EXECUTION COPY
9142.100.121662.10
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
by and between
SOUTHWEST ROYALTIES, INC.,
as Borrower,
and
THE FINANCIAL INSTITUTIONS NAMED HEREIN
as the Lenders,
and
FOOTHILL CAPITAL CORPORATION
as Agent
Dated as of August 17, 2000
TABLE OF CONTENTS
Page(s)
1. DEFINITIONS AND CONSTRUCTION 2
1.1 Definitions 2
1.2 Accounting Terms 27
1.3 Code 27
1.4 Construction 27
1.5 Schedules and Exhibits 28
2. LOAN AND TERMS OF PAYMENT 28
2.1 Revolving Advances 28
2.2 Intentionally Omitted 35
2.3 Intentionally Omitted 35
2.4 Payments 35
2.5 Overadvances 36
2.6 Interest, Rates, Payments, and Calculations 36
2.7 Collection of Accounts 38
2.8 Crediting Payments; Application of Collections 40
2.9 Designated Account 40
2.10 Maintenance of Loan Account; Statements of Obligations
40
2.11 Fees 41
2.12 Loan Under Prior Credit Agreement 42
3. CONDITIONS; TERM OF AGREEMENT 42
3.1 Conditions Precedent to the Initial Advance 42
3.2 Conditions Precedent to all Advances 48
3.3 Condition Subsequent 48
3.4 Term; Automatic Renewal 49
3.5 Effect of Termination 49
3.6 Early Termination by Borrower 49
3.7 Termination Upon Event of Default 50
4. CREATION OF SECURITY INTEREST 50
4.1 Grant of Security Interest 50
4.2 Negotiable Collateral 50
4.3 Collection of Accounts, General Intangibles, and
Negotiable Collateral 50
4.4 Delivery of Additional Documentation Required 51
4.5 Power of Attorney 51
4.6 Right to Inspect 51
4.7 Control Agreements 52
5. REPRESENTATIONS AND WARRANTIES 52
5.1 No Encumbrances 52
5.2 Eligible Proved Developed Producing Reserves; Ownership
of Oil and Gas Properties 52
5.3 Operations of Oil and Gas Properties 54
5.4 Equipment 54
5.5 Location of Inventory and Equipment 54
5.6 Oil and Gas Property Collateral Records and Inventory
Records 55
5.7 Location of Chief Executive Office; FEIN 55
5.8 Due Organization and Qualification; Subsidiaries 55
5.9 Due Authorization; No Conflict 56
5.10 Claims, Disputes, and Litigation 57
5.11 No Material Adverse Change 58
5.12 No Fraudulent Transfer 58
5.13 Employee Benefits 58
5.14 Environmental Condition 58
5.15 Compliance with the Law 59
5.16 Bonds and Insurance 59
5.17 Hedging Agreement 60
5.18 Brokerage Fees 60
5.19 Permits and other Intellectual Property 60
5.20 [Intentionally Omitted 61
5.21 Locations; Leases 61
5.22 Absence of Certain Changes 61
5.23 Operating Costs 62
5.24 Imbalances 62
5.25 No Default 62
5.26 Leases 62
5.27 Marketing Agreements 63
5.28 Non-Consent Operations 63
5.29 Condition of Equipment 63
5.30 Xxxxx 63
6. AFFIRMATIVE COVENANTS 63
6.1 Accounting System 64
6.2 Collateral Reporting 64
6.3 Financial Statements, Reports, Certificates 67
6.4 Tax Returns 68
6.5 Guarantor Reports 68
6.6 [Intentionally Omitted] 68
6.7 Title to Equipment 68
6.8 Maintenance of Oil and Gas Property Collateral and
Equipment; Operation of Business 68
6.9 Taxes 70
6.10 Insurance 71
6.11 No Setoffs or Counterclaims 72
6.12 Location of Inventory and Equipment 73
6.13 Compliance with Laws 73
6.14 Employee Benefits 74
6.15 Leases 74
6.16 Broker Commissions 74
6.17. Oil and Gas Property Title Information
75
6.18 Additional Collateral 75
6.19 Hedging Agreements 76
6.20 Further Assurances 76
7. NEGATIVE COVENANTS 77
7.1 Indebtedness 77
7.2 Liens 78
7.3 Restrictions on Fundamental Changes 78
7.4 Disposal of Assets 78
7.5 Change Name 80
7.6 Guarantee 80
7.7 Nature of Business 80
7.8 Prepayments and Amendments 80
7.9 Change of Control 81
7.10 Consignments 81
7.11 Distributions; Repurchases of Capital Stock 81
7.12 Accounting Methods 81
7.13 Investments 81
7.14 Transactions with Affiliates 82
7.15 Suspension 82
7.16 Compensation 82
7.17 Use of Proceeds 83
7.18 Change in Location of Chief Executive Offices;
Inventory and Equipment 83
7.19 No Prohibited Transactions Under ERISA 83
7.20 Financial Covenants 84
7.21 Capital Expenditures 85
7.22 Securities Accounts 85
7.23 Gas Imbalances, Take-or-Pay or Other Prepayments 86
7.24 Payments on Unsecured Notes 86
7.25 Non-Consent Operations 86
7.26 Waivers of Rights Relating to Oil and Gas Properties86
7.27 Contracts for Sale of Production 86
7.28 Exploration 87
8. EVENTS OF DEFAULT 87
9. THE LENDER GROUP'S RIGHTS AND REMEDIES 90
9.1 Rights and Remedies 90
9.2 Remedies Cumulative 92
10. TAXES AND EXPENSES 92
11. WAIVERS; INDEMNIFICATION 93
11.1 Demand; Protest; etc 93
11.2 The Lender Group's Liability for Collateral 93
11.3 Indemnification 93
12. NOTICES 93
13. CHOICE OF LAW AND VENUE; SERVICE OF PROCESS; JURY TRIAL
WAIVER 94
14. DESTRUCTION OF BORROWER'S DOCUMENTS 96
15. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS 96
15.1 Assignments and Participations 96
15.2 Successors 98
16. AMENDMENTS; WAIVERS 99
16.1 Amendments and Waivers 99
16.2 No Waivers; Cumulative Remedies 100
17. AGENT; THE LENDER GROUP 100
17.1 Appointment and Authorization of Agent 100
17.2 Delegation of Duties 101
17.3 Liability of Agent 101
17.4 Reliance by Agent 101
17.5 Notice of Default or Event of Default 102
17.6 Credit Decision 102
17.7 Costs and Expenses; Indemnification 102
17.8 Agent in Individual Capacity 103
17.9 Successor Agent 103
17.10 Withholding Tax
104
17.11 Collateral Matters
105
17.12Restrictions on Actions by Lenders; Sharing of Payments
106
17.13 Agency for Perfection
107
17.14 Payments by Agent to the Lenders
107
17.15 Concerning the Collateral and Related Loan Documents
107
17.16Field Audits and Examination Reports; Confidentiality;
Disclaimers by Lenders; Other Reports and Information 108
17.17 Several Obligations; No Liability
109
18. GENERAL PROVISIONS 109
18.1 Effectiveness 109
18.2 Section Headings 109
18.3 Interpretation 109
18.4 Severability of Provisions 110
18.5 Amendments in Writing 110
18.6 Counterparts; Telefacsimile Execution 110
18.7 Revival and Reinstatement of Obligations 110
18.8 Integration 110
18.9 Amendment and Restatement; Release 111
18.10.Borrower's Waiver of Rights Under Texas Deceptive Tra
de Practices Act. 111
SCHEDULES AND EXHIBITS
Schedule C-1 Commitments
Schedule P-1 Permitted Liens
Schedule 5.1(a) Certain Owned Oil and Gas Properties
Schedule 5.1(b) Working Interest/Net Revenue
Interest/Operator
Schedule 5.1(c) Material Contract Rights & Obligations
Schedule 5.1(d) Real Property Collateral
Schedule 5.2(b) Imbalances in Gas Production or "Take or Pay"
Payments
Schedule 5.8 Capital Stock/Subsidiaries
Schedule 5.10 Litigation
