of outstanding principal and evidenced by that certain
Promissory Note dated January 12, 1998 executed by the Borrower to the
order of Aspect in the principal face amount of $1,800,000.00.
"ASPECT PROSPECTS" means (a) those certain undivided interests of
Aspect in certain oil and gas prospects intended to be conveyed to the
Borrower pursuant to the Exchange Agreement and which undivided
interests in such prospects are more particularly described on Exhibit
III attached hereto and a similar undivided interest in any other Oil
and Gas Property or associated Right which Aspect may acquire in any
of the areas outlined on the plats attached hereto behind each
respective Aspect Prospect and (b) any other undivided interest of
Aspect in any other oil and gas prospects which from
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time to time Aspect proposes and the Borrower and the Lender agree in
writing become Aspect Prospects.
"ASPECT SUBORDINATION AGREEMENT" means that certain Subordination
by and among Aspect, the Lender and the Borrower relating to the
subordination by Aspect of the repayment of Debt owed Aspect by the
Borrower to the repayment of the Obligations.
"BANK OF AMERICA DEBT" means the Debt of the Borrower owed Bank
of America Illinois, an Illinois banking corporation, which is
governed by that certain Credit Agreement dated as of January 3, 1996
between the Borrower and Bank of America Illinois.
"BORROWER" has the meaning indicated in the opening paragraph
hereof.
"BORROWER PROSPECTS" means (a) all of the undivided interest of
the Borrower in the oil and gas prospects described on Exhibit IV
attached hereto and any other interest in any Oil and Gas Property or
associated Right which the Borrower may acquire in any of the areas
outlined on the plats attached hereto behind each respective Borrower
Prospect and (b) any other undivided interest of the Borrower in any
other oil and gas prospects which from time to time the Borrower
proposes and the Lender agrees in writing become Borrower Prospects.
"BORROWING REQUEST" means a written application by the Borrower
for an Advance. Each such Borrowing Request shall specify the
requested amount of such Advance, the requested date of such Advance
and the purposes for which proceeds for such Advance will be used.
"BUSINESS DAY" means a day other than a Saturday, Sunday or legal
holiday for commercial banks in the State of Colorado.
"CLOSING DATE" means the date when all the conditions precedent
set forth in Section 3.1 of this Agreement have been fulfilled.
"COLLATERAL" means the Property now or at any time hereafter
securing the Obligations.
"COMMITMENT" means the obligation of the Lender as set forth
herein (a) contemporaneously with the execution and delivery of this
Agreement to extend credit by means of an Advance to the Borrower to
repay the Aspect
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Debt in full, (b) through the earlier of the date the Exchange Transactions
close and become effective or May 15, 1998, to extend credit to the
Borrower by means of Advances for the purposes set forth in
Subsection 2.1(b), with the sum of all such Advances made pursuant to
Subsections 2.1(a) and (b) from the date hereof through such earlier
date not to exceed either singularly or cumulatively, (i) $1,200,000.00
prior to the execution and delivery of the 420 Energy Investments Consent
or (ii) $1,800,000.00 after the execution and delivery of the 420 Energy
Investments Consent, (c) through the earlier of the date the Exchange
Transactions close and become effective or May 15, 1998, to extend credit
to the Borrower by means of Advances for the purposes set forth in
Subsection 2.1(c), with the sum of all such Advances made pursuant to
Subsection 2.1(c) from the date hereof through such earlier date not to
exceed either singularly or cumulatively, $3,000,000.00, and (d) if the
Exchange Transactions close and are effective by May 15, 1998, to extend
credit to the Borrower by means of Advances for the purposes set forth in
Subsection 2.1(d), with the sum of all Advances made from the date hereof
through June 30, 1998 not to exceed, singularly or cumulatively, (i)
$7,200,000.00 prior to the execution and delivery of the 420 Energy
Investments Consent or (ii) $7,800,000.00 after the execution and
delivery of the 420 Energy Investments Consent.
"COMPLIANCE CERTIFICATES" means the certificates of the president
or executive vice president of the Borrower submitted to the Lender
from time to time pursuant to this Agreement, which certificates shall
be substantially in the form attached hereto as Exhibit II.
"CONTESTED IN GOOD FAITH" means contested in good faith by
appropriate and lawful proceedings diligently conducted, reasonably
satisfactory to the Lender, (a) in which foreclosure, distraint, sale,
forfeiture, levy, execution or other similar proceedings have not been
initiated or have been stayed and continue to be stayed, (b) in which
a good faith contest will not materially detract from the value of the
Collateral, jeopardize the Rights of the Lender with respect to the
Collateral, interfere in any material respect with the operation by
the Borrower of its business, or otherwise have a Material Adverse
Effect, and (c) for which matter a reserve or other appropriate
provision has been established in accordance with the requirements of
GAAP.
"DEBT" of any Person means, to the extent of such Person's
liability, (a) all items of indebtedness for borrowed money,
obligations, and liabilities (whether matured or unmatured, liquidated
or unliquidated, direct or indirect,
4
joint or several, contingent or otherwise), which in accordance with GAAP
should be classified upon such Person's balance sheet as liabilities, but
in any event including liabilities secured by any Lien existing on
Property of such Person or a Subsidiary of such Person, (b) the deferred
purchase price of Property or services and direct and contingent
obligations incurred in connection with letters of credit and similar
agreements and obligations as a lessee under leases which have been, or
which in accordance with GAAP should be, capitalized for financial
reporting purposes, (c) all guaranties, endorsements (other than for
collection or deposit in the ordinary course of business), and other
contingent obligations of such Person with respect to obligations of other
Persons of the types described in clauses (a) and/or (b) preceding,
(d) liabilities of unfunded vested benefits under any Plan, (e) Swaps
of such Person and (f) all obligations to supply funds to, invest in
or maintain working capital or equity capital of any other Person, or
otherwise to maintain the net worth or solvency or any balance sheet
condition of any other Person.
"DEBTOR RELIEF LAWS" means the Bankruptcy Code of the United
States of America, as amended from time to time, and all other
applicable liquidation, conservatorship, bankruptcy, moratorium,
rearrangement, receivership, insolvency, reorganization, or similar
debtor relief Laws or general equitable principles from time to time
in effect affecting the Rights of creditors generally.
"DEFAULT RATE" means a per annum rate of interest equal to the
Prime Rate plus eight percent (8%), but in no event to exceed the
Highest Lawful Rate.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) which together with the Borrower would be treated as a
single employer under Section 4001 of ERISA.
"ESENJAY" has the meaning indicated in the recitals hereof.
"ESENJAY CREDIT AGREEMENT" means that certain Credit Agreement
dated of even date herewith by and between the Borrower, as lender,
and Esenjay, as borrower.
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"ESENJAY PROSPECTS" means (a) those certain undivided interests
of Esenjay in certain oil and gas prospects intended to be conveyed to
the Borrower pursuant to the Exchange Agreement and which undivided
interests in such prospects are more particularly set forth on Exhibit
V attached hereto and any other interest in any Oil and Gas Property
or associated Right which Esenjay may acquire in any of the areas
outlined on the plats attached hereto as behind each respective
Esenjay Prospect and (b) any other undivided interest of Esenjay in
any other oil and gas prospects which from time to time Esenjay
proposes and the Borrower and the Lender agree in writing become
Esenjay Prospects.
"ESENJAY SUBORDINATION AGREEMENT" means that certain
Subordination by and among Esenjay, the Lender and the Borrower
relating to the subordination by Esenjay of the repayment of Debt owed
Esenjay by the Borrower to the repayment of the Obligations.
"EVENT OF DEFAULT" means any of the events specified in Section
7.1, provided that the requirements, if any, for the giving of notice,
the lapse of time, or both, or any other condition specified in
Section 7.1 have been satisfied.
"EXCHANGE AGREEMENT" has the meaning indicated in the recitals
hereof.
"EXCHANGE TRANSACTIONS" means the exchange of the Esenjay
Prospects by Esenjay and the Aspect Prospects by Aspect for common
stock of the Borrower as set forth in the Exchange Agreement.
"FACILITY RATE" means a varying rate of interest per annum equal
to the Prime Rate, from time to time in effect, plus four percent
(4%).
"FINANCIAL STATEMENTS" means statements of financial condition,
as at the point in time and for the period indicated, and consisting
of at least a balance sheet and related statements of operations,
stockholders' equity and cash flows and, when audited, accompanied by
the certification of independent certified public accountants, and
footnotes to any of the foregoing.
"420 ENERGY INVESTMENTS DEBT" means the Debt of the Borrower owed
420 Energy Investments, Inc., a Delaware corporation, which is
governed by that certain Loan Agreement dated as of March 1, 1996 as
amended by that certain First Amendment to Loan Agreement dated
effective September 1, 1996 between the Borrower and 420 Energy
Investments, Inc.
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"420 ENERGY INVESTMENTS CONSENT" means the written consent, in
form and substance acceptable to the Lender at its sole discretion, of
420 Energy Investments, Inc. to the execution, delivery and
recordation of Security Documents encumbering the same Oil and Gas
Properties of the Borrower which are encumbered to secure the 420
Energy Investments Debt. Without limiting the Lender's discretion to
approve the form and substance of such consent, such consent shall not
require the Lender to subordinate the Debt governed by this Agreement
to the 420 Energy Investments Debt or require the Lender to limit,
forego or postpone any of its Rights under the Loan Documents.
"GAAP" means, generally accepted accounting principles
established by the Financial Accounting Standards Board and in effect
in the United States from time to time during the term of this
Agreement and applied on a basis consistent with that adopted in the
Financial Statements of the Borrower to be delivered to the Lender.
"XXXXXX XXXXXXX" means Xxxxxx Xxxxxxx Energy Fund, L.P., a
Delaware limited partnership.
"GUARANTIES" means those certain Limited Obligation Guaranty
Agreements dated of even date herewith of each of the Guarantors in
favor of the Lender pursuant to which the Guarantors each
unconditionally guarantees the payment and performance of up to a
certain amount of all of the Obligations, as such Limited Obligation
Guaranty Agreements may be amended from time to time.
"GUARANTORS" means each of Aspect, Esenjay and Xxxxxx Xxxxxxx.
"HAZARDOUS SUBSTANCES" means any flammables, explosives,
radioactive materials, hazardous wastes, asbestos or any material
containing asbestos, polychlorinated biphenyls (PCB's), toxic
substances or related materials, petroleum and petroleum products and
associated oil or natural gas exploration, production and development
wastes or any substances defined as "hazardous substances," "hazardous
materials," "hazardous wastes" or "toxic substance" under the
Comprehensive Environmental Response, Compensation and Liability Act,
as amended; the Superfund Amendments and Reauthorization Act, as
amended; the Hazardous Materials Transportation Act, as amended; the
Resource Conservation and Recovery Act, as amended; the Toxic
Substances Control Act, as amended; or any other law, statute,
7
ordinance, rule, regulation or order now or hereafter enacted or
promulgated by any governmental authority with jurisdiction and
relating to the protection of the environment.
"HIGHEST LAWFUL RATE" means the maximum rate (or, if the context
so permits or requires, an amount calculated at such rate) of interest
(if any) that, at the time in question, would not cause the interest
charged on the Obligations owed to the Lender to exceed the maximum
amount that the Lender would be allowed to contract for, charge, take,
reserve or receive under applicable Law after taking into account, to
the extent required by applicable Law, all relevant payments and
charges under the Loan Documents.
"INVESTMENT" in any Person means any stock, bond, note or other
evidence of Debt or any other security (other than current trade and
customer accounts) of, investment or partnership interest in or loan
to, such Person.
"LAWS" means all applicable statutes, laws, ordinances, rules,
rulings, interpretations, regulations, judgments, requirements,
governmental authorizations (including licenses, permits, franchises
and other governmental consents necessary for the ownership or
operation of Property), orders, writs, injunctions or decrees (or
interpretations of any of the foregoing) of any political subdivision,
state, commonwealth, nation, country, territory, possession, county,
parish, municipality or Tribunal.
"LENDER" has the meaning indicated in the opening paragraph
hereof.
"LIEN" means any lien, charge, claim, restriction, mortgage,
mechanic's lien, materialmen's lien, pledge, hypothecation, inchoate
lien, assignment, deposit arrangement, conditional sale or other title
retention agreement, financing lease, security interest, security
agreement or other encumbrance, whether arising by contract or under
Law, and includes reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, leases and other title
exceptions and the filing of any financing statement under the Uniform
Commercial Code of the State of Texas or comparable Law of any
jurisdiction.
"LIMITATION PERIOD" means any period during which the calculation
of interest as provided in any of the Loan Documents would result in
interest exceeding the Highest Lawful Rate.
8
"LIQUID INVESTMENTS" means Investments in (a) United States
government issued securities, obligations of the United States
government or any agency thereof and any obligations guaranteed by the
United States government with maturities of no more than one year, (b)
certificates of deposit or repurchase agreements issued by the Lender,
(c) certificates of deposit, in an aggregate amount not to exceed
$100,000.00 at any one time as to any one issuer, issued by other
banks or financial institutions organized under the Laws of the United
States or any state thereof, having capital surplus and undivided
profits aggregating at least $100,000,000.00 and with deposits insured
by the Federal Deposit Insurance Corporation, and (d) commercial paper
with a rating by Xxxxx'x Investor Service, Inc. of no less than A and
with maturities of no more than nine months from the date of
acquisition thereof.