Schedule 5.13 ERISA Benefit Plans
Schedule 5.16 Insurance
Schedule 5.17 Hedging Agreements
Schedule 5.19 Permits and Other Intellectual Property
Schedule 5.21 Certain Additional Locations of
Collateral
Schedule 5.22 Certain Other Changes
Schedule 5.23 Certain Operating Costs
Schedule 5.27 Certain Marketing Agreements
Schedule 5.30 Certain Information Concerning Certain
Xxxxx
Schedule 6.12 Location of Inventory and Equipment
Schedule 7.1 Permitted Other Indebtedness
Schedule 7.13 Certain Affiliate Limited Partnerships
Schedule 7.16 Certain Severance Arrangements
Exhibit A-1 Form of Agreement and Acceptance
Exhibit B-1 Mortgages, Opinions, Certificates and Certain
Other Required Items and Information
Exhibit C-1 Form of Compliance Certificate
Exhibit P-1 Forms of Prior Lenders Assignment
Agreements
Exhibit T-1 Form of Transfer Order Letters
Exhibit 6.2 Form of Borrowing Base Certificate
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
THIS AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT (this
"Agreement"), is entered into as of August 17, 2000, among the
financial institutions listed on the signature pages hereof (such
financial institutions, together with their respective successors
and assigns, are referred to hereinafter each individually as a
"Lender" and collectively as the "Lenders"), FOOTHILL CAPITAL
CORPORATION, a California corporation, as agent for the Lenders
("Agent"), with a place of business located at 0000 Xxxxxxxx
Xxxxxx, Xxxxx 0000 Xxxx, Xxxxx Xxxxxx, Xxxxxxxxxx 00000, and
SOUTHWEST ROYALTIES, INC., a Delaware corporation ("Borrower"),
with its chief executive office located at 000 Xxxxx Xxx Xxxxxx
Xxxxxx, Xxxxx 000, Xxxxxxx, Xxxxx 00000.
RECITALS
A. Borrower, certain lenders (the "Prior Lenders"), and
Bank One, Texas, N.A., as Agent (the "Prior Agent"), are parties
to that certain Credit Agreement, dated as of December 29, 1999
(such credit agreement, as amended, the "Prior Credit
Agreement").
B. Borrower has requested that (i) the Lenders assume the
obligations of the Prior Lenders under the Prior Credit
Agreement, (ii) Agent assume the agency responsibilities of the
Prior Agent under the Prior Credit Agreement, and (iii) Agent and
the Lenders amend and restate the Prior Credit Agreement and make
credit available to Borrower on the terms and conditions stated
herein. It is Borrower's intention that for purposes of the
Unsecured Notes Indenture (as defined below), (i) this Agreement
and the other Loan Documents (as defined below) renew, refinance,
replace and succeed, but not constitute an extinguishment or a
novation of, the Prior Credit Agreement, and (ii) that the
Obligations (as defined below) secured pursuant to this Agreement
and the other Loan Documents renew, continue and refinance, but
not constitute an extinguishment of or a novation of, the
Indebtedness existing on the date hereof under the Prior Credit
Agreement, and therefore, solely as among Borrower and the other
parties to the Unsecured Notes Indenture, the intent of Borrower
is that the Obligations incurred and secured pursuant to this
Agreement and the other Loan Documents shall constitute
"Permitted Indebtedness" (as defined in the Unsecured Notes
Indenture) and that the Liens securing the same shall constitute
"Permitted Liens" (as such term is defined in the Unsecured Notes
Indenture) for purposes of the Unsecured Notes Indenture.
C. Contemporaneously with the above transactions, Agent is
entering into the Prior Lender Assignment Agreements (as defined
below) wherein the assignment of the rights of the Prior Lenders
to the Agent, on behalf of the Lenders, is intended to be for the
ratable benefit of the Lenders.
D. Agent and the Lenders, subject to the terms and
conditions stated herein, are willing to amend and restate the
Prior Credit Agreement and to make such credit facilities
available.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are acknowledged, the parties
hereto agree as follows:
1. DEFINITIONS AND CONSTRUCTION.
1.1 Definitions. As used in this Agreement, the
following terms shall have the following definitions:
"Account Debtor" means any Person who is or who
may become obligated under, with respect to, or on account of, an
Account.
"Accounts" means all currently existing and
hereafter arising accounts, contract rights, and all other forms
of obligations owing to Borrower or any of its Subsidiaries
arising out of the sale or lease of goods, Hydrocarbons or Oil
and Gas Properties or the rendition of services by Borrower or
any of its Subsidiaries, irrespective of whether earned by
performance, and any and all credit insurance, guaranties, or
security therefor.
"Advances" has the meaning set forth in Section
2.1(a).
"Affiliate" means, as applied to any Person, any
other Person who directly or indirectly controls, is controlled
by, is under common control with or is a director or officer of
such Person. For purposes of this definition, "control" means
the possession, directly or indirectly, of the power to vote 5%
or more of the securities having ordinary voting power for the
election of directors or the direct or indirect power to direct
the management and policies of a Person.
"Agent" means Foothill, solely in its capacity as
agent for the Lenders, and shall include any successor agent.
"Agent Account" means an account at a bank
designated by Agent from time to time as the account into which
Borrower shall make all payments to Agent for the benefit of the
Lender Group, and into which the Lender Group shall make all
payments to Agent, under this Agreement and the other Loan
Documents. Initially, unless and until Agent notifies Borrower
and the Lender Group to the contrary, the Agent Account shall be
that certain deposit account bearing account number 323-266193
and maintained by Agent with The Chase Manhattan Bank, N.A.,
4 New York Plaza, 15th Floor, New York, New York 10004, ABA #021-
000-021.
"Agent Advances" has the meaning set forth in
Section 2.1(g).
"Agent's Liens" has the meaning set forth in
Section 4.1.
"Agent-Related Persons" means Agent and any
successor agent, together with their respective Affiliates, and
the officers, directors, employees, counsel, agents, and
attorneys-in-fact of such Persons and their Affiliates.
"Agreement" has the meaning set forth in the
preamble hereto.
"Assignee" has the meaning set forth in Section
15.1.
"Assignment and Acceptance" has the meaning set
forth in Section 15.1 and shall be in the form of Exhibit A-1
attached hereto.
"Authorized Person" means any officer or other
employee of Borrower.
"Availability" means the amount that Borrower is
entitled to borrow as Advances under Section 2.1, such amount
being the difference derived when (a) the sum of the principal
amount of Advances (including Agent Advances and Foothill Loans)
then outstanding (including any amounts that the Lender Group may
have paid for the account of Borrower pursuant to any of the Loan
Documents and that have not been reimbursed by Borrower) is
subtracted from (b) the least of (i) the Maximum Revolving
Amount, or (ii) the Borrowing Base less the aggregate amount of
the Reserves Against Availability, or (iii) the Unsecured Note
Indebtedness Limitation.
If the Revolving Facility Usage is equal to or greater than the
least of the Borrowing Base, the Maximum Revolving Amount or the
Unsecured Note Indebtedness Limitation, then the Availability is
zero (-0-).
"Average Unused Portion of Maximum Revolving
Amount" means, as of any date of determination, (a) the Maximum
Revolving Amount, less (b) the average Daily Balance of Advances
that were outstanding during the immediately preceding month.
"Bankruptcy Code" means the United States
Bankruptcy Code (11 U.S.C. 101 et seq.), as amended, and any
successor statute.
"Benefit Plan" means a "defined benefit plan" (as
defined in Section 3(35) of ERISA) for which Borrower, any
Subsidiary of Borrower, or any ERISA Affiliate has been an
"employer" (as defined in Section 3(5) of ERISA) within the past
six years.
"Blue Heel" means Blue Heel Company, a Delaware
corporation.
"Books" means all of Borrower's and its
Subsidiaries' books and records including: ledgers; records
indicating, summarizing, or evidencing Borrower's and its
Subsidiaries' properties or assets (including the Collateral) or
liabilities, including but not limited to well logs and
seismographic reports; all information relating to Borrower's and
its Subsidiaries' business operations or financial condition; and
all computer programs, disk or tape files, printouts, runs, or
other computer prepared information.
"Borrower" has the meaning set forth in the
preamble to this Agreement.
"Borrowing" means a borrowing hereunder consisting
of Advances made on the same day by the Lenders to Borrower, or
by Foothill in the case of a Foothill Loan, or by Agent in the
case of an Agent Advance.
"Borrowing Base" has the meaning set forth in
Section 2.1(a).
"Borrowing Base Entities" means Borrower and Blue
Heel.
"Borrowing Request" has the meaning set forth in
Section 2.1(c).
"Business Day" means any day that is not a
Saturday, Sunday, or other day on which national banks are
authorized or required to close.
"Change of Control" shall be deemed to have
occurred at such time as:
(a) a "person" or "group" (within the
meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange
Act of 1934) becomes the "beneficial owner" (as defined in Rule
13d-3 under the Securities Exchange Act of 1934), directly or
indirectly, of more than 10% of the total voting power of all
classes of Stock then outstanding of Parent entitled to vote in
the election of directors, or
(b) (i) prior to the consummation of an
Initial Public Offering by Borrower, a "person" or "group"
(within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934) other than Parent becomes a
"beneficial owner" (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934), directly or indirectly, of more than 30%
of the voting power of all class of Stock then outstanding of
Borrower entitled to vote in the election of directors, or
(ii) after the consummation of an
Initial Public Offering by Borrower:
(A) X. X. Xxxxxxx, III ceases to
own, directly or indirectly, at least 30% of the total voting
power of all classes of Stock then outstanding of Borrower
entitled to vote on the election of directors; or
(B) a "person" or "group" (within
the meaning of Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934) other than X. X. Xxxxxxx, III is or becomes
a "beneficial owner" (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934), directly or indirectly, of
either (I) a greater percentage of the total voting power of all
classes of Stock then outstanding of Borrower entitled to vote on
the election of directors than the percentage thereof then owned
by X. X. Xxxxxxx, III, or (II) more than 15% of the voting power
of all class of Stock then outstanding of Borrower entitled to
vote in the election of directors, or
(c) a "person" or "group" (within the
meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange
Act of 1934), other than Borrower becomes a "beneficial owner"
(as defined in Rule 13d-3 under the Securities Exchange Act of
1934), directly or indirectly, of any voting power of any
partnership interest or equity interest then outstanding of Blue
Heel or any Subsidiary of Borrower.
"Closing Date" means the date of the first to
occur of the making of the initial Advance or the issuance of the
initial Letter of Credit.
"Code" means the California Uniform Commercial
Code.
"Collateral" means all of Borrower's right, title,
and interest (together with all of each Subsidiary of Borrower's
right, title and interest) in and to each of the following:
(a) the Accounts,
(b) the Books,
(c) the Equipment,
(d) the General Intangibles,
(e) the Inventory,
(f) the Investment Property,
(g) the Negotiable Collateral,
(h) the Oil and Gas Properties,
(i) the Real Property,
(j) any money, or other assets of Borrower that
now or hereafter come into the possession, custody, or control of
any member of the Lender Group, and
(k) the proceeds and products, whether tangible
or intangible, of any of the foregoing, including proceeds of
insurance covering any or all of the Collateral, and any and all
Accounts, the Books, Equipment, General Intangibles, Inventory,
Investment Property, Negotiable Collateral, Real Property, Oil
and Gas Properties, money, deposit accounts, or other tangible or
intangible property resulting from the sale, exchange,
collection, or other disposition of any of the foregoing, or any
portion thereof or interest therein, and the proceeds thereof.
"Collateral Access Agreement" means a landlord
waiver or consent, mortgagee waiver or consent, bailee letter, or
a similar acknowledgement agreement of any warehouseman,
processor, lessor, consignee, or other Person in possession of,
having a Lien upon, or having rights or interests in the
Equipment, Inventory, or Oil and Gas Properties, in each case, in
form and substance satisfactory to Agent.
"Collections" means all cash, checks, notes,
instruments, and other items of payment (including, insurance
proceeds, proceeds of cash sales, rental proceeds, and tax
refunds).
"Commitment" means, at any time with respect to
each Lender, its Commitment, and, with respect to all Lenders,
their Commitments, in each case as such Dollar amounts are set
forth beside such Lender's name under the heading "Commitment" on
Schedule C-1 attached hereto or on the signature page of the
Assignment and Acceptance pursuant to which such Lender became a
Lender hereunder in accordance with the provisions of
Section 15.1.
"Compliance Certificate" means a certificate
substantially in the form of Exhibit C-1 and delivered by the
chief accounting officer of Borrower to Agent.