"LITIGATION" means any proceeding, claim, lawsuit, and/or
investigation conducted, or threatened and known to the Person in
question, by or before any Tribunal.
"LOAN DOCUMENTS" means this Agreement, the Note, the Guaranties,
the Security Documents and all other notes, deeds of trust,
restatements, ratifications and amendments of deeds of trust,
financing statements, guaranties, security agreements, pledge
agreements, documents, instruments and other agreements now or
hereafter delivered pursuant to the terms of, or in connection with,
this Agreement, the Obligations and/or the Collateral, and all
renewals, extensions and restatements of, and amendments and
supplements to any or all of the foregoing.
"LOANS" means the loans and extensions of credit by the Lender to
or for the account of the Borrower pursuant to this Agreement.
"MATERIAL ADVERSE EFFECT" means any material and adverse effect
on (a) the assets, liabilities, financial condition, business or
operations of the Borrower that are material to the business or
financial condition of the Borrower, or (b) the ability of any of the
Borrower to meet its Obligations under any of the Loan Documents on a
timely basis as provided herein or therein.
"MORTGAGED PROPERTIES" shall mean Oil and Gas Properties of the
Borrower subject to the Liens of the Security Documents from time to
time to secure the Debt evidenced by the Note.
9
"MULTI-EMPLOYER PLAN" means a Plan described in Section
4001(9)(3) of ERISA which covers employees of the Borrower or any
ERISA Affiliate.
"NET REVENUE INTEREST" means that proportionate portion of
production attributable to the owner of an undivided interest in and
to any Oil and Gas Property after deduction for royalty burdens,
overriding royalty burdens or other burdens on production, if any,
except severance, production, windfall profits and other similar
taxes.
"NOTE" means that certain promissory note in the face amount of
$7,800,000.00 dated of even date herewith made by the Borrower to the
order of the Lender, in the form attached hereto as Exhibit I,
together with all deferrals, renewals or extensions thereof, which
promissory note shall evidence the Advances made to the Borrower by
the Lender pursuant to Section 2.1 and funds advanced and applied
pursuant to Section 2.7.
"OBLIGATIONS" means all present and future loans, advances,
indebtedness, obligations, covenants, duties and liabilities, and all
renewals for any period, increases and extensions thereof, or any part
thereof, now or hereafter owing to the Lender by the Borrower or the
Guarantors arising from or pursuant to any of the Loan Documents,
together with all interest accruing thereon, and costs, expenses, and
attorneys' fees incurred in the enforcement or collection thereof,
whether such indebtedness, obligations, and liabilities are direct,
indirect, fixed, contingent, liquidated, unliquidated, joint, several,
or joint and several, and all other indebtedness or obligations of any
type whatsoever now or hereafter owing to the Lender by the Borrower,
whether or not in connection with any of the Loan Documents.
"OIL AND GAS PROPERTIES" means fee, leasehold or other interests
in or under mineral estates or oil, gas and other liquid or gaseous
hydrocarbon leases with respect to properties situated in the United
States, including, without limitation, overriding royalty and royalty
interests, leasehold estate interests, net profits interests,
production payment interests and mineral fee interests, together with
contracts executed in connection therewith and all tenements,
hereditaments, appurtenances and properties, real or personal,
appertaining, belonging, affixed or incidental thereto.
"OVERRIDE PERCENTAGE" means a percentage equal to the product of
(a) six-tenths of one percent (0.6%) times (b) the result of the
number of days (not to exceed one hundred eighty (180)) from the date
of this Agreement to the
10
date the Debt evidenced by the Note is repaid in full divided by one
hundred eighty (180) days.
"OVERRIDE WELL" means the Well Area established for any oil and
gas well drilled on a Prospect, spudded after the date of this
Agreement and prior to December 31, 2000, and completed as an oil and
gas well capable of producing in paying quantities; provided, however,
it shall not include any oil and gas xxxxx drilled on an Aspect
Prospect if the Exchange Transactions do not close and become
effective.
"PAYMENT STATEMENT" means each statement prepared by or under the
supervision of the chief financial officer of the Borrower and
submitted to the Lender pursuant to Section 5.10, and setting forth in
such detail and with such supporting documentation as may reasonably
be required by the Lender, a statement of the calculation by the
Borrower of the amount of any charge due the Lender pursuant to
Section 2.5 on such date, including, without limitation, when such
Payment Statement is prepared in connection with a charge due the
Lender pursuant to Subsection 2.5(b), a statement of the gross volume
of sales and actual production during such month from all of the
Override Xxxxx and prices received for such production, all of which
shall be certified by the chief financial officer of the Borrower as
having been prepared in good faith and on the basis of the best
information available to Borrower as of the time of preparation
thereof.
"PBGC" means the Pension Benefit Guaranty Corporation, or any
successor thereof, established pursuant to Subtitle A of Title IV of
ERISA.
"PERMITTED LIENS" means: (a) Liens for Taxes, not yet due or
which are being Contested in Good Faith; (b) Liens in connection with
workers' compensation, unemployment insurance or other social security
(other than Liens created by Section 4068 of ERISA), old age pension
or public liability obligations which are not yet due or which are
being Contested in Good Faith; (c) vendors', carriers',
warehousemen's, repairmen's, mechanics', workmen's, materialmen's,
construction or other similar Liens arising by operation of Law in the
ordinary course of business or incident to the construction or
improvement of any Property in respect of obligations which are not
yet due or which are being Contested in Good Faith; (d) Liens to
operators and non-operators under joint operating agreements arising
in the ordinary course of business to secure amounts owing, which
amounts are not yet due or are being Contested in Good Faith; (e)
Liens under production sales agreements, division orders, operating
agreements and other agreements customary in the oil and gas business
for processing, producing and selling hydrocarbons; (f) Liens
11
created in favor of the Lender securing Obligations hereunder and other
Liens expressly permitted under the Security Documents; (g) easements,
rights-of-way, restrictions and other similar encumbrances, and minor
defects in the chain of title which are customarily accepted in the
oil and gas financing industry, none of which interfere with the
ordinary conduct of the business of the owner of the Property or
materially detract from the value or use of the Property to which they
apply; (h) Liens of record under terms and provisions of the leases,
unit agreements, assignments and other transfer of title documents in
the chain of title under which the owner of the relevant Property
acquired such Property; (i) Liens securing the purchase price or
existing under conditional sale of title retention contracts for
equipment purchased in the normal course of business of the Borrower,
provided that such Lien shall not extend to or cover any other
Property of the Borrower; (j) Liens securing the Bank of America Debt
provided that such Liens shall not extend to or cover any other
Property of the Borrower except as set forth on Exhibit VI attached
hereto; and (k) Liens securing the 420 Energy Investments Debt
provided that such Liens shall not extend to or cover any other
Property of the Borrower except as set forth on Exhibit VII attached
hereto.
"PERSON" means any individual, sole proprietorship, firm,
corporation, trust, association, institution, partnership, joint
venture, Tribunal or other entity.
"PHANTOM OVERRIDE" means an overriding royalty interest
calculated for each Override Well equal to (a) the Override Percentage
times (b) (i) the Net Revenue Interest that the Borrower owns in an
Override Well on the date such Override Well was spudded and (ii) the
Net Revenue Interest which Esenjay and/or Aspect owns in an Override
Well on the date such Override Well was spudded and which was intended
to be conveyed to the Borrower pursuant to the Exchange Agreement.
"PHANTOM OVERRIDE FUTURE REVENUES" means the projections of
future net income to be derived from reserves of hydrocarbons
classified as "proved producing", "proved shut-in" or "proved behind
pipe", and based on projections of (a) future production from the
indicated Oil and Gas Properties and (b) a pricing assumption (i) for
oil of the 12 Months Futures Strip Price for light sweet crude oil
adjusted for location and grade and (ii) for gas of the 12 Months
Futures Strip Price for natural gas adjusted for location and grade.
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"PLAN" means any pension plan that is covered by Title IV of
ERISA and maintained by the Borrower or any such plan to which the
Borrower is required to contribute.
"PREFERRED SHARES" means 85,961 shares of the Borrower's issued
and outstanding preferred stock, $.01 par value per share, being all
of the outstanding preferred stock of the Borrower as of the date of
this Agreement.
"PRIME RATE" means at any time the "prime rate" then most
recently published in the "Money Rates" or equivalent section of the
WALL STREET JOURNAL, provided that if a "prime rate" range is
published by the WALL STREET JOURNAL, then the middle of that range
will be the "Prime Rate".
"PROPERTY" means any interest in any kind of property or asset,
whether real, personal or mixed, tangible or intangible.
"PROSPECTS" means the Aspect Prospects, the Borrower Prospects
and the Esenjay Prospects.
"PROSPECT DEVELOPMENT COSTS" means amounts owed to other Persons
incurred by (a) the Borrower with respect to any of the Borrower
Prospects prior to the date the Exchange Transactions close and become
effective, (b) Esenjay with respect to any of the Esenjay Prospects
prior to the date the Exchange Transactions close and become effective
or (c) the Borrower with respect to any of the Prospects on or after
the date the Exchange Transactions close and become effective for
seismic options, seismic permits, options to acquire Oil and Gas
Properties, Oil and Gas Properties, recording fees, title examination,
lease broker fees and expenses, all other amounts owed other Persons
to obtain or maintain Rights in the Prospects necessary or advisable
for exploration and development of hydrocarbons on such Prospects,
seismic data, interpretation of seismic data, all other geologic and
geophysical costs related to the exploration and development of
hydrocarbons on such Prospects, and the drilling, testing, logging,
completing, equipping for production or plugging and abandoning any
oil and gas well located on such Prospects.
"RESERVOIR" means a separate, identifiable underground
accumulation of oil, gas and/or associated hydrocarbons segregated
from other such accumulations and characterized by a single pressure
system.
"REPORTABLE EVENT" and "PROHIBITED TRANSACTION" have the meanings
given to those terms under ERISA.
13
"RIGHTS" means rights, remedies, powers and privileges.
"SECTION" or "SUBSECTION" means a section or subsection in this
Agreement unless specified otherwise.
"SECURITY DOCUMENTS" means the documents described in Subsection
3.1(a)(7) of this Agreement and all other documents now or hereafter
existing which provide the Lender with Collateral, as the same may be
amended or restated from time to time.
"SUBSIDIARY" of any Person means any corporation of which an
aggregate of fifty percent (50%) or more of the stock of any class or
classes is owned of record or beneficially, directly or indirectly, by
such Person, if the holders of the stock of such class or classes are
ordinarily entitled to vote for the election of a majority of the
directors (or individuals performing similar functions) of such
corporation (irrespective of whether, at the time in question, stock
of any other class or classes of such corporation shall have or might
have voting power by reason of the happening of any contingency).
"SWAPS" means, with respect to any Person, foreign exchange
transactions and commodity, currency and interest rate swaps, floors,
caps, collars, forward sales, options, other similar transactions and
combinations of the foregoing.
"TAXES" means all taxes, assessments, filing or other fees,
levies, imposts, duties, deductions, withholdings, stamp taxes,
interest equalization taxes, capital transaction taxes, foreign
exchange taxes or charges, or other charges of any nature whatsoever
from time to time or at any time imposed by any Law or Tribunal.
"TRIBUNAL" means any court, governmental department or authority,
commission, board, bureau, agency, arbitrator or instrumentality of
any state, political subdivision, commonwealth, nation, territory,
county, parish or municipality, whether now or hereafter existing,
having jurisdiction over the Lender, the Borrower or any of their
respective Property.
"12 MONTHS FUTURES STRIP PRICE" means for light sweet crude oil
or natural gas, as the case may be, (a) in the case of the additional
charge paid pursuant to Subsection 2.5(c), the average of the high and
low prices on the New York Mercantile Exchange for each month from and
including February 2001 through and including January 2002 as reported
in the "Futures Prices"
14
section of the WALL STREET JOURNAL published on January 2, 2001 or the
first day thereafter the WALL STREET JOURNAL is published and (b) in the
case of an additional charge paid pursuant to Subsection 2.5(d), the
average of the high and low prices on the New York Mercantile Exchange for
each of the immediately succeeding twelve (12) months following the
effective date of the relevant sale as reported in the "Futures Prices"
section of the WALL STREET JOURNAL published on the effective date of such
relevant sale or the first day thereafter the WALL STREET JOURNAL is
published.
"UNMATURED EVENT OF DEFAULT" means any event or occurrence which
solely with the lapse of time or the giving of notice or both will
ripen into an Event of Default.