"Consolidated Net Income" shall mean with respect
to Borrower and its Subsidiaries, for any period, the aggregate
of the net income (or loss) of Borrower and its Subsidiaries
after allowances for taxes for such period, determined on a
consolidated basis in accordance with GAAP; provided that there
shall be excluded from such net income (to the extent otherwise
included therein) the following: (i) the net income of any Person
in which Borrower or any of its Subsidiaries has an interest
(which interest does not cause the net income of such other
Person to be consolidated with the net income of Borrower and its
Subsidiaries in accordance with GAAP), except to the extent of
the amount of dividends or distributions actually paid in such
period by such other Person to Borrower or to any of its
Subsidiaries, as the case may be; (ii) the net income (but not
loss) of any of Borrower's Subsidiaries to the extent that the
declaration or payment of dividends or similar distributions or
transfers or loans by that Subsidiary is not at the time
permitted by operation of the terms of its charter or any
agreement, instrument or Legal Requirement applicable to such
Subsidiary, or is otherwise restricted or prohibited in each case
determined in accordance with GAAP; (iii) the net income (or
loss) of any Person acquired in a pooling-of-interests
transaction for any period prior to the date of such transaction;
(iv) any extraordinary gains, including gains attributable to
Property sales not in the ordinary course of business; (v) the
cumulative effect of a change in accounting principles and any
gains or losses attributable to writeups or writedowns of assets;
and (vi) any writedowns of non-current assets, provided however,
that any ceiling limitation writedowns under SEC guidelines shall
be treated as capitalized costs, as if such writedowns had not
occurred.
"Control Agreement" means a control agreement, in
form and substance reasonably satisfactory to Agent, between
Borrower, Agent, and the applicable securities intermediary with
respect to the applicable Securities Account and related
Investment Property.
"Daily Balance" means the amount of an Obligation
owed at the end of a given day.
"Default" means an event, condition, or default
that, with the giving of notice, the passage of time, or both,
would be an Event of Default.
"Defaulting Lender" means any Lender that fails to
make any Advance that it is required to make hereunder on any
Funding Date and that has not cured such failure by making such
Advance within one (1) Business Day after written demand upon it
by Agent to do so.
"Defaulting Lenders Rate" means the Reference Rate
for the first three (3) days from and after the date the relevant
payment is due and, thereafter, at the interest rate then
applicable to Advances.
"Defensible Title" means as to the Mineral
Interests, such title held by Borrower that (i) is free from
reasonable doubt to the end that a prudent purchaser engaged in
the business of the ownership, development and operation of
producing oil and gas properties, with knowledge of all of the
facts and their legal bearing, would be willing to accept and pay
full value therefor; (ii) is deducible of record from the records
of the applicable parish or county, or, in the case of federal
leases, from the records of the applicable office of the Bureau
of Lands Management or Minerals Management Service, or, in the
case of state leases, from the applicable records of the
applicable state land office; (iii) entitle Borrower to receive
not less than the "Net Revenue Interest" set forth in
Schedule 5.1(b) with respect to each Mineral Interest owned by
Borrower as of the date of this Agreement, and not less than the
"Net Revenue Interest" set forth in the most recent Reserve
Report with respect to each Mineral Interest acquired by Borrower
after the date of this Agreement, in each case, without
reduction, suspension or termination throughout the productive
life of such Mineral Interest; (iv) obligates Borrower to bear
costs and expenses relating to operations on and the maintenance
and development of each Mineral Interest in an amount not greater
than the "Working Interest" set forth in Schedule 5.1(b) with
respect to each Mineral Interest owned by Borrower as of the date
of this Agreement, and not greater than the "Working Interest"
set forth in the most recent Reserve Report with respect to each
Mineral Interest acquired by Borrower after the date of this
Agreement (except to the extent that Borrower is obligated under
an Operating Agreement to assume a portion of a defaulting or non-
consenting party's share of costs), in each case without increase
for the respective productive life of such Mineral Interest; and
(v) is free and clear of Liens and material encumbrances and
defects, except for Permitted Liens.
"Designated Account" means account number
1887235412 of Borrower maintained with Borrower's Designated
Account Bank, or such other deposit account of Borrower (located
within the United States) which has been designated, in writing
and from time to time, by Borrower to Agent.
"Designated Account Bank" means Bank One, Texas,
N.A., whose office is located at 0000 Xxxx Xxxxxx, 0xx Xxxxx,
Xxxxxx, Xxxxx 00000, and whose ABA number is 000000000.
"Designated Affiliated Limited Partnerships" means
those certain limited partnerships listed on Schedule 7.13
attached hereto of which, at the date of determination thereof,
Borrower is the sole general partner or one of only two
co-general partners (or, in the case of X.X. Xxxxxxx Income Fund
1983-1, L.P., the sole general partner of which is X.X. Xxxxxxx),
as the case may be, as the same is set forth on such schedule.
"Disbursement Letter" means an instructional
letter executed and delivered by Borrower to Agent regarding the
extensions of credit to be made on the Closing Date, the form and
substance of which shall be satisfactory to Agent.
"Dollars or $" means United States dollars.
"Early Termination Premium" has the meaning set
forth in Section 3.6.
"EBITDA" shall mean, for any period, the sum,
determined (without duplication) for Borrower and its
Subsidiaries, of (i) Consolidated Net Income of Borrower and its
Subsidiaries plus (ii) Interest Expense of Borrower and its
Subsidiaries for such period to the extent deducted in the
determination of Consolidated Net Income of Borrower and its
Subsidiaries for such period plus (iii) depreciation,
amortization and other similar non-cash items (with the exception
of non-cash charges that require an accrual or reserve for cash
charges for any future period and normally recurring accruals) to
the extent deducted in the determination of Consolidated Net
Income of Borrower and its Subsidiaries for such period plus (iv)
all taxes accrued for such period on or measured by income to the
extent deducted in the determination of Consolidated Net Income
of Borrower and its Subsidiaries for such period.
"Eligible Proved Developed Producing Reserves"
means the value, as determined by Agent in its sole discretion,
of Proved Developed Producing Reserves consisting of Mineral
Interests of the Borrowing Base Entities that: (i) are subject to
a duly executed and recorded Oil and Gas Property Mortgage that
creates a first priority perfected lien in such Mineral Interest;
(ii) either are identified on Schedule 5.1(a) or constitute
Qualified Subsequent Oil and Gas Property; (iii) are included as
Proved Developed Producing Reserves in the Reserve Report most
recently delivered to Agent; (iv) strictly comply with each and
all of the representations and warranties made by Borrower to
Agent in the Loan Documents; and (v) are and at all times
continue to be acceptable to Agent in all respects; provided,
however, the standards of eligibility may be fixed and revised
from time to time by Agent in Agent's credit judgment. In
determining the amount to be so included, Eligible Proved
Developed Producing Reserves shall be valued based upon the NYMEX
Value of such Proved Developed Producing Reserves as of the date
of determination of Eligible Proved Developed Producing Reserves,
with such adjustments as Agent may deem appropriate in its sole
discretion. An item of Proved Developed Producing Reserves shall
not be included in Eligible Proved Developed Producing Reserves
if:
(a) it is not owned solely by a Borrowing Base
Entity or a Borrowing Base Entity does not have either good,
valid, and marketable title thereto or Defensible Title thereto
acceptable to Agent, or the title information relating thereto is
not satisfactory to Agent;
(b) it is not subject to a valid and perfected
first priority Lien and security interest in favor of Agent for
the benefit of the Lender Group created by a duly recorded Oil
and Gas Property Mortgage, except for Permitted Liens with
respect to which Agent has established a Reserve Against
Availability in the full amount (or such other amount as may be
determined by Agent in its sole discretion) that any holders of
the Permitted Liens could assert from time to time thereunder
(whether upon the passage of time, the satisfaction of
conditions, or otherwise); or
(c) it is subject to a Lien in favor of any third
Person or any order, judgment, writ or decree, which either
restricts or purports to restrict Borrower or any of its
Subsidiaries' ability to grant Liens to other Persons on or in
respect of its respective assets or properties.