"WELL AREA" means, with respect to any oil and gas well, the area
within a particular Reservoir that can, as determined by statute
and/or the appropriate governmental authority having jurisdiction, be
efficiently and economically drained by such well. For purposes of
the foregoing: (a) as to any particular well located in the States of
Texas, the Well Area for such well shall be (i) the proration unit, if
any, from time to time allocated by the governmental authority having
jurisdiction to such well for the Reservoir to which such well is
completed, or (ii) in the absence of such a proration unit, the
spacing unit from time to time established for the Reservoir to which
such well is completed by statute or by rule, regulation or order
issued by the governmental authority having jurisdiction, and (b) as
to any particular well located in a State other than Texas, the Well
Area for such well shall be the drilling unit, spacing unit or
proration unit, as the case may be, from time to time established for
the Reservoir to which such well is completed by statute or by rule,
regulation or order issued by the governmental authority having
jurisdiction. In the absence of an applicable statute or an
applicable rule or special order issued by a governmental authority
having jurisdiction establishing the area within a particular
Reservoir that can be efficiently and economically drained by a
particular well, the Well Area within such Reservoir for such well
shall be (a) 160 acres, in the event such oil and gas well is drilled
and completed as a gas well in such Reservoir, and (b) 40 acres, in
the event such oil and gas well is drilled and completed as an oil
well in such Reservoir.
1.2 ACCOUNTING TERMS. All accounting and financial terms used in any
of the Loan Documents and the compliance with each covenant contained in the
Loan Documents that relates to financial matters shall be determined in
accordance with GAAP, except to the extent that a deviation therefrom is
expressly stated in such Loan Documents.
15
1.3 NUMBER AND GENDER OF WORDS. Whenever the singular number is used
in any Loan Document, the same shall include the plural where appropriate,
and VICE VERSA; words of any gender in any Loan Document shall include each
other gender where appropriate; and the words "herein," "hereof," "hereunder"
and other words of similar import refer to the relevant Loan Document as a
whole and not to any particular part, section or subdivision thereof.
ARTICLE 2
TERMS OF FACILITY
2.1 ADVANCING COMMITMENT. (a) Contemporaneously with the execution and
delivery of this Agreement, but subject to the terms and conditions
(including, without limitation, the rights of the Lender to terminate the
Commitment hereunder upon an Event of Default or Unmatured Event of Default)
and relying on the representations and warranties contained in this Agreement
and the other Loan Documents, the Lender agrees to make an Advance to the
Borrower in the amount of $500,000.00 which will be used by the Borrower to
repay the Aspect Debt in full.
(b) Subject to the terms and conditions (including, without
limitation the right of the Lender to terminate the Commitment hereunder upon
an Event of Default or Unmatured Event of Default) and relying on the
representations and warranties contained in this Agreement and the other Loan
Documents, from time to time until the earlier of the date the Exchange
Transactions have closed and become effective or May 15, 1998, the Lender
agrees to make Advances to the Borrower following receipt by the Lender of a
Borrowing Request on or before 10:00 a.m. Mountain Standard or Daylight
Savings Time, as the case may be, five (5) Business Days prior to the date of
the requested Advance, in such amounts as the Borrower may request, provided,
however, that each Advance shall be in an amount not less than $100,000.00,
be an integral multiple of $10,000.00, no Advance shall be made which will
cause the sum of all Advances made pursuant to Subsections 2.1(a) and (b) to
exceed, either singularly or cumulatively, (i) $1,200,000.00 prior to the
execution and delivery of the 420 Energy Investments Consent or (ii)
$1,800,000.00 after the execution and delivery of the 420 Energy Investments
Consent, and the proceeds of any such Advance shall be used only to pay
Prospect Development Costs relating to the Borrower Prospects and/or only up
to $250,000.00 per calendar month of general and administrative expense of
the Borrower. The Borrower may transmit Borrowing Requests to the Lender by
mail, personal delivery, telefacsimile, telex or other method; but the Lender
shall not be obligated to make Advances on the requested date unless the
Lender has received, on or before 10:00 a.m. Mountain Standard or Daylight
Savings Time, as the case may be, the relevant Borrowing Request five (5)
Business Days prior to such requested date.
(c) Subject to the terms and conditions (including, without
limitation the right of the Lender to terminate the Commitment hereunder upon
an Event of Default or
16
Unmatured Event of Default) and relying on the representations and warranties
contained in this Agreement and the other Loan Documents, from time to time
until the earlier of the date the Exchange Transactions have closed and
become effective or May 15, 1998, the Lender agrees to make Advances to the
Borrower following receipt by the Lender of a Borrowing Request on or before
10:00 a.m. Mountain Standard or Daylight Savings Time, as the case may be,
five (5) Business Days prior to the date of the requested Advance, in such
amounts as the Borrower may request, provided, however, that each Advance
shall be in an amount not less than $100,000.00, be an integral multiple of
$10,000.00, no Advance shall be made which will cause the sum of all Advances
made pursuant to this Subsection 2.1(c) to exceed, either singularly or
cumulatively, $3,000,000.00, and the proceeds of any such Advance shall be
loaned by the Borrower to Esenjay pursuant to and governed by the Esenjay
Credit Agreement. The Borrower may transmit Borrowing Requests to the Lender
by mail, personal delivery, telefacsimile, telex or other method; but the
Lender shall not be obligated to make Advances on the requested date unless
the Lender has received, on or before 10:00 a.m. Mountain Standard or
Daylight Savings Time, as the case may be, the relevant Borrowing Request
five (5) Business Days prior to such requested date.
(d) Subject to the terms and conditions (including, without
limitation the right of the Lender to terminate the Commitment hereunder upon
an Event of Default or Unmatured Event of Default) and relying on the
representations and warranties contained in this Agreement and the other Loan
Documents, from time to time from the date the Exchange Transactions have
closed and become effective until July 30, 1998, the Lender agrees to make
Advances to the Borrower following receipt by the Lender of a Borrowing
Request on or before 10:00 a.m. Mountain Standard or Daylight Savings Time,
as the case may be, five (5) Business Days prior to the date of the requested
Advance, in such amounts as the Borrower may request, provided, however, that
each Advance shall be in an amount not less than $100,000.00, be an integral
multiple of $10,000.00, no Advance shall be made which will cause the sum of
all Advances made pursuant to this Section 2.1 to exceed, either singularly
or cumulatively, (i) $7,200,000.00 prior to the execution and delivery of the
420 Energy Investments Consent or (ii) $7,800,000.00 after the execution and
delivery of the 420 Energy Investments Consent, and the proceeds of all such
Advances shall be used by the Borrower to pay Prospect Development Costs
relating to the Prospects, repay the holders of the Preferred Shares in full
and/or only up to $250,000.00 per calendar month of general and
administrative expense of the Borrower. The Borrower may transmit Borrowing
Requests to the Lender by mail, personal delivery, telefacsimile, telex or
other method; but the Lender shall not be obligated to make Advances on the
requested date unless the Lender has received, on or before 10:00 a.m.
Mountain Standard or Daylight Savings Time, as the case may be, the relevant
Borrowing Request five (5) Business Days prior to such requested date.
17
The Advances made by the Lender to the Borrower pursuant to the
Commitment shall be made at the office of the Lender at 000 Xxxxxxxxxxx
Xxxxxx, Xxxxx 000, Xxxxxx, Xxxxxxxx, 00000 and shall be evidenced by the Note.
2.2 ADVANCES AND PAYMENTS UNDER THE NOTE. The Lender is authorized by
the Borrower to attach to and to make a part of the Note a ledger (and
continuations thereto, if necessary) reflecting the amount of all Advances
made by the Lender and each payment made by the Borrower. Each time such an
Advance is made against or payment (including a prepayment) is made on the
Note, the Lender is authorized but not required to make a notation on the
ledger forming a part thereof reflecting the amount advanced or paid and the
date thereof; provided, however, that the failure of the Lender to do so
shall not relieve the Borrower of its liability hereunder or under the Note.
The aggregate unpaid amount of such Advances reflected by the
notations by the Lender on its records or the ledger sheets affixed to the
Note shall be deemed rebuttably presumptive evidence of the principal amounts
owing on the Note. The liability for payment of principal and interest
evidenced by the Note shall be limited to principal amounts actually advanced
and outstanding pursuant to this Agreement and the other Loan Documents and
interest accrued on such amounts calculated in accordance with this Agreement.
2.3 REPAYMENT PROVISIONS. All outstanding principal Debt for all
Advances evidenced by the Note shall be repayable:
(a) in eleven (11) monthly installments each equal to one
thirtieth (1/30th) of the outstanding principal Debt evidenced by the
Note on July 31, 1998, the first of such installments commencing
August 31, 1998 and continuing thereafter on the last day of each
succeeding calendar month through and including June 30, 1999; and
(b) in an installment equal to all of the principal outstanding
Debt evidenced by the Note on July 31, 1999.
Interest as it accrues on principal amounts evidenced by the Note
and calculated as provided herein and in the Note shall be due and payable
monthly commencing on the last day of March, 1998, and continuing thereafter
on the last day of each succeeding calendar month while any amount remains
owing on the Note, the interest payment in each instance to be that which has
been earned and remains unpaid.
Notwithstanding anything to the contrary herein, immediately upon
receipt by the Borrower of any monies for the sale or transfer of any of its
Property after July 1, 1998, the Borrower shall repay the Debt evidenced by
the Note in an installment equal to the lesser
18
of (a) all Debt evidenced by the Note or (b) all such monies received by the
Borrower in connection with such sale or transfer, with such amount being
applied first to accrued and unpaid interest, the remainder to principal.
Notwithstanding anything to the contrary herein, within three (3)
Business Days of receipt by the Borrower of any monies raised in connection
with an underwritten public offering of any of its stock, the Borrower shall
repay the Debt evidenced by the Note in an installment equal to the lesser of
(a) all Debt evidenced by the Note or (b) all such monies received by the
Borrower on that day, with such amount being applied first to accrued and
unpaid interest, the remainder to principal.
All payments required pursuant to this Agreement or the Note shall
be made in immediately available funds; shall be deemed received by the
Lender on the next Business Day following receipt if such receipt is after
2:00 p.m. on any Business Day; and shall be made at the offices of the Lender
at 000 Xxxxxxxxxxx Xxxxxx, Xxxxx 000, Xxxxxx, Xxxxxxxx 00000, provided,
however, the Lender may, upon notice to the Borrower, designate a different
place of payment. With each payment of principal, interest or other amount
made to the Lender, the Borrower will on the same day notify the Lender Attn:
Xxxxxxx X. Xxxxxxx by facsimile (000) 000-0000 of the details of such payment.
Certain of the Security Documents contain an assignment unto and in
favor of the Lender of all oil, gas and other minerals produced and to be
produced from or attributable to the Mortgaged Properties together with all
of the revenues and proceeds attributable to such production, and such
Security Documents further provide that all such revenues and proceeds which
may be so collected by the Lender pursuant to such assignment shall be
applied to the payment of the Note and the satisfaction of all other Debt to
be secured by such Security Documents. The Lender and the Borrower expressly
acknowledge and agree that so long as no Event of Default shall have occurred
and be continuing, the Lender shall be entitled only to payment on the Note
as set forth above, and the Borrower, to the extent of its rights apart from
this Agreement, shall be entitled to receive all proceeds of production
directly from the relevant purchasers or parties accounting for proceeds from
the sale of production. In connection with the rights of the Lender to all
proceeds or production upon the occurrence and continuation of an Event of
Default, the Borrower hereby grants the Lender a power of attorney, which
power is coupled with an interest and is irrevocable, to complete in all
respects and deliver to the addressee the letter transfer orders executed in
connection with the Security Instruments upon the occurrence and continuance
of an Event of Default.
2.4 INTEREST RATES. Principal amounts outstanding under the Note shall
bear interest at the Facility Rate (but in no event greater than the Highest
Lawful Rate) per annum, calculated on the basis of a year consisting of a
three hundred sixty day (360) year and
19
twelve (12) 30-day months as provided by Article 5069-1H.003 Vernon's TEXAS
CIVIL STATUTES, as amended. Should default occur in the payment of the Note
and collection proceedings be instituted, all past due interest and principal
under the Note shall bear interest at the lesser of the Highest Lawful Rate
or the Default Rate per annum, calculated on the basis of a year consisting
of a three hundred sixty day (360) year and twelve (12) 30-day months as
provided by Article 5069-1H.003 Vernon's TEXAS CIVIL STATUTES, as amended and
if no Highest Lawful Rate exists, all past due interest and principal under
the Note shall bear interest at the Default Rate, calculated on the basis of
a year consisting of a three hundred sixty day (360) year and twelve (12)
30-day months as provided by Article 5069-1H.003 Vernon's TEXAS CIVIL
STATUTES, as amended.
2.5 PHANTOM OVERRIDES. (a) As consideration for the Commitment by the
Lender and in addition to interest accruing on principal evidenced by the
Note, the Borrower agrees to the following additional charges set forth in
this Section 2.5 and payable out of revenues of the Borrower.
(b) As such an additional charge, the Borrower will make a monthly
payment to the Lender equal to an amount of money that the Lender would have
received during the preceding calendar month if (i) the Lender owned a
Phantom Override in every Override Well, (ii) hydrocarbons attributable to
each such Phantom Override were sold at the same time, for the same price and
to the same purchaser of production that the hydrocarbons attributable to the
working interest which each such Phantom Override burdens were sold and (iii)
proceeds from the sale of hydrocarbons attributable to each such Phantom or
Override were received by the Lender from the respective purchasers of
production at the same time that the proceeds from the sale of hydrocarbons
attributable to the working interest which each such Phantom Override burdens
were received by the owner thereof (provided, however, the first payment
shall be equal to an amount of money the Lender would have received if
proceeds from the sale of production attributable to each such Phantom
Override from the date of first production for each Override Well were
received by the Lender during the preceding calendar month). Such monthly
payment shall commence the earlier of August 31, 1998 or the last day of the
first succeeding month after the Debt evidenced by the Note is repaid in full
and continue on the last day of such succeeding calendar month until the
Lender has been paid for all hydrocarbons produced through December 31, 2000
and attributable to the Phantom Override in each of the Override Xxxxx.
(c) As such an additional charge, the Borrower will make a payment
to the Lender on April 1, 2001 in an amount equal to the present worth,
discounted at a rate of ten percent (10%) per annum, of Phantom Override
Future Revenues attributable to the Phantom Override in all of the Override
Xxxxx as of January 1, 2001. The basis for such determination shall be the
reserve report dated effective January 1, 2001 submitted to the Lender by the
Borrower pursuant to Section 5.5.
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(d) Notwithstanding anything to the contrary in Subsections 2.5(b)
or (c), if the Borrower and/or Esenjay sells its interests in an Override
Well prior to January 1, 2001, as such an additional charge, the Borrower
will make a payment to the Lender within five (5) Business Days of the date
of any sale by the Borrower and/or Esenjay of its interests in such Override
Well in an amount equal to the present worth, discounted at a rate of ten
percent (10%) per annum, of Phantom Override Future Revenues attributable to
the Phantom Override in such Override Well as of the effective date of such
sale by the Borrower and/or Esenjay. The basis for such determination shall
be the most recent reserve report submitted to the Lender by the Borrower
pursuant to Section 5.5, adjusted for cumulative production since the
effective date of such reserve report. If either the Borrower or the Lender
in good faith determines that the most recent reserve report does not
accurately reflect the value of the Override Well sold, then the Borrower
shall obtain from the independent firm of petroleum engineers who prepared
the Borrower's most recent reserve report or another firm of independent
petroleum engineers acceptable to the Lender, an updated reserve report
effective through the effective date of such sale as to such Override Well.
When the Borrower pays the charge due the Lender pursuant to this Subsection
2.5(d) for an Override Well sold, the Borrower will no longer pay the charges
to the Lender due pursuant to Subsections 2.5(b) and (c) as they relate to
the Override Well sold.
2.6 GENERAL PROVISIONS RELATING TO INTEREST. It is the intention of
the parties hereto to comply strictly with the applicable usury Laws as in
effect from time to time; and in this connection, there shall never be taken,
reserved, contracted for, collected, charged or received on any Loan or any
other Obligation interest in excess of that which would accrue at the Highest
Lawful Rate. For purposes of Articles 5069-1D and 0000-0X, Xxxxxx'x XXXXX
CIVIL STATUTES, as amended, the Borrower agrees that the Highest Lawful Rate
shall be the "weekly rate ceiling" as defined in such article, provided that
the Lender may also rely, to the extent permitted by applicable Laws, on
alternative maximum rates of interest under such other applicable Laws, if
greater.
Notwithstanding anything herein or in the Note or the other Loan
Documents to the contrary, if during any Limitation Period the calculation of
interest at the rate otherwise due to the Lender would result in interest in
excess of that which would accrue at the Highest Lawful Rate, then during
such Limitation Period, the interest rate to be charged on the Obligations
shall be the Highest Lawful Rate, and the requirement of the Borrower for the
payment of other amounts, if any, constituting interest, shall be suspended
only to the extent that such fees are, when added to interest accruing on the
Note and other Obligations, if any, in excess of the Highest Lawful Rate.
During any period of time following a Limitation Period, to the extent
permitted by Laws applicable to the Lender, the interest rate to be charged
on the Obligations shall remain at the Highest Lawful Rate until such time as
there has been paid to the Lender: (a) the amount of interest in excess of
the amount
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accruing at the Highest Lawful Rate that the Lender would have received
during the Limitation Period if the otherwise applicable rate had been in
effect at all times and (b) all interest and fees otherwise payable to the
Lender hereunder as if the otherwise applicable rate had been in effect at
all times during such Limitation Period.
If under any circumstances the aggregate amount paid on the
Obligations includes amounts that are by Law deemed to be interest which
exceed the Highest Lawful Rate (the "EXCESS INTEREST"), the Borrower
stipulates that such payment and collection will have been and will be deemed
to have been, to the fullest extent permitted by applicable Laws, the result
of mathematical error on the part of the Borrower and the Lender, and the
Lender shall promptly credit the amount of such excess interest on the
principal amount of the outstanding Obligations, or if the principal amount
of the Obligations shall have been paid in full, refund the excess interest
to the Borrower. In the event that the maturity of the Note is accelerated
by reason of an election of the Lender resulting from any Event of Default or
by reason of operation of Subsection 7.3(a), or in the event of any
prepayment, then such consideration that constitutes interest under Laws
applicable to the Lender may never exceed the Highest Lawful Rate, and excess
interest, if any, provided for in the Note, this Agreement or otherwise shall
be cancelled automatically by the Lender as of the date of such acceleration
or prepayment and, if theretofore paid, shall be credited by the Lender on
the principal amount of the Obligations, or if the principal amount of the
Obligations shall have been paid in full, refunded by the Lender to the
Borrower.
All sums paid, or agreed to be paid, to the Lender for the use,
forbearance, and detention of the proceeds of the Loans shall, to the extent
permitted by applicable Law, be amortized, prorated, allocated, and spread
throughout the full term of the Obligations until paid in full so that the
actual rate of interest is uniform, but does not exceed the Highest Lawful
Rate, throughout the full term hereof.
2.7 LOANS TO SATISFY OBLIGATIONS. The Lender may, but shall not be
obligated to, make Loans and apply proceeds thereof to the satisfaction of
any warranty, representation, covenant or other Obligation of the Borrower
contained in this Agreement or the other Loan Documents and which are
necessary, in the good faith opinion of the Lender, to enforce its Rights,
protect or preserve the Collateral or the Liens thereon in favor of the
Lender and the priorities thereof, or avoid a Material Adverse Effect, and
contemporaneously with so doing, the Lender shall furnish the Borrower
written notice as to the amount and date of any such Loan. The Lender shall
not advance funds pursuant to this Section without notifying the Borrower of
the warranty, representation, covenant or other Obligation to be satisfied by
such proposed advance of funds and shall give the Borrower five (5) Business
Days from the date of such notice to satisfy such warranty, representation,
covenant or other Obligation. Any funds so advanced and applied shall be
evidenced by the Note, shall be payable on
22
demand and shall bear interest at the Default Rate from the time of the
making of such Loan until the time of repayment.
2.8 VOLUNTARY PREPAYMENT. The Borrower shall have the right and option
to prepay, at any time without premium or penalty, all or any part of the
balance outstanding on the Note. Any such prepayments of Debt evidenced by
the Note shall be applied first to the payment of accrued and unpaid interest
thereon and then to the reduction of principal.
ARTICLE 3
CONDITIONS PRECEDENT
3.1 CONDITIONS OF LENDER. The execution and delivery of this Agreement
by the Lender and the making of the Advance to or for the benefit of the
Borrower as set forth in Subsection 2.1(a) is subject to the fulfillment of
the following conditions precedent, with all documents to be delivered to the
Lender to be in form and substance satisfactory to the Lender:
(a) The Lender shall have received the following documents,
appropriately executed and acknowledged and in multiple counterparts
as requested by the Lender:
(1) This Agreement and the Note executed by the Borrower;
(2) Certificates of the appropriate Tribunals of the State
of Oklahoma, dated reasonably near the Closing Date, to the
effect that attached thereto are the articles of
incorporation of the Borrower and all amendments thereto,
and that it is duly incorporated and in good standing with
respect to the payment of all franchise or similar Taxes;
(3) A copy of the bylaws of the Borrower and all amendments
thereto, accompanied by a certificate issued by its
secretary or assistant secretary that such copies are
correct and complete;
(4) Certificates of the appropriate Tribunals of the States
where the Prospects are located, dated reasonably near the
Closing Date, to the effect that it is duly qualified to
transact business in such jurisdictions and is in good
standing with respect to the payment of franchise and
similar Taxes;
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(5) Certificate of incumbency and signatures of all
officers of the Borrower who will be authorized to execute
the Loan Documents on its behalf, executed by the president
or vice president and the secretary or an assistant
secretary;
(6) A copy of the corporate resolutions of the Borrower
approving the Loan Documents and authorizing the
transactions contemplated therein, duly adopted by its board
of directors and accompanied by a certificate of the
secretary or an assistant secretary that such copy is a true
and correct copy of resolutions duly adopted by written
consent or at a meeting of the board of directors, that such
resolutions constitute all the resolutions adopted with
respect to such transactions, and that such resolutions have
not been amended, modified or revoked in any respect, and
are in full force and effect as of the Closing Date;
(7) The following documents creating, evidencing and
perfecting Liens in favor of the Lender to secure the
Obligations:
(i) A Mortgage, Collateral Assignment,
Security Agreement and Financing Statement from
the Borrower in favor of the Lender covering the
Oil and Gas Properties described on Exhibit VIII
attached hereto;
(ii) A Financing Statement from the Borrower
covering accounts from the sale of oil and gas
produced from such Oil and Gas Properties
described on Exhibit VIII attached hereto and
equipment and other personal property associated
therewith;
(iii) undated letter transfer orders
directed to the party remitting to the Borrower
proceeds from the sale of production from such Oil
and Gas Properties described on Exhibit VIII
attached hereto and instructing that such proceeds
be remitted to the Lender for the account of the
Borrower;
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(iv) a Security Agreement and Collateral
Assignment of Note and Liens from the Borrower in
favor of the Lender covering the Debt of Esenjay
owed the Borrower governed by the Esenjay Credit
Agreement and collateral for such Debt;
(v) the promissory note evidencing the Debt
of Esenjay owed the Borrower and governed by the
Esenjay Credit Agreement properly endorsed to the
Lender; and
(vi) a financing statement from the Borrower
associated with (iv) above;
(8) Certificate of incumbency and signatures of all
officers of Esenjay who will be authorized to execute its
Guaranty and the Esenjay Subordination Agreement on its
behalf, executed by the president or vice president and the
secretary or an assistant secretary;
(9) A copy of the corporate resolutions of Esenjay
approving its Guaranty and the Esenjay Subordination
Agreement and authorizing the transactions contemplated
therein, duly adopted by its board of directors and
accompanied by a certificate of the secretary or an
assistant secretary that such copy is a true and correct
copy of resolutions duly adopted by written consent or at a
meeting of the board of directors, that such resolutions
constitute all the resolutions adopted with respect to such
transactions, and that such resolutions have not been
amended, modified or revoked in any respect, and are in full
force and effect as of the Closing Date;
(10) Certificate of incumbency and signatures of all
managers of Aspect who will be authorized to execute its
Guaranty and the Aspect Subordination Agreement on its
behalf, executed by a member of Aspect;
(11) A copy of the company resolutions of Aspect approving
its Guaranty and the Aspect Subordination Agreement and
authorizing the transactions contemplated therein, duly
adopted
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by its members and accompanied by a certificate of a member of
Aspect that such copy is a true and correct copy of resolutions
duly adopted by written consent or at a meeting of the members, that
such resolutions constitute all the resolutions adopted with respect
to such transactions, and that such resolutions have not been
amended, modified or revoked in any respect, and are in full force
and effect as of the Closing Date;
(12) Certificate of incumbency and signatures of all
managers of Xxxxxx Xxxxxxx Management Company LLC, the
general partner of Xxxxxx Xxxxxxx, who will be authorized to
execute the Guaranty of Xxxxxx Xxxxxxx on behalf of Xxxxxx
Xxxxxxx Management Company as general partner of Xxxxxx
Xxxxxxx, executed by a manager of Xxxxxx Xxxxxxx Management
Company LLC;
(13) A copy of the resolutions of Xxxxxx Xxxxxxx Management
Company LLC, the general partner of Xxxxxx Xxxxxxx approving
the Guaranty of Xxxxxx Xxxxxxx and authorizing the
transactions contemplated therein, duly adopted by the
managers of Xxxxxx Xxxxxxx Management Company LLC and
accompanied by a certificate of a manager that such copy is
a true and correct copy of resolutions duly adopted by the
managers, that such resolutions constitute all the
resolutions adopted with respect to such transactions, and
that such resolutions have not been amended, modified or
revoked in any respect, and are in full force and effect as
of the Closing Date;
(14) The Guaranties executed by the respective Guarantors;
(15) The Aspect Subordination Agreement executed by Aspect
and the Borrower;
(16) The Esenjay Subordination Agreement executed by Esenjay
and the Borrower;
(17) The Exchange Agreement shall not have been amended or
modified;
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(18) The opinion of legal counsel to the Borrower, which
opinion shall be accompanied by such supporting
documentation as the Lender or its legal counsel may
reasonably require; and
(19) Such other agreements, documents, instruments,
opinions, certificates, waivers, consents, and evidence as
the Lender may reasonably request in compliance with or to
accomplish the terms and provisions of any of the Loan
Documents;
(b) The representations and warranties contained in Article 4
shall be true and correct in all material respects on the date of
execution of this Agreement;
(c) No Event of Default or Unmatured Event of Default shall have
occurred and be continuing;
(d) The Lender shall have approved in all respects, at its
discretion, the Mortgaged Properties existing as of the date of this
Agreement, including, without limitation, title to and the
environmental status of such Mortgaged Properties;
(e) All of the conditions set forth in Section 3.1 of the
Esenjay Credit Agreement shall have occurred to the satisfaction of
the Lender, at its discretion;
(f) Each of the Borrower, Esenjay and Aspect shall have executed
and delivered the letter agreement with Duke Energy Field Services,
Inc. relating to the gathering, processing, marketing and transporting
of hydrocarbons for certain of the Prospects, a copy of which is
attached hereto as Exhibit IX;
(g) The Aspect Prospects and the Esenjay Prospects are free and
clear of all sales contracts, preferential purchase rights, rights of
first refusal, rights to match or any other restrictions upon any
Right of Aspect or Esenjay, as the case may be, to gather, process,
market and transport hydrocarbons produced therefrom, except as set
forth on Exhibit X attached hereto; and
(h) All legal matters incident to the execution of this
Agreement shall be satisfactory to the firm of Xxxxxxxxx & Xxxxxx,
L.L.P., special counsel for the Lender.