"Eligible Transferee" means: (a) a commercial bank
organized under the laws of the United States, or any state
thereof, and having total assets in excess of $100,000,000; (b) a
commercial bank organized under the laws of any other country
which is a member of the Organization for Economic Cooperation
and Development or a political subdivision of any such country,
and having total assets in excess of $100,000,000; provided that
such bank is acting through a branch or agency located in the
United States; (c) a finance company, insurance company or other
financial institution or fund that is engaged in making,
purchasing or otherwise investing in commercial loans in the
ordinary course of its business and having total assets in excess
of $50,000,000; (d) any Affiliate (other than individuals) of, or
any fund, money market account, investment account or other
account managed by, a pre-existing Lender under this Agreement;
(e) so long as no Event of Default has occurred and is
continuing, any other Person approved by Agent and Borrower; and
(f) during the continuation of an Event of Default, any other
Person approved by Agent.
"Environmental Laws" shall mean any and all Legal
Requirements pertaining to health or the environment in effect in
any and all jurisdictions in which the Borrower or any Subsidiary
is conducting or at any time has conducted business, or where any
Property of the Borrower or any Subsidiary is located, including
without limitation, the Oil Pollution Act of 1990 ("OPA"), the
Clean Air Act, as amended, the Comprehensive Environmental,
Response, Compensation, and Liability Act of 1980 ("CERCLA"), as
amended, the Federal Water Pollution Control Act, as amended, the
Occupational Safety and Health Act of 1970, as amended, the
Resource Conservation and Recovery Act of 1976 ("RCRA"), as
amended, the Safe Drinking Water Act, as amended, the Toxic
Substances Control Act, as amended, the Superfund Amendments and
Reauthorization Act of 1986, as amended, the Hazardous Materials
Transportation Act, as amended, and other environmental
conservation or protection laws. The term "oil" shall have the
meaning specified in OPA, the term "release" (or "threatened
release") has the meaning specified in CERCLA, and the terms
"solid waste" and "disposal" (or "disposed") have the meanings
specified in RCRA; provided, however, that (i) in the event
either OPA, CERCLA or RCRA is amended so as to broaden the
meaning of any term defined thereby, such broader meaning shall
apply subsequent to the effective date of such amendment, and
(ii) to the extent the laws of the state in which any Property of
the Borrower or any Subsidiary is located establish a meaning for
"oil," "release," "solid waste" or "disposal" which is broader
than that specified in either OPA, CERCLA or RCRA, such broader
meaning shall apply as to Borrower or such Subsidiary, as the
case may be, and the Property thereof located within that
particular state.
"Equipment" means all of Borrower's present and
hereafter acquired machinery, machine tools, motors, equipment,
furniture, furnishings, fixtures, drillsite equipment (including
separators, dehydrators, meters, etc.), compressors, gathering
lines, pipelines, vehicles (including motor vehicles and
trailers), tools, parts, and other goods (other than consumer
goods, farm products, or Inventory), wherever located, including,
(a) any interest of Borrower in any of the foregoing, and (b) all
attachments, accessories, accessions, replacements,
substitutions, additions, and improvements to any of the
foregoing.
"ERISA" means the Employee Retirement Income
Security Act of 1974, 29 U.S.C. 1000 et seq., amendments
thereto, successor statutes, and regulations or guidance
promulgated thereunder.
"ERISA Affiliate" means (a) any corporation
subject to ERISA whose employees are treated as employed by the
same employer as the employees of Borrower under IRC
Section 414(b), (b) any trade or business subject to ERISA whose
employees are treated as employed by the same employer as the
employees of Borrower under IRC Section 414(c), (c) solely for
purposes of Section 302 of ERISA and Section 412 of the IRC, any
organization subject to ERISA that is a member of an affiliated
service group of which Borrower is a member under IRC
Section 414(m), or (d) solely for purposes of Section 302 of
ERISA and Section 412 of the IRC, any party subject to ERISA that
is a party to an arrangement with Borrower and whose employees
are aggregated with the employees of Borrower under IRC
Section 414(o).
"ERISA Event" means (a) a Reportable Event with
respect to any Benefit Plan or Multiemployer Plan, (b) the
withdrawal of Borrower or any of its Subsidiaries or ERISA
Affiliates from a Benefit Plan during a plan year in which it was
a "substantial employer" (as defined in Section 4001(a)(2) of
ERISA), (c) the providing of notice of intent to terminate a
Benefit Plan in a distress termination (as described in
Section 4041(c) of ERISA), (d) the institution by the PBGC of
proceedings to terminate a Benefit Plan or Multiemployer Plan,
(e) any event or condition (i) that provides a basis under
Section 4042(a)(1), (2), or (3) of ERISA for the termination of,
or the appointment by the PBGC of a trustee to administer, any
Benefit Plan or Multiemployer Plan, or (ii) that may result in
termination of a Multiemployer Plan pursuant to Section 4041A of
ERISA, (f) the partial or complete withdrawal within the meaning
of Sections 4203 and 4205 of ERISA, of Borrower, any of its
Subsidiaries or ERISA Affiliates from a Multiemployer Plan, or
(g) providing any security to any Plan under Section 401(a)(29)
of the IRC by Borrower or its Subsidiaries or any of their ERISA
Affiliates.
"Event of Default" has the meaning set forth in
Section 8.
"Exchange Act" means the Securities Exchange Act
of 1934, as amended, and any successor statute thereto.
"FEIN" means Federal Employer Identification
Number.
"Foothill" means Foothill Capital Corporation, a
California corporation.
"Foothill Loans" has the meaning set forth in
Section 2.1(f).
"Funding Date" means the date on which a Borrowing
occurs.
"GAAP" means generally accepted accounting
principles as in effect from time to time in the United States,
consistently applied.
"General Intangibles" means all of Borrower's
present and future general intangibles and other personal
property (including contract rights, rights arising under common
law, statutes, or regulations, choses or things in action,
goodwill, Permits, patents, trade names, trademarks,
servicemarks, copyrights, blueprints, drawings, purchase orders,
customer lists, monies due or recoverable from pension funds,
route lists, rights to payment and other rights under any royalty
or licensing agreements, infringement claims, computer programs,
information contained on computer disks or tapes, literature,
reports, catalogs, deposit accounts, insurance premium rebates,
tax refunds, and tax refund claims), other than goods, Accounts,
and Negotiable Collateral.
"Governing Documents" means, with respect to any
Person, the certificate or articles of incorporation, by-laws, or
other organizational or governing documents of such Person.
"Governmental Authority" means any nation or
government, any state, province, or other political subdivision
thereof, any central bank (or similar monetary or regulatory
authority) thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned or
controlled, through Stock or capital ownership or otherwise, by
any of the foregoing.
"Guaranty Agreements" means, collectively, any and
all of the guaranty agreements with respect to the Obligations
which are, or are to be, executed by a Guarantor in favor of
Agent for the benefit of the Lender Group, as required from time
to time by Agent, in form and substance satisfactory to Agent, in
each case as the same may be amended, modified, restated,
supplemented, increased, renewed, extended, substituted for or
replaced from time to time.
"Guarantor" means Blue Heel, each other Subsidiary
of Borrower not a signatory to this Agreement, Parent, and each
other Person who may hereafter guarantee payment or performance
of the whole or any part of the Obligations.
"Hazardous Materials" means (a) substances that
are defined or listed in, or otherwise classified pursuant to,
any applicable laws or regulations as "hazardous substances,"
"hazardous materials," "hazardous wastes," "toxic substances," or
any other formulation intended to define, list, or classify
substances by reason of deleterious properties such as
ignitability, corrosivity, reactivity, carcinogenicity,
reproductive toxicity, or "EP toxicity", (b) oil, petroleum, or
petroleum derived substances, natural gas, natural gas liquids,
synthetic gas, drilling fluids, produced waters, and other wastes
associated with the exploration, development, or production of
crude oil, natural gas, or geothermal resources, (c) any
flammable substances or explosives or any radioactive materials,
and (d) asbestos in any form or electrical equipment that
contains any oil or dielectric fluid containing levels of
polychlorinated biphenyls in excess of 50 parts per million.
"Hedging Agreements" shall mean (i) any interest
rate or currency swap, rate cap, rate floor, rate collar, forward
agreement or other exchange or rate protection agreements or any
option with respect to any such transaction and (ii) any swap
agreement, cap, floor, collar, exchange transaction, forward
agreement or other exchange or protection agreement relating to
Hydrocarbons or any option with respect to any such transaction.
"Hedging Agreement Undertaking" shall mean any
guaranty of payment, indemnity, participation and/or undertaking
related to any Hedging Agreements.
"Hydrocarbons" shall mean oil, natural gas,
casinghead gas, drip gasoline, natural gasoline, condensate,
distillate, liquid hydrocarbons, gaseous hydrocarbons and all
constituents, elements or compounds thereof and products refined
or separated therefrom.
"Indebtedness" means: (a) all obligations of
Borrower or any of its Subsidiaries for borrowed money, (b) all
obligations of Borrower or any of its Subsidiaries evidenced by
bonds, debentures, notes, or other similar instruments and all
reimbursement or other obligations of Borrower or any of its
Subsidiaries in respect of letters of credit, bankers
acceptances, interest rate swaps, or other financial products,
(c) all obligations of Borrower or any of its Subsidiaries under
capital leases, (d) all obligations or liabilities of others
secured by a Lien on any property or asset of Borrower or any of
its Subsidiaries, irrespective of whether such obligation or
liability is assumed, (e) all obligations of Borrower or any of
its Subsidiaries for the deferred purchase price of assets (other
than trade debt incurred in the ordinary course of a Borrower's
and its Subsidiaries' business and repayable in accordance with
customary trade practices), (f) any obligation of a Borrower or
any of its Subsidiaries guaranteeing or intended to guarantee
(whether directly or indirectly guaranteed, endorsed, co-made,
discounted, or sold with recourse to a Borrower) any obligation
of any other Person, (g) the net xxxx to market value of all
obligations of Borrower or any of its Subsidiaries under any
Hedging Agreements and any Hedging Agreement Undertaking, (h) all
obligations of Borrower or any of its Subsidiaries to deliver
goods or services including Hydrocarbons in consideration of
advance payments, (i) the undischarged balance of any production
payment, (j) the undischarged balance of any net profits interest
or overriding royalty interest created by Borrower or any of its
Subsidiaries or for the creation of which Borrower or any of its
Subsidiaries directly or indirectly received payment.
"Indemnified Liabilities" has the meaning set
forth in Section 11.3.
"Indemnified Person" has the meaning set forth in
Section 11.3.
"Initial Public Offering" means the first firm
commitment, underwritten public offering of common Stock of
Borrower to the general public under the federal Securities Act
of 1933, completed by Borrower and resulting in gross proceeds
(before underwriting discounts and commissions) to Borrower of at
least $25,000,000.
"Insolvency Proceeding" means any proceeding
commenced by or against any Person under any provision of the
Bankruptcy Code or under any other bankruptcy or insolvency law,
assignments for the benefit of creditors, formal or informal
moratoria, compositions, extensions generally with creditors, or
proceedings seeking reorganization, arrangement, or other similar
relief.
"Intangible Assets" means, with respect to any
Person, that portion of the book value of all of such Person's
assets that would be treated as intangibles under GAAP.
"Intellectual Property" has the meaning ascribed
thereto in Section 5.19.
"Interest Expense" shall mean, for any period, the
sum (determined without duplication) of the aggregate amount of
interest expense accruing during such period on Indebtedness of
Borrower and its Subsidiaries, including the interest portion of
payments under capitalized leases and any capitalized interest,
but excluding amortization of debt discount and expense.
"Inventory" means all present and future inventory
in which Borrower or any of its Subsidiaries has any interest,
including goods and extracted Hydrocarbons held for sale or lease
or to be furnished under a contract of service and all of
Borrower's present and future raw materials, work in process,
finished goods, and packing and shipping materials, wherever
located.
"Investment" means, with respect to any Person,
any investment by such Person in any other Person (including
Affiliates) in the form of loans, guarantees, advances, or
capital contributions (excluding (a) commission, travel, and
similar advances to officers and employees of such Person made in
the ordinary course of business, and (b) bona fide Accounts
arising from the sale of goods or rendition of services in the
ordinary course of business consistent with past practice),
purchases or other acquisitions for consideration of Indebtedness
or Stock, and any other items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP.
"Investment Property" means all of Borrower's
present and hereafter acquired "investment property" as that term
is defined in the Code, and any and all supporting obligations in
respect thereof.
"IRC" means the Internal Revenue Code of 1986, as
amended, and the regulations thereunder.
"Legal Requirements" means all applicable
international, foreign, federal, state, and local laws,
judgments, decrees, orders, statutes, ordinances, rules,
regulations, or Permits, including, without limitation, all
Environmental Laws.
"Lender" and "Lenders" have the respective
meanings set forth in the preamble to this Agreement, and shall
include any other Person made a party to this Agreement in
accordance with the provisions of Section 15.1 hereof.
"Lender Group" means, individually and
collectively, each of the individual Lenders and Agent.