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3.2 FURTHER CONDITIONS TO EACH ADVANCE PURSUANT TO SUBSECTION 2.1(b).
The obligation of the Lender to make any Advance pursuant to Subsection
2.1(b) is subject to the fulfillment of the following further conditions
precedent:
(a) The representations and warranties contained in Article 4
shall be true and correct in all material respects as of the date of
Advance;
(b) No Event of Default or Unmatured Event of Default shall have
occurred and be continuing or will have occurred at the completion of
making the Advance;
(c) No Material Adverse Effect shall have occurred since the
Closing Date;
(d) The Lender shall have received a Borrowing Request;
(e) The Lender shall have received with the Borrowing Request a
list in reasonable detail of the Prospect Development Costs to be paid
with the proceeds of such Advance and be accompanied by evidence of
such Prospect Development Costs, as is requested by the Lender; and
(f) All legal matters incident to the consummation of such Loan
shall be satisfactory to the then special counsel for the Lender.
3.3 FURTHER CONDITIONS TO EACH ADVANCE PURSUANT TO SUBSECTION 2.1(c).
The obligation of the Lender to make any Advance pursuant to Subsection
2.1(c) is subject to the fulfillment of the following further conditions
precedent:
(a) The representations and warranties contained in Article 4
shall be true and correct in all material respects as of the date of
Advance;
(b) No Event of Default or Unmatured Event of Default shall have
occurred and be continuing or will have occurred at the completion of
making the Advance;
(c) No Material Adverse Effect shall have occurred since the
Closing Date;
(d) The Lender shall have received a Borrowing Request;
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(e) All of the conditions set forth in Section 3.2 of the
Esenjay Credit Agreement shall have occurred to the satisfaction of
the Lender, at its discretion;
(f) The Lender shall have received with the Borrowing Request
copies of all documentation delivered to the Borrower by Esenjay
pursuant to Section 3.2 of the Esenjay Credit Agreement; and
(g) All legal matters incident to the consummation of such Loan
shall be satisfactory to the then special counsel for the Lender.
3.4 FURTHER CONDITIONS TO EACH ADVANCE PURSUANT TO SUBSECTION 2.1(d).
The obligation of the Lender to make any Advance pursuant to Subsection
2.1(d) is subject to the fulfillment of the following further conditions
precedent:
(a) The Exchange Transactions shall have closed and become
effective by May 15, 1998;
(b) The Aspect Prospects and the Esenjay Prospects shall have
been conveyed to the Borrower free and clear of all Liens, except
Permitted Liens, and free and clear of all sales contracts,
preferential purchase rights, rights of first refusal, rights to match
or any other restrictions upon any Right of the Borrower to gather,
process, market and transport hydrocarbons produced therefrom, except
as set forth on Exhibit X attached hereto;
(c) Aspect shall execute and deliver to the Lender an amendment
in form and substance satisfactory to the Lender increasing the
limitation of its Guaranty to $2,175,000.00 and Esenjay shall execute
and deliver to the Lender an amendment in form and substance
satisfactory to the Lender increasing the limitation of its Guaranty
to $1,950,000.00;
(d) The representations and warranties contained in Article 4
shall be true and correct in all material respects as of the date of
Advance;
(e) No Event of Default or Unmatured Event of Default shall have
occurred and be continuing or will have occurred at the completion of
making the Advance;
(f) No Material Adverse Effect shall have occurred since the
Closing Date;
29
(g) The Lender shall have received a Borrowing Request;
30
(h) The Lender shall have received with the Borrowing Request a
list in reasonable detail of the Prospect Development Costs to be paid
with the proceeds of such Advance and be accompanied by evidence of
such Prospect Development Costs, as is requested by the Lender; and
(i) All legal matters incident to the consummation of such Loan
shall be satisfactory to the then special counsel for the Lender.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement and to make the
Loans hereunder, the Borrower represents and warrants to the Lender (which
representations and warranties shall survive the delivery of the Note and the
making of the Loans) that:
4.1 EXISTENCE AND GOOD STANDING. The Borrower is a corporation, duly
organized, legally existing and in good standing under the Laws of the State
of Oklahoma and is duly qualified and in good standing as a foreign
corporation in all jurisdictions where any Prospect is located.
4.2 DUE AUTHORIZATION. The execution and delivery by the Borrower of
this Agreement and the borrowings hereunder, the execution and delivery by
the Borrower of the Note and the other Loan Documents, the repayment of the
Loans and interest and fees provided in the Note and this Agreement and the
performance of all Obligations of the Borrower under this Agreement and the
other Loan Documents, are within the corporate power of the Borrower, have
been duly authorized by all necessary corporate action on behalf of the
Borrower and do not (a) require the consent of any Tribunal or other Person
which has not been obtained, (b) contravene or conflict with any provision of
applicable Law or the charter or bylaws of the Borrower, (c) contravene,
conflict with or result in a default under any indenture, instrument,
contract or other agreement to which the Borrower is a party or by which its
Properties may be presently bound or encumbered, or (d) result in or require
the creation or imposition of any Lien upon any of the Property of the
Borrower, other than Permitted Liens.
4.3 VALID AND BINDING OBLIGATIONS. This Agreement and the other Loan
Documents constitute valid and binding obligations of the Borrower,
enforceable in accordance with their respective terms, except as limited by
Debtor Relief Laws.
4.4 SCOPE AND ACCURACY OF FINANCIAL STATEMENTS. The Financial
Statements of the Borrower as of October 31, 1997, including any schedules
and notes pertaining thereto, which have been delivered to the Lender have
been prepared in accordance with GAAP and
31
fairly and accurately present the financial condition and the results of the
operations thereof in all material respects, as of the dates and for the
periods stated therein.
4.5 LIABILITIES AND LITIGATION. Except for (a) liabilities shown in
the Financial Statements of the Borrower as of October 31, 1997 and furnished
to the Lenders, (b) the Aspect Debt (which shall be repaid in full
contemporaneously with the execution and delivery of this Agreement) and (c)
liabilities incurred in the ordinary course of business since the date of
such Financial Statements, the Borrower does not have any material
liabilities of any nature, direct or contingent; and the Borrower is not in
default with respect to any such material liabilities or any material
agreements by which it is bound.
There is no judgment against the Borrower, nor, except as set forth
on Exhibit XI attached hereto, is there any Litigation or other action of any
nature pending before any Tribunal or, to the knowledge of the Borrower,
threatened against or affecting the Borrower or its Property.
4.6 TITLE TO ASSETS. The Borrower has indefeasible title to all of its
Property, free and clear of all Liens, except for Permitted Liens. All of
the Borrower Prospects are free and clear of all sales contracts,
preferential purchase rights, rights of first refusal, rights to market or
any other restrictions upon any Right of Borrower to gather, process, market
or transport hydrocarbons produced therefrom, except as set forth on Exhibit
X attached hereto.
4.7 AUTHORIZATIONS AND CONSENTS. Except for that obtained from Bank of
America Illinois and except for the consent of 420 Energy Investments, Inc.
which has not been obtained, no authorization, consent, approval, exemption,
franchise, permit or license of, or filing (except for filings required to
perfect and maintain perfection of the Liens created by the Security
Documents) with, any Tribunal or any third Person is required to authorize,
or is otherwise required in connection with, the valid execution, delivery
and performance by the Borrower of this Agreement, the other Loan Documents
or any other agreement contemplated hereby or the repayment by the Borrower
of the Obligations.
4.8 COMPLIANCE WITH LAWS. Neither the business nor any of the
activities of the Borrower as presently conducted violates any applicable
Law, the result of which violation would have a Material Adverse Effect. The
Borrower possesses all licenses, approvals, registrations, permits and other
authorizations necessary to enable it to carry on its businesses in all
material respects as now conducted. All such licenses, approvals,
registrations, permits and other authorizations are in full force and effect.
Furthermore, the Borrower does not have any reason to believe that it will
be unable to obtain the renewal of any such licenses, approvals,
registrations, permits and other authorizations in due course.
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4.9 PROPER FILING OF TAX RETURNS AND PAYMENT OF TAXES DUE. The
Borrower has duly and properly filed all Tax returns which are required to be
filed and has paid all Taxes due pursuant to such returns or pursuant to any
assessment received, except such Taxes, if any, as are being Contested in
Good Faith. The charges and reserves on the Borrower's books with respect to
any Taxes are adequate, and the Borrower does not owe any deficiency or
additional assessment in a material amount in connection with Taxes.
4.10 ERISA COMPLIANCE. The Borrower does not currently contribute to,
or has any obligation to contribute to, and has not at any time contributed
to, or had an obligation to contribute to, any Multi-employer Plan. The
Borrower will not, during the term of this Agreement, assume an obligation,
or acquire any entity or the assets of any entity which has at any time had
an obligation, to contribute to any Multi-employer Plan. Since the effective
date of ERISA, no Reportable Event or Prohibited Transaction has occurred
with respect to any Plan of the Borrower. Each Plan established or
maintained by the Borrower meets the minimum funding standards of Section 302
of ERISA and otherwise is in compliance with all applicable provisions of
ERISA. The Borrower has filed all reports required by ERISA and required to
be filed with respect to each Plan. The Borrower does not have any knowledge
of any event that could result in any material liability of the Borrower to
the PBGC. The Borrower has met all requirements with respect to funding the
Plans imposed by ERISA or the PBGC. Since the effective date of Title IV of
ERISA, there have not been any nor are there now existing any events or
conditions that would permit any Plan to be terminated under circumstances
that would cause the lien provided under Section 4068 of ERISA to attach to
the assets of the Borrower. The value of the Plans' benefits guaranteed under
Title IV of ERISA on the date hereof does not exceed the value of such Plans'
assets allocable to such benefits as of the date of this Agreement and shall
not be permitted to do so hereafter.
4.11 INVESTMENT COMPANY ACT COMPLIANCE. The Borrower is not an
"investment company" or directly or indirectly controlled by or acting on
behalf of any Person which is an "investment company" within the meaning of
the Investment Company Act of 1940, as amended.
4.12 PUBLIC UTILITY HOLDING COMPANY ACT COMPLIANCE. The Borrower is not
subject to the provisions of the Public Utility Holding Company Act of 1935,
as amended.
4.13 LIEN PRIORITY. The Liens created in favor of the Lender under the
Security Documents constitute and shall remain first priority Liens to secure
the Obligations, subject only to Permitted Liens.
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4.14 USE OF PROCEEDS. All proceeds of Advances made pursuant to this
Agreement shall be used generally as set forth in Section 2.1 of this
Agreement and specifically as represented by the Borrower in each Borrowing
Request.
4.15 FULL DISCLOSURE. All of the Loan Documents and all written
statements furnished by the Borrower, Esenjay and/or Aspect in connection
with the consummation of the transactions contemplated by this Agreement,
when taken together, do not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements contained
herein or therein not misleading as of the date made or deemed made.
4.16 PLACES OF BUSINESS. The chief executive office and principal place
of business of the Borrower is 000 Xxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxx 00000.
All records of the Borrower are maintained at such offices. After the
Exchange Transactions close and become effective the Borrower intends to move
its chief executive office and principal place of business to 000 X. Xxxxx
Xxxxxx, Xxxxx 0000, Xxxxxx Xxxxxxx, Xxxxx 00000.
4.17 SUBSIDIARIES. The Borrower owns all of the issued and outstanding
capital stock of Frontier Acquisition Corporation, an Oklahoma corporation,
Frontier, Inc., an Oklahoma corporation, and Frontier Exploration &
Production Corporation, an Oklahoma corporation. Frontier Acquisition
Corporation owns all of the issued and outstanding capital stock of Petroleum
Acquisition Corporation, a Delaware corporation. The Borrower has no other
Subsidiaries.