"Lender Group Expenses" means all: costs or
expenses (including taxes, and insurance premiums) required to be
paid by Borrower under any of the Loan Documents that are paid or
incurred by the Lender Group; reasonable fees or charges paid or
incurred by the Lender Group in connection with the Lender
Group's transactions with Borrower, including, fees or charges
for photocopying, notarization, couriers and messengers,
telecommunication, public record searches (including tax lien,
litigation, and UCC [or equivalent] searches and including
searches with the patent and trademark office, the copyright
office, or the department of motor vehicles), filing, recording,
publication, appraisal (including periodic Oil and Gas Property
Collateral appraisals and engineer reports), Reserve Reports and
environmental audits; costs and expenses incurred by Agent in the
disbursement of funds to Borrower (by wire transfer or
otherwise); reasonable charges paid or incurred by Agent
resulting from the dishonor of checks; costs and expenses paid or
incurred by the Lender Group to correct any default or enforce
any provision of the Loan Documents, or in gaining possession of,
maintaining, handling, preserving, storing, shipping, selling,
preparing for sale, or advertising to sell the Collateral, or any
portion thereof, irrespective of whether a sale is consummated;
reasonable costs and expenses paid or incurred by Agent in
examining the Books; costs and expenses of third party claims or
any other suit paid or incurred by the Lender Group in enforcing
or defending the Loan Documents or in connection with the
transactions contemplated by the Loan Documents or the Lender
Group's relationship with Borrower (or any of its Subsidiaries
party to one or more Loan Documents); and the Lender Group's
reasonable attorneys fees and expenses incurred in advising,
structuring, drafting, reviewing, administering, amending,
terminating, enforcing (including attorneys fees and expenses
incurred in connection with a "workout," a "restructuring," or an
Insolvency Proceeding concerning Borrower), defending, or
concerning the Loan Documents, irrespective of whether suit is
brought.
"Lender-Related Persons" means, with respect to
any Lender, such Lender, together with such Lender's Affiliates,
and the officers, directors, employees, counsel, agents, and
attorneys-in-fact of such Lender and such Lender's Affiliates.
"Letter of Credit Undertaking" means any letter of
credit or guaranty of payment, indemnity, participation and/or
undertaking relating to any letter of credit.
"Lien" means any interest in Property securing an
obligation owed to, or a claim by, any Person other than the
owner of the Property, whether such interest shall be based on
the common law, statute, or contract, whether such interest shall
be recorded or perfected, and whether such interest shall be
contingent upon the occurrence of some future event or events or
the existence of some future circumstance or circumstances,
including (a) the lien or security interest arising from a
mortgage, deed of trust, encumbrance, pledge, hypothecation,
assignment, deposit arrangement, security agreement, adverse
claim or charge, conditional sale or trust receipt, or from a
lease, consignment, or bailment for security purposes and also
including reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions, leases, and
other title exceptions and encumbrances affecting Oil and Gas
Property or Real Property and (b) production payments and the
like payable out of Oil and Gas Property. For purposes of this
Agreement, Borrower or any of its Subsidiaries shall be deemed to
be the owner of any Property which it has acquired or holds
subject to a conditional sale agreement, or leases under a
financing lease or other arrangement pursuant to which title to
the Property has been retained by or vested in some other Person
in a transaction intended to create financing.
"Loan Account" has the meaning set forth in
Section 2.10.
"Loan Documents" means this Agreement, the
Disbursement Letter, the Letters of Credit, the Lockbox
Agreements, the Oil and Gas Property Mortgages, the Real Property
Mortgages, the Guaranty Agreements, the Security Agreements, the
Prior Lender Assignment Agreements, any note or notes executed by
Borrower and payable to the Lender Group, and any other agreement
entered into, now or in the future, in connection with this
Agreement.
"Loan Party" means Borrower and each Guarantor.
"Lockbox Account" shall mean a depositary account
established pursuant to one of the Lockbox Agreements.
"Lockbox Agreements" means Lockbox Operating
Procedural Agreements and those certain Depository Account
Agreements, in form and substance satisfactory to Agent, each of
which is among Borrower, Agent, and one of the Lockbox Banks.
"Lockbox Banks" means such banks as may be agreed
to by Borrower and Foothill from time to time.
"Lockboxes" has the meaning set forth in Section
2.7.
"Material Adverse Change" means (a) a material
adverse change in the business, prospects, operations, results of
operations, assets, liabilities or condition (financial or
otherwise) of Borrower, (b) a material adverse effect on the
ability of Borrower to carry out its business as at the Closing
Date or as proposed as of the Closing Date, (c) the material
impairment of Borrower's ability to perform its obligations under
the Loan Documents to which it is a party or of the Lender Group
to enforce the Obligations or realize upon the Collateral, (d)
any event or circumstance that is likely to have a material
adverse effect on the value of the Collateral or the amount that
the Lender Group would be likely to receive (after giving
consideration to delays in payment and costs of enforcement) in
the liquidation of the Collateral, or (e) a material impairment
of the priority of the Agent's Liens with respect to the
Collateral.
"Material Contract" means, as to any Person, any
supply, purchase, service, employment, tax, indemnity, farmout,
gas marketing, gas imbalance, operating, unitization,
communitization, partnership, joint venture or other agreement of
such Person or any of its Subsidiaries or by which such Person or
any of its Subsidiaries or any of their respective properties are
otherwise bound, which is material to the business, operations or
properties of such Person, as the same shall be amended, modified
and supplemented and in effect from time to time.
"Maximum Revolving Amount" means $50,000,000.
"Mineral Interests" shall mean all right, title,
interest and estates now owned or hereafter acquired in and to
oil and gas leases, oil, gas and mineral leases, or other liquid
or gaseous hydrocarbon leases, mineral fee interests, overriding
royalty and royalty interests, net profit interests and
production payment interests, including any reserved interests,
reversionary interests, carried working interests, or residual
interests of whatever nature.
"Moody's" means Xxxxx'x Investors Service, Inc.
and any successor thereto.
"Mortgage Amendment Agreements" means the
amendments to mortgages, deeds of trust and other mineral
interest security agreements covering the mineral interests which
secure the indebtedness, liabilities and other obligations under
the Prior Credit Agreement, in form and substance satisfactory to
Agent.
"Multiemployer Plan" means a "multiemployer plan"
(as defined in Section 4001(a)(3) of ERISA) to which Borrower,
any of its Subsidiaries, or any ERISA Affiliate has contributed,
or was obligated to contribute, within the past six years.
"Negotiable Collateral" means all of a Person's
present and future letters of credit, notes, drafts, instruments,
Investment Property, documents, personal property leases (wherein
such Person is the lessor), chattel paper, and the Books relating
to any of the foregoing.
"NYMEX Price" means, as of the date of the
determination thereof, the average of the 24 succeeding monthly
futures contract prices, commencing with the month during which
the determination is to be made, for each of the appropriate
crude oil or natural gas categories included in the most recent
Reserve Report provided by Borrower to Agent pursuant to
Section 6.2, as applicable, as quoted on the New York Merchantile
Exchange ("NYMEX"), or, if the NYMEX no longer provides futures
contract price quotes for 24 month periods, the longest period of
quotes of less than 24 months shall be used, and, if the NYMEX no
longer provides such futures contract quotes or has ceased to
operate, the Agent shall designate another nationally recognized
commodities exchange to replace the NYMEX.