ARTICLE 5
AFFIRMATIVE COVENANTS
So long as any Debt evidenced by the Note remains unpaid or the
Lender remains obligated to make Advances, and in absence of written consent
of the Lender to the contrary:
5.1 MAINTENANCE AND ACCESS TO RECORDS. The Borrower will keep adequate
records, in accordance with GAAP or other established industry practices, of
all of its transactions so that at any time, and from time to time, its true
and complete financial condition may be readily determined and, at the
Lender's reasonable request, make all such records available for the Lender's
inspection and permit the Lender to make and take away copies thereof.
5.2 QUARTERLY FINANCIAL STATEMENTS. The Borrower will deliver to the
Lender, as soon as available but in no event later than sixty (60) days after
the end of each of the first three fiscal quarters of the Borrower, the
unaudited Financial Statements of the Borrower and all of its Subsidiaries
reflecting the financial condition and results of operations of the
34
Borrower and all of its Subsidiaries on a consolidated and consolidating
basis as at the end of such period and from the beginning of such fiscal year
to the end of such period, as applicable. Such Financial Statements shall be
certified by the chief financial officer of the Borrower as having been
prepared in accordance with GAAP and presenting the financial condition and
the results of the operations of the Borrower and all of its Subsidiaries on
a consolidated and consolidating basis subject to changes resulting from
year-end audit adjustments.
5.3 ANNUAL FINANCIAL STATEMENTS. The Borrower will deliver to the
Lender, as soon as available but in no event later than ninety (90) days
after the close of each fiscal year of the Borrower, annual audited Financial
Statements of the Borrower and all of its Subsidiaries reflecting the
financial condition of the Borrower and all of its Subsidiaries on a
consolidated and consolidating basis, together with a report and opinion on
such Financial Statements issued by a nationally recognized firm of
independent certified public accountants or another firm of independent
certified public accountants satisfactory to the Lender.
5.4 COMPLIANCE CERTIFICATES. The Borrower will deliver to the Lender
with each Financial Statement delivered pursuant to Sections 5.2 or 5.3 a
duly executed Compliance Certificate.
5.5 RESERVE REPORT. The Borrower will deliver to the Lender promptly
after March 1, 1998, and in any event prior to April 1, 1998, two reports, in
form and substance satisfactory to the Lender, one prepared by Xxxxxxx
Engineering Co. and the other prepared by Netherland, Xxxxxx & Associates,
Inc., which reports shall set forth as of January 1, 1998, projections of
future net income from hydrocarbons classified as "proved producing", "proved
shut-in", "proved behind pipe" and "proved undeveloped" attributable to all of
the Oil and Gas Properties of the Borrower as of January 1, 1998 and (b) such
other information concerning such Oil and Gas Properties of the Borrower as
the Lender may reasonably request, including, without limitation,
engineering, geological and performance data.
The Borrower will deliver to the Lender promptly after March 1 of
each year, commencing March 1, 1999, and in any event prior to April 1, 1998
of each such year, (a) a report, in form and substance satisfactory to the
Lender, prepared by a nationally recognized firm of independent petroleum
engineers, which report shall set forth, as of January 1 of the appropriate
year, projections of future net income from hydrocarbons classified as
"proved producing", "proved shut-in", "proved behind pipe" and "proved
undeveloped" attributable to all of the Oil and Gas Properties of the
Borrower and (b) such other information concerning the Oil and Gas Properties
of the Borrower as the Lender may reasonably request, including, without
limitation, engineering, geological and performance data.
35
The Borrower will deliver to the Lender promptly after receipt
thereof, any other reserve report prepared for or on behalf of the Borrower
by an independent firm of independent petroleum engineers, setting forth
projections of future net income from hydrocarbons classified as "proved
producing", "proved shut-in", "proved behind pipe" and "proved undeveloped"
attributable to any of the Oil and Gas Properties of the Borrower.
5.6 PROSPECT REPORT. Commencing March 1, 1998, the Borrower will
deliver to the Lender promptly and in any event within ten (10) days after
the end of each calendar month, with respect to each of the Borrower
Prospects and, if the Exchange Transactions close and become effective, with
respect to each of the Prospects a report, in form and substance satisfactory
to the Lender, prepared by the Borrower and setting forth the activities of
the Borrower with respect to the seismic programs, seismic interpretation,
land acquisition and exploration and development for each of such Prospects
during the previous month. Such report shall be certified by the president
of the Borrower as being true and correct in all material respects.
5.7 QUARTERLY MEETINGS. Commencing April 14, 1998, the Borrower will
meet with the Lender on the second Tuesday of each calendar quarter (or such
other date as is mutually agreeable) at a time and place mutually agreeable
to review with respect to each of the Borrower Prospects and, if the Exchange
Transactions close and become effective, with respect to each of the
Prospects (a) the activities of the Borrower, costs and timing of seismic
programs, seismic interpretation, land acquisition and exploration and
development which has occurred since the last meeting, (b) the plans of the
Borrower, including, without limitation, a projected budget, for the next
fiscal quarter for seismic programs, seismic interpretation, land acquisition
and exploration and development and (c) such other matters at the Lenders
request.
5.8 PROSPECT INFORMATION. The Borrower will provide access to the
Lender, promptly upon the Lender's written request from time to time to such
information relating to any of the Borrower Prospects and, if the Exchange
Transactions close and become effective, any of the Prospects, including,
without limitation, (a) all seismic options, seismic permits, options to
acquire Oil and Gas Properties, Oil and Gas Properties and all other
contracts relating to such Prospects, (b) detailed maps of such Prospects,
(c) title materials relating to such Prospects, (d) seismic data and
interpretations relating to such Prospects and (e) AFEs, drilling reports,
logs, side wall cores, well tests, formation tests or completion reports
relating to any oil and gas xxxxx located on such Prospects. Promptly upon
the Lender's written request, the Borrower will furnish copies of any such
information to the extent that it is reasonable do so.
36
5.9 SALES AND PRODUCTION REPORTS. The Borrower will deliver to the
Lender, as soon as available and in any event within sixty (60) days after
the end of each calendar month, a report summarizing, as requested by the
Lender, (a) the gross volume of sales and actual production during such month
from all of the Oil and Gas Properties of the Borrower and current prices
being received for such production, (b) the related severance, gross
production, occupation, excise, sales, recording, ad valorem, gathering and
other similar taxes, if any, deducted from gross proceeds during such month
and (c) leasehold operating expenses and drilling expenditures attributable
thereto and incurred during such month.
5.10 PAYMENT STATEMENTS. The Borrower will deliver to the Lender with
the payment of each charge set forth in Section 2.5 a Payment Statement.
5.11 ADDITIONAL LIENS. Within five (5) Business Days of the written
request of the Lender, the Borrower will execute and deliver documentation,
in form and substance acceptable to the Lender at its reasonable discretion,
granting a Lien in favor of the Lender against any Oil and Gas Interests,
other Property or Rights owned by the Borrower in or relating to any Prospect
to secure repayment of the Debt evidenced by the Note.
5.12 STATEMENT OF MATERIAL ADVERSE EFFECT. The Borrower will deliver to
the Lender, promptly upon any officer of the Borrower having knowledge of any
Event of Default or event or condition (except for events or conditions as to
the economy of the United States as a whole or the oil and gas industry as a
whole) causing or likely to cause a Material Adverse Effect, a statement of
the president of the Borrower, setting forth the Event of Default or event or
condition causing or likely to cause a Material Adverse Effect and the steps
being taken with respect thereto.
5.13 TITLE DEFECTS. Other than Permitted Liens, the Borrower will clear
any title defects to the Oil and Gas Properties of the Borrower material in
value, in the sole reasonable opinion of the Lender, and, in the event any
such title defects are not cured in a timely manner, pay all related costs
and fees incurred by the Lender to do so.
5.14 ADDITIONAL INFORMATION. The Borrower will furnish to the Lender,
promptly upon the Lender's request from time to time, such additional
financial or other information concerning the assets, liabilities, operations
and transactions of the Borrower, as the Lender may reasonably request.
5.15 COMPLIANCE WITH LAWS AND PAYMENT OF TAXES. The Borrower will
comply in all material respects with all Laws and pay all Taxes, claims for
labor, supplies, rent and other obligations which, if unpaid, might become a
Lien against any of the its Oil and Gas Properties, except any of the
foregoing being Contested in Good Faith.
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5.16 MAINTENANCE OF EXISTENCE AND GOOD STANDING. The Borrower will
maintain its corporate existence or qualification and good standing in its
jurisdiction of incorporation and in all jurisdictions where a Prospect is
located.
5.17 FURTHER ASSURANCES. The Borrower will promptly cure any defects,
errors or omissions in the execution and delivery of the Loan Documents and,
upon notice, take such other action and immediately execute and deliver to
the Lender all such other and further instruments as may be reasonably
required or desired by the Lender from time to time in compliance with the
covenants and agreements made in this Agreement and the other Loan Documents,
including, without limitation, taking such action as may be required to cure
or correct any defects in title to any Oil and Gas Property (other than such
defects in title which are Permitted Liens) and to create, perfect and
maintain Liens on the Collateral and all other Property intended as security
for the Obligations.
5.18 INITIAL EXPENSES OF THE LENDER. The Borrower will pay (a) all
third party fees and expenses of the Lender up to $30,000.00 and (b) one-half
of all third party fees and expenses of the Lender in excess of $30,000.00
and up to $50,000.00 incurred in connection with the preparation and
negotiation of the Loan Documents, the satisfaction of the conditions
precedent set forth in Article 3 and the consummation for the transactions
contemplated herein, including attorneys' fees.
5.19 SUBSEQUENT EXPENSES OF THE LENDER. Upon request, the Borrower will
promptly reimburse the Lender for all amounts reasonably expended, advanced
or incurred by the Lender in connection with the preparation of any
assignments of, renewals of and amendments to any of the Loan Documents.
Upon request, the Borrower will promptly reimburse the Lender for all amounts
reasonably expended, advanced or incurred by the Lender to collect the Note
or to enforce the Rights of the Lender under this Agreement or any of the
other Loan Documents, all of which amounts shall be deemed compensatory in
nature and liquidated as to amount upon notice to the Borrower by the Lender
and which amounts will include, but not be limited to, (i) all court costs,
(ii) attorneys' fees, (iii) fees of auditors and accountants, (iv)
investigation expenses, (v) fees and expenses incurred in connection with the
Lender's participation as a member of the creditors' committee in a case
commenced under any Debtor Relief Laws, (vi) fees and expenses incurred in
connection with lifting the automatic stay prescribed in 11 U.S.C. Section
362, and (vii) fees and expenses incurred in connection with any action
pursuant to 11 U.S.C. Section 1129 incurred by the Lender in connection with
the collection of any sums due under this Agreement or the other Loan
Documents, together with interest at the Default Rate, calculated on a per
diem basis of a year of 365 days, on each such amount from the date of
notification to the Borrower that the same was expended, advanced or incurred
by the Lender until the date it is repaid to the Lender, with the Obligations
under this Section surviving the non-assumption of this Agreement in a case
commenced under any Debtor Relief Laws and being binding upon the
38
Borrower, any guarantor or a trustee, receiver or liquidator of any such
party appointed in any such case.
5.20 MAINTENANCE OF TANGIBLE PROPERTY. The Borrower will maintain, or
to the extent that the right of operating is vested in others, will exercise
its best efforts to require the operator to maintain, all of the its
producing Oil and Gas Properties in good repair and working order and make
all necessary replacements thereof and operate such Property in a good and
workmanlike manner, unless the failure to do so would not have a Material
Adverse Effect.
5.21 MAINTENANCE OF INSURANCE. The Borrower will maintain insurance
with respect to its Oil and Gas Properties and business against such
liabilities, casualties, risks and contingencies and in such amounts as are
customarily maintained in the industry, and furnish to the Lender, on the
Closing Date and annually thereafter, certificates evidencing such insurance.
5.22 RIGHT OF INSPECTION. The Borrower will permit any authorized
representative of the Lender at its sole risk and expense to visit and
inspect any Collateral and any other Property of the Borrower at such
reasonable times and as often as the Lender may request.
5.23 COMPLIANCE WITH ERISA. The Borrower will furnish to the Lender (a)
promptly after the filing thereof with the United States Secretary of Labor
or the PBGC, copies of each annual and other report with respect to each Plan
or any trust created thereunder and (b) immediately upon becoming aware of
the occurrence of any Reportable Event or Prohibited Transaction in
connection with any Plan or any trust created thereunder, a written notice
specifying the nature thereof, what action is being taken or proposed to be
taken with respect thereto, and, when known, any action taken by the Internal
Revenue Service or any other Tribunal with respect thereto. The Borrower
will fund all current service pension liabilities as they are incurred under
the provisions of all Plans from time to time in effect and timely file all
reports required by ERISA and required to be filed with respect to each Plan.