"NYMEX Value" means, at any date of determination
thereof as to any Proved Reserves of the Borrowing Base Entities,
the result of
(a) the discounted present value of future
net revenues (i.e., after deducting production and ad valorem
taxes and less future capital costs and operating expenses) from
Proved Reserves of the Borrowing Base Entities as of such date
utilizing the NYMEX Price for the appropriate category of oil or
gas as quoted in a nationally recognized publication for such
pricing as selected as of such date by Agent and assuming that
production costs thereafter remain constant, then discounted at a
rate of 10% per year to obtain the present value; minus
(b) to the extent not taken into account in
subparagraph (a) above, the discounted present value (discounted
at a rate of 10% per year) of the Borrowing Base Entities' future
plugging and abandonment expenses; minus
(c) to the extent not taken into account in
subparagraph (a) above, minority interests and other interests of
Persons other than a Borrowing Base Entity and any natural gas
balancing liabilities of a Borrowing Base Entity.
"Obligations" means all loans, Advances, debts,
principal, interest (including any interest that, but for the
provisions of the Bankruptcy Code, would have accrued),
contingent reimbursement obligations under any Letter of Credit
Undertakings or Hedging Agreement Undertakings, premiums
(including Early Termination Premiums), liabilities (including
all amounts charged to Borrower's Loan Account pursuant hereto),
obligations, fees, charges, costs, or Lender Group Expenses
(including any fees or expenses that, but for the provisions of
the Bankruptcy Code, would have accrued), lease payments,
guaranties, covenants, and duties owing by Borrower to the Lender
Group of any kind and description (whether pursuant to or
evidenced by the Loan Documents or pursuant to any other
agreement between the Lender Group and Borrower, and irrespective
of whether for the payment of money), whether direct or indirect,
absolute or contingent, due or to become due, now existing or
hereafter arising, and including any debt, liability, or
obligation owing from Borrower to others that the Lender Group
may have obtained by assignment or otherwise, any debt,
liability, or obligation owing to Agent or any Lender arising
from any Hedging Agreements under which Agent or any Lender is a
counterparty or any Hedging Agreement Undertaking, and further
including all interest not paid when due and all Lender Group
Expenses that Borrower is required to pay or reimburse by the
Loan Documents, by law, or otherwise.
"Oil and Gas Properties" means all of the present
and future right, title and interest (real, personal, mixed,
contractual or otherwise) of Borrower and its Subsidiaries in, to
and under or derived from the following:
(a) All presently existing and hereafter arising
Mineral Interests and surface interests;
(b) All presently existing and hereafter arising
unitization, communitization and pooling declarations,
orders, and agreements (including all units formed by
voluntary agreement and those formed under the rules,
regulations, orders or other official acts of any
governmental entity or tribal authority having
appropriate jurisdiction);
(c) All presently existing and arising oil sales
contracts, casinghead gas sales contracts, gas sales
contracts, processing contracts, gathering contracts,
transportation contracts, easements, rights-of-way,
servitudes, surface leases, subsurface leases, farm-out
contracts, farm-in contracts, operating agreements,
areas of mutual interest and other contracts,
agreements and instruments;
(d) All presently existing and hereafter arising
personal property, improvements, fixtures, xxxxx
(whether producing, plugged and abandoned, shut-in,
injection, disposal or water supply), tanks, boilers,
buildings, machinery, vehicles, Equipment, gathering
lines, pipelines, utility lines, power lines, telephone
lines, water rights, roads, permits, licenses and other
appurtenances, to the extent the same are situated upon
and used or held for use by Borrower or any of its
Subsidiaries in connection with the ownership,
operation, maintenance or repair of the Mineral
Interests and/or surface interests; and
(e) All reservoir, reserve, seismic, geologic or
geophysical information and data.
"Oil and Gas Property Collateral" means the Oil
and Gas Properties which are identified on Schedule 5.1(a) or
Schedule 5.1(b), and any other Oil and Gas Properties now owned
or hereafter acquired by Borrower or any of its Subsidiaries.
"Oil and Gas Property Mortgages" means one or more
mortgages, deeds of trust, or deeds to secure debt, executed by
Borrower and each of its Subsidiaries in favor of Agent, the form
and substance of which shall be satisfactory to Agent, that
encumber the Oil and Gas Property Collateral and the related
improvements thereto (including the Prior Lender Assignment
Agreements).
"Overadvance" has the meaning set forth in Section
2.5.
"Parent" means Southwest Royalties Holdings, Inc.,
a Delaware corporation.
"Participant" has the meaning set forth in Section
15.1(e).
"PBGC" means the Pension Benefit Guaranty
Corporation as defined in Title IV of ERISA, or any successor
thereto.
"Permits" of a Person shall mean all rights,
franchises, permits, authorities, licenses, certificates of
approval or authorizations, including licenses and other
authorizations issuable by a Governmental Authority, which
pursuant to applicable Legal Requirements are necessary to permit
such Person lawfully to conduct and operate its business as
currently conducted and to own and use its assets.
"Permitted Investments" means (a) investments in
marketable direct obligations issued or unconditionally
guaranteed by the United States or issued by any agency thereof
and backed by the full faith and credit of the United States, in
each case maturing within 1 year from the date of acquisition
thereof, (b) investments in marketable direct obligations issued
by any state of the United States or any political subdivision of
any such state or any public instrumentality thereof maturing
within 1 year from the date of acquisition thereof and, at the
time of acquisition, having the highest rating obtainable from
either S&P or Xxxxx'x, (c) investments in commercial paper
maturing no more than 1 year from the date of acquisition thereof
and, at the time of acquisition, having a rating of A-1 or P-1,
or better, from S&P or Xxxxx'x, (d) investments in certificates
of deposit or bankers' acceptances maturing within 1 year from
the date of acquisition thereof either (i) issued by any bank
organized under the laws of the United States or any state
thereof which bank has a rating of A or A2, or better, from S&P
or Xxxxx'x, or (ii) certificates of deposit less than or equal to
$100,000 in the aggregate issued by any other bank insured by the
Federal Deposit Insurance Corporation, (e) investments in
negotiable instruments for collection, and (f) reasonable
advances made in connection with purchases of goods or services
in the ordinary course of business.
"Permitted Liens" means (a) Liens held by Agent
for the benefit of the Lender Group, (b) Liens for unpaid taxes
that either (i) are not yet due and payable or (ii) are the
subject of Permitted Protests, (c) Liens set forth on Schedule P-
1, (d) the interests of lessors under operating leases and
purchase money Liens of lessors under capital leases and purchase
money Liens on motor vehicles arising after the Closing Date
solely for the acquisition thereof to the extent that the
acquisition or lease of the underlying asset is permitted under
Section 7.21 and so long as the Lien only attaches to the asset
purchased or acquired and only secures the purchase price of the
asset, (e) Liens arising by operation of law in favor of
warehousemen, landlords, carriers, mechanics, materialmen,
laborers, or suppliers, or other like Liens arising by operation
of law incidental to the exploration, development, operation and
maintenance of Oil and Gas Properties, in each case incurred in
the ordinary course of business of Borrower and not in connection
with the borrowing of money, and which Liens either (i) are for
sums not yet due and payable, or (ii) are the subject of
Permitted Protests, (f) Liens arising from deposits made in
connection with obtaining worker's compensation or other
unemployment insurance, (g) Liens on deposits and escrowed funds
made to secure performance of bids, tenders and leases (to the
extent permitted under this Agreement) incurred in the ordinary
course of business of Borrower