5.24 NOTICE. The Borrower will immediately notify the Lender of (a) the
receipt of any notice from, or the taking of any action by, the holder of any
promissory note or other evidence of Debt of the Borrower with respect to a
claimed default, together with a statement specifying the notice given or
other action taken by such holder and what action the Borrower is taking or
proposes to take with respect thereto; (b) any legal, judicial or regulatory
proceedings affecting the Borrower in which the amount involved is material
and is not covered by insurance or that would, if adversely determined, have
a Material Adverse Effect; (c) any dispute between the Borrower and any
Tribunal or any Person that would, if adversely determined, have a Material
Adverse Effect; (d) information that in any way relates
39
to or affects the filing of any financing statement or other security
instrument for the purpose of perfecting or continuing a Lien on the
Collateral; (e) any event that materially and adversely affects the
Collateral or the Rights of the Lender with respect to such Collateral; (f)
the occurrence of any Event of Default; and (g) any event or condition
(except for events or conditions to the economy of the United States as a
whole or the oil and gas industry as a whole) which could reasonably be
expected to cause a Material Adverse Effect.
5.25 HAZARDOUS SUBSTANCES INDEMNIFICATION. The Borrower indemnifies and
holds the Lender, its officers, employees, agents, shareholders and
Affiliates (each an "INDEMNIFIED PERSON") harmless from and against any and
all claims, losses, damages, liabilities, fines, penalties, charges,
administrative and judicial proceedings and orders, judgments, remedial
actions, requirements and enforcement actions of any kind, and all costs and
expenses incurred in connection therewith (including, without limitation,
attorneys' fees and expenses), arising directly or indirectly, in whole or in
part, from (a) the presence of any Hazardous Substances on, under or from its
Oil and Gas Properties, whether prior to or during the term hereof, (b) any
activity carried on or undertaken on or off its Oil and Gas Properties,
whether prior to or during the term hereof, and whether by the Borrower or
any predecessor in title or any employees, agents, contractors or
subcontractors of the Borrower or any predecessor in title, or any third
persons at any time occupying or present on its Oil and Gas Properties in
connection with the handling, treatment, removal, storage, decontamination,
cleanup, transport or disposal of any Hazardous Substances at any time
located or present on or under its Oil and Gas Properties, or (c) any
residual contamination on or under its Oil and Gas Properties or affecting
any natural resources in, on or under its Oil and Gas Properties, or any
contamination of any of the property or natural resources arising in
connection with the generation, use, handling, storage, transport or disposal
of any Hazardous Substance by the Borrower or any employee, agent, contractor
or subcontractor of the Borrower irrespective of whether any of such
activities were or will be undertaken in accordance with applicable laws,
regulations, codes and ordinances. WITHOUT LIMITING ANY PROVISION OF THIS
AGREEMENT OR ANY OF THE OTHER TRANSACTION DOCUMENTS, IT IS THE EXPRESS
INTENTION OF THE PARTIES THAT EACH INDEMNIFIED PERSON SHALL BE INDEMNIFIED
AND HELD HARMLESS AGAINST ANY AND ALL LOSSES, LIABILITIES, CLAIMS,
DEFICIENCIES, JUDGMENTS AND REASONABLE EXPENSES ARISING OUT OF OR RESULTING
FROM THE ORDINARY NEGLIGENCE (WHETHER SOLE OR CONTRIBUTORY) OR STRICT
LIABILITY OF SUCH INDEMNIFIED PERSON. Notwithstanding anything to the
contrary in this Agreement, such indemnity shall survive repayment of the
Debt evidenced by the Note.
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ARTICLE 6
NEGATIVE COVENANTS
So long as any Debt evidenced by the Note remains unpaid or the
Lender remains obligated to make Advances, and in the absence of written
consent of the Lender to the contrary:
6.1 OTHER DEBT OF BORROWER. The Borrower will not incur, create,
assume or suffer to exist any Debt aggregating in excess of $50,000.00
except: (a) Loans hereunder, (b) unsecured current accounts payable incurred
in the ordinary course of business, provided such accounts are paid within
sixty (60) days of the invoice date or are being Contested in Good Faith, or
paid pursuant to other terms agreed to between the Borrower and the account
creditor, (c) the Bank of America Debt (provided, however, the principal
amount of the Bank of America Debt shall not increase above the principal
amount outstanding as of the date of this Agreement) and (d) the 420 Energy
Investments Debt (provided, however, the principal amount of the 420 Energy
Investments Debt shall not increase above the principal amount outstanding as
of the date of this Agreement).
6.2 GUARANTY OF PAYMENT OR PERFORMANCE. The Borrower will not
guarantee any contract or otherwise be or become liable in connection with
any obligation of any Person, except that the foregoing restriction shall not
apply to endorsements of instruments for collection in the ordinary course of
business.
6.3 LOANS, ADVANCES OR INVESTMENTS. The Borrower will not make or
agree to make or allow to remain outstanding any Investment, including,
without limitation, any loans or advances or the purchase (for cash or
securities) of all or a substantial part of the Property or capital stock of
any Person, except (a) advances or extensions of credit in the form of
accounts receivable incurred in the ordinary course of business and upon
terms common in the industry for such accounts receivable, (b) Liquid
Investments, or (c) the Exchange Transactions.
6.4 MORTGAGES OR PLEDGES OF ASSETS. The Borrower will not create,
incur, assume or permit to exist any Lien on any of its Property (now owned
or hereafter acquired), except Permitted Liens.
6.5 CANCELLATION OF INSURANCE. The Borrower will not allow any
insurance policy required to be carried hereunder to be terminated or lapse
or expire without provision for adequate renewal or replacement thereof.
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6.6 SALES OF PROPERTY. The Borrower will not sell, transfer or
otherwise dispose of, in one or any series of transactions, any of its
Property if such sale, transfer or disposition (a) transfers or disposes of
greater than an undivided ten percent (10%) of the undivided interest of the
Borrower in the Property, the undivided interest of Aspect in the Aspect
Prospects or the undivided interest of Esenjay in the Esenjay Prospects as of
the date of this Agreement, (b) exceeds $250,000.00 per transaction or (c)
exceeds $1,000,000.00 in the aggregate for any twelve month period. Nothing
in this Section shall be construed that the Lender is obligated to release
its Liens on any of Property sold.
6.7 SALE AND LEASEBACK. The Borrower will not enter into any
arrangement with any Person providing for the leasing by the Borrower of
Property which has been or is to be sold or transferred by the Borrower to
such Person or to any other Person to whom funds have been or are to be
advanced by such Person on the security of such Property or rental
obligations of the Borrower.
6.8 DIVIDENDS AND DISTRIBUTIONS. Other than the redemption of the
Preferred Shares in full contemporaneously with the closing of the Exchange
Transactions, the Borrower will not declare, pay or make, whether in cash or
other Property, any dividend or distribution on, or purchase, redeem or
otherwise acquire for value, any share of any class of its capital stock.
6.9 CHANGES IN CORPORATE STRUCTURE. Other than pursuant to the
consummation of the transactions contemplated by the Exchange Agreement or
pursuant to an underwritten public offering, the Borrower will not issue or
agree to issue additional shares of capital stock; enter into any transaction
of consolidation, merger or amalgamation; liquidate, wind up or dissolve (or
suffer any liquidation or dissolution); or convey, sell, lease, assign,
transfer or otherwise dispose of all or substantially all of its Property or
business.
6.10 PAYMENT OF ACCOUNTS PAYABLE. The Borrower will not allow any
account payable to be in excess of sixty (60) days past due, except such as
are being Contested in Good Faith.
6.11 TRANSACTIONS WITH AFFILIATES. The Borrower will not directly or
indirectly, enter into any transaction (including the sale, lease or exchange
of Property or the rendering of service) with any of its Affiliates, Esenjay,
any of Esenjay's Affiliates, Aspect, or any of Aspect's Affiliates, other
than as set forth in the Exchange Agreement or upon fair and reasonable terms
no less favorable than could be obtained in an arm's length transaction with
a Person which was not an Affiliate.
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6.12 LIMITATION ON NEGATIVE PLEDGE CLAUSES. The Borrower will not enter
into any agreement with any Person other than the Lender which prohibits or
limits the ability of the Borrower create, incur, assume or suffer to exist
any Lien upon any of its Property, whether now owned or hereafter acquired.
6.13 NATURE OF BUSINESS. The Borrower will not make any material change
in the character of its business as carried on at the date hereof.
6.14 NO SUBSIDIARIES. The Borrower will not own any Subsidiaries other
than those set forth in Section 4.17.
ARTICLE 7
EVENTS OF DEFAULT
7.1 EVENTS OF DEFAULT. The occurrence of any of the following events
shall constitute an Event of Default:
(a) The Borrower shall fail to pay when due any installment of
principal or interest on the Note or any charge payable under this
Agreement;
(b) Default shall occur in the due observance or performance of
any affirmative covenant required in this Agreement, the Note, the
Guaranties, any of the Security Documents or any of the other Loan
Documents, and such default shall remain unremedied for in excess of
twenty (20) days after the earlier of (i) notice given by the Lender,
or (ii) actual knowledge thereof by the Borrower;
(c) Default shall occur in the due observance or performance of
any negative covenant required in this Agreement, the Note, the
Guaranties, any of the Security Documents or any of the other Loan
Documents;
(d) The occurrence of an Event of Default as defined in the
Esenjay Credit Agreement;
(e) Any Financial Statement, representation, warranty or
certificate made or furnished by or on behalf of the Borrower or any
of the Guarantors to the Lender in connection with this Agreement or
other Loan Document, or as an inducement to the Lender to enter into
this Agreement, or in any instrument furnished in compliance with or
in reference to this Agreement or any other Loan Document, shall be
materially false, incorrect, or incomplete at or as of the time made;
43
(f) Default shall be made by the Borrower (as principal or
guarantor or other surety) in payment or performance of any bond,
debenture, note or other evidence of Debt for borrowed money having an
outstanding principal amount in excess of $50,000.00, or under any
credit agreement, loan agreement, indenture, promissory note or
similar agreement or instrument executed in connection with any of the
foregoing, and such default shall remain unremedied for in excess of
the period of grace, if any, with respect thereto, with the effect of
accelerating the maturity of any such Debt or establishing a right to
accelerate the maturity of such Debt;
(g) The Borrower shall file a petition seeking relief for itself
under Debtor Relief Laws, or file an answer consenting to, admitting
the material allegations of or otherwise not controverting, or fail
timely to controvert a petition filed against it seeking relief under
Debtor Relief Laws;
(h) An order for relief shall be entered against the Borrower
under any Debtor Relief Laws, which order is not stayed, or upon the
entry of an order, judgment or decree by operation of Law or by a
court of competent jurisdiction which is not stayed, ordering relief
against the Borrower under, or approving as properly filed, a petition
seeking relief against any such Person under the provisions of any
Debtor Relief Laws, or appointing a receiver, liquidator, assignee,
sequestrator, trustee or custodian of the Borrower or of any
substantial part of its Property, or ordering the reorganization,
winding up or liquidation of any the Borrower's affairs, or upon the
expiration of sixty (60) days after the filing of any involuntary
petition against the Borrower seeking any of the relief specified in
the preceding Subsection or this Subsection without the petition being
dismissed prior to that time;
(i) The Borrower shall (i) make a general assignment for the
benefit of its creditors, (ii) consent to the appointment of or taking
possession by a receiver, liquidator, assignee, sequestrator, trustee
or custodian of the Borrower or any substantial part of its Property,
(iii) admit insolvency or inability to pay its debts generally as such
debts become due, (iv) fail generally to pay its debts as such debts
become due, or (v) take any action (or an action shall be taken by its
directors or majority stockholders) looking to the dissolution or
liquidation of the Borrower;
(j) Final judgment for the payment of money in excess of
$50,000.00 shall be rendered against the Borrower and such judgment
shall
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remain undischarged for a period of thirty (30) days during which execution
shall not be effectively stayed;
(k) The Security Documents shall for any reason, except to the
extent permitted by the terms thereof, cease to be in full force and
effect and valid, binding and enforceable in accordance with their
terms, cease to create a valid Lien of the priority required thereby
on any of the Collateral purported to be covered thereby, or, upon
perfection, cease to be a perfected Lien on any of the Collateral
purported to be covered thereby, or the Borrower or any other Person
who may have granted or purported to grant such Lien shall so state in
writing;
(l) A judgment creditor of any Person who is the owner of any of
the Collateral shall obtain possession of any of the Collateral by any
means, including, without limitation, levy, attachment or self help;
(m) The validity or enforceability of any of the Loan Documents
shall be contested by the Borrower, any of the Guarantors or any of
such Persons shall deny that it has any or further liability or
Obligation under any of the Loan Documents or allege that any of the
Loan Documents shall be construed or enforced other than in accordance
with their terms;
(n) The Borrower shall have concealed, removed, or permitted to
be concealed or removed, any part of its Property with the intent to
hinder, delay or defraud its creditors or any of them, or made or
suffered a transfer of any of its Property which is fraudulent under
any Debtor Relief Laws (except for such transfers in favor of the
Lender); or shall have made any transfer (other than in the ordinary
course of business) of its Property to or for the benefit of a
creditor at a time when other creditors similarly situated have not
been paid; or
(o) The Exchange Agreement shall be amended or modified.
7.2 RIGHTS UPON OCCURRENCE OF UNMATURED EVENT OF DEFAULT. At any time that
there exists an Unmatured Event of Default, any obligation of the Lender
hereunder to make Advances to or for the benefit of the Borrower shall be
suspended unless and until the Lender shall reinstate the same in writing, the
Unmatured Event of Default shall have been waived by the Lender or the relevant
Unmatured Event of Default shall have been remedied prior to the ripening into
an Event of Default.
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7.3 RIGHTS UPON OCCURRENCE OF AN EVENT OF DEFAULT.
(a) Upon the occurrence of any Event of Default specified in
Subsections (g), (h), (i) or (n) of Section 7.1, immediately and
without notice, (i) all Obligations evidenced by the Note shall
immediately become due and payable without presentment, demand,
protest, notice of protest or dishonor, notice of intent to
accelerate, notice of acceleration or other notice of any kind, all of
which are expressly waived by the Borrower and (ii) all obligations of
the Lender, if any, under this Agreement shall immediately and
automatically cease and terminate unless and until the Lender shall
reinstate any such obligation in writing.
(b) Upon the occurrence and at any time during the continuance
of any other Event of Default, (i) all obligations of the Lender, if
any, under this Agreement shall immediately and automatically cease
and terminate unless and until the Lender shall reinstate any such
obligation in writing and (ii) the Lender may by written notice to the
Borrower declare all Obligations evidenced by the Note to be
immediately due and payable without presentment, demand, protest,
notice of protest or dishonor, notice of intention to accelerate,
notice of acceleration or other notice of any kind, all of which are
expressly waived by the Borrower.
(c) The Borrower acknowledges and understands that under the
Laws of the State of Texas, unless waived, the Borrower has the right
to notice of the Lender's intent to accelerate the Obligations
evidenced by the Note, the right to notice of the actual acceleration
of the Obligations evidenced by the Note, and the right to presentment
of the Note by the Lender's demand for payment. The Borrower
acknowledges that it understands that it can waive these rights and by
the Borrower's execution of this Agreement it agrees to waive its
right to notice of intent to accelerate, its right to notice of
acceleration, and its right to presentment or other demand for
payment.
(d) In addition to the foregoing, upon the occurrence of any
Event of Default, the Lender may exercise any or all of the Rights
provided in any or all of the Loan Documents.
ARTICLE 8
MISCELLANEOUS
8.1 NOTICES. Any notice required or permitted to be given under or in
connection with this Agreement or any of the other Loan Documents (except as
may otherwise be expressly required therein) shall be in writing and shall be
mailed by certified mail, return
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receipt requested, postage prepaid, or sent by telex, telegram, telecopy or
other similar form of rapid transmission confirmed by mailing (by certified
mail, return receipt requested, postage prepaid) written confirmation at
substantially the same time as such rapid transmission, or personally
delivered to an officer of the receiving party. All such communications
shall be mailed, sent or delivered,
(a) if to the Borrower, to Frontier Natural Gas Corporation, 000
Xxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxx 00000, Attn: Xxxxx X.
Xxxxxxxxxxxxxx, or to such other address or to such individual's or
department's attention as the Borrower may have furnished the Lender
in writing; or
(b) if to the Lender, to Duke Energy Financial Services, Inc.,
0000 Xxxxxxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxx 00000, Attn: Xxxxxxx X.
Xxxxxxx, or to such other address or to such individual's or
department's attention as the Lender may have furnished the Borrower
in writing.
Any communication so addressed and mailed shall be deemed to be given when so
mailed, and any notice so sent by rapid transmission is acknowledged, and any
communication so delivered in person shall be deemed to be given when
receipted for or actually received by an authorized officer of the Borrower
or the Lender, as the case may be.
8.2 AMENDMENTS AND WAIVERS. Any provision of this Agreement or any of
the other Loan Documents may be amended or waived if, but only if, such
amendment or waiver is in writing and is signed by the Borrower and the
Lender (and/or any other Person which is a party to any Loan Document being
amended or with respect to which a waiver is being obtained).
8.3 INVALIDITY. In the event that any one or more of the provisions
contained in this Agreement or any of the other Loan Documents shall for any
reason be held invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other
provision of this Agreement or any other Loan Document.
8.4 SURVIVAL OF AGREEMENTS. All representations and warranties of the
Borrower herein or in the other Loan Documents and all covenants and
agreements not fully performed before the effective date or dates of this
Agreement or the other Loan Documents shall survive such date or dates.
8.5 SUCCESSORS AND ASSIGNS. All covenants and agreements by or on
behalf of the Borrower in this Agreement and all of the other Loan Documents
shall bind its legal representatives, successors and assigns and shall inure
to the benefit of the Lender and its legal representatives, successors and
assigns.
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The Borrower may not assign its respective Rights or Obligations
hereunder or under the Note without the prior consent of the Lender.
Prior to any acceleration of the Debt evidenced by the Note or all
of such Debt otherwise being due and payable, the Lender, without the consent
of the Borrower, may not assign any portion of the Loans, the Note or the
Commitment.
After any acceleration of the Debt evidenced by the Note or all of
such Debt otherwise being due and payable, the Lender, without the consent of
the Borrower, may assign all or any portion of the Loans, the Note, or the
Commitment.
Notwithstanding anything to the contrary above, the Lender, without
the consent of the Borrower, may at any time assign all or any portion of the
Loans, the Note or the Commitment to or at the direction of a governmental
authority or agency.
8.6 RENEWAL, EXTENSION OR REARRANGEMENT. All provisions of this
Agreement and of any other Loan Documents, as presently existing or as they
may hereafter be amended, relating to the Note or other Obligations shall
apply with equal force and effect to each and all promissory notes
hereinafter executed which in whole or in part represent a renewal, extension
for any period, increase or rearrangement of any part of the Obligations
originally evidenced by the Note or of any part of such other Obligations.
8.7 WAIVERS. No waiver by the Lender of any of its Rights under this
Agreement, the other Loan Documents or otherwise shall be considered a waiver
of any other or subsequent Right. No course of dealing on the part of the
Lender, its officers, employees, consultants or agents, nor any failure or
delay by the Lender with respect to exercising any Right under any of the
Loan Documents shall operate as a waiver thereof.
8.8 CUMULATIVE RIGHTS. The Rights of the Lender under the Note, this
Agreement and each other Loan Document shall be cumulative, and the exercise
or enforcement of any such Right shall not preclude the exercise or
enforcement of any other Right.
8.9 TAXES, ETC. Any Taxes (excluding income taxes), together with
interest and penalties, if any, payable or ruled payable by federal or state
authority in respect of the Note, this Agreement or the other Loan Documents
shall be paid by the Borrower.
8.10 EXHIBITS; CONFLICTS. The exhibits attached to this Agreement are
incorporated herein and shall be considered a part of this Agreement for the
purposes stated herein. In the event of any direct conflict between any of
the provisions of such exhibits or any of the other Loan Documents and the
provisions of this Agreement, the provisions of this Agreement shall prevail.
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8.11 TITLES OF ARTICLES, SECTIONS AND SUBSECTIONS. All titles or
heading to articles, Sections, Subsections or other divisions of this
Agreement or the exhibits hereto are only for the convenience of the parties
and shall not be construed to have any effect or meaning with respect to the
other content of such articles, Sections, Subsections or other divisions,
such other content being controlling as to the agreement between the parties
hereto.
8.12 JURISDICTION. All actions or proceedings with respect to the Note,
this Agreement or any of the other Loan Documents may be instituted in the
courts of the State of Texas, the United States District Court for the
Southern District of Texas, or elsewhere to the extent that jurisdiction
shall exist apart from the provisions of this Section, as the Lender may
elect. By execution and delivery of this Agreement, the Borrower irrevocably
and unconditionally submits to the jurisdiction (both subject matter and
personal) of each such court, and irrevocably and unconditionally waives (a)
any objection it may now or hereafter have to the laying of venue in any of
such courts and (b) any claim that any action or proceeding brought in any of
such courts has been brought in an inconvenient forum. The choice of forum
and laying of venue as set forth in this Section 8.12 was negotiated in good
faith by the Borrower and the Lender and is a significant term of the bargain
between the Borrower and the Lender governed by this Agreement. The Borrower
and the Lender further agree that service of process, summons, notice of
document by U.S. registered mail to the address of each set forth above shall
be effective service of process for any action, suit or proceeding brought
against the other in any such court.
8.13 JURY TRIAL WAIVED. THE BORROWER AND THE LENDER HEREBY AGREE THAT
THEY SHALL AND HEREBY WAIVE TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM, WHETHER AT LAW OR IN EQUITY, BROUGHT BY EITHER OF THEM, OR IN
ANY MATTER WHATSOEVER WHICH ARISES OUT OF OR IS CONNECTION IN ANY WAY WITH
THIS AGREEMENT.
8.14 COUNTERPARTS. This Agreement may be executed in two or more
counterparts and multiple originals of such counterparts, and it shall not be
necessary that the signatures of all parties hereto be contained on any one
counterpart hereof. Any executed Agreement or any counterpart thereof shall
be deemed an original, but all of which together shall constitute one and the
same instrument.
8.15 EFFECTIVENESS. This Agreement shall not be effective until
delivered to, accepted and executed by the Lender and the Borrower.
8.16 DOCUMENTS. All Loan Documents and any other certificate, agreement
or other document provided or to be provided under the terms hereof shall be
in form and substance satisfactory to the Lender.
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8.17 RIGHTS OF THIRD PERSON. All provisions of this Agreement are
imposed solely and exclusively for the benefit of the Lender and the
Borrower. No other Person shall have standing to require satisfaction for
such provisions in accordance with their terms or be entitled to assume that
the Lender will refuse to perform its obligations hereunder in the absence of
strict compliance with any or all thereof, and any or all of such provisions
may be freely waived in whole or in part by the Lender at any time if in its
sole discretion it deems it advisable to do so.
8.18 ANNOUNCEMENTS. Each party covenants and agrees with the other
that, subject to applicable law, each party shall promptly advise and consult
with the other and obtain the other's written consent before issuing any
press release with respect to this Agreement or the transactions described
herein. Notwithstanding the above, the Borrower may issue a press release
with respect to this Agreement or the transactions described herein if the
Lender is not identified by its name, any Affiliate of the Lender is not
identified by its name or the Lender or any Affiliate of the Lender is
otherwise not identified and a Law requires the Borrower to issue such press
release.
8.19 CONFIDENTIALITY. In connection with the negotiation and
administration of this Agreement and the other Loan Documents, the Borrower
has furnished and from time to time will furnish the Lender written
information or the Lender has provided and from time to time will provide
access to information which is identified to the Lender in writing as
confidential (such information, other than any such information which (i) was
publicly available, or otherwise known to the Lender, at the time of
disclosure, (ii) subsequently becomes publicly available other than through
any act or omission by the Lender or (iii) otherwise subsequently becomes
known to the Lender, being hereinafter referred to as "CONFIDENTIAL
INFORMATION"). The Lender will use reasonable efforts to maintain the
confidentiality of any Confidential Information. The Lender will not use any
of the Confidential Information to compete with the Borrower in the
exploration and production business. It is understood, however, that the
foregoing will not restrict the Lender's ability to freely exchange such
Confidential Information with current or prospective investors, assignees and
advisors who obligate themselves to the terms of this Section 8.19 and who
further agree not to use any of the Confidential Information to compete with
the Borrower in the exploration and production business. It is further
understood that the foregoing will not prohibit the disclosure of any or all
Confidential Information if and to the extent that such disclosure may be
required or requested (w) by a Governmental Authority, (x) pursuant to court
order, subpoena or other legal process in connection with any pending or
threatened litigation hereunder, (y) otherwise as required by law, or (z) in
order to protect their interests or their rights or remedies hereunder or
under the other Loan Documents; in the event of any required disclosure under
clause (w), (x), or (y) above, the Lender agrees to use reasonable efforts to
inform the Borrower as promptly as practicable.
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8.20 SURVIVAL OF CERTAIN COVENANTS. The covenants of the Borrower set
forth in Sections 5.5 and 5.10 shall survive repayment of the Debt evidenced
by the Note and shall continue until all of the additional charges payable by
the Borrower to the Lender pursuant to Section 2.5 have been satisfied.
8.21 GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE UNITED STATES
OF AMERICA AND THE STATE OF TEXAS (EXCEPT TO THE EXTENT THE LOCATION OR
NATURE OF THE COLLATERAL REQUIRES THE APPLICATION OF THE LAWS OF OTHER
JURISDICTIONS TO BE APPLIED AS TO MATTERS OF CREATION, PERFECTION AND
PRIORITY OF LIENS AND THE RIGHTS OF THE LENDER UPON DEFAULT).
IN WITNESS WHEREOF, the parties hereto have caused this instrument
to be duly executed effective as of the date first above written.
FRONTIER NATURAL GAS
CORPORATION
By:
------------------------------------------
Xxxxx X. Xxxxx
President
DUKE ENERGY FINANCIAL
SERVICES, INC.
By:
------------------------------------------
Xxxxxxx X. Xxxxxxx
Vice President
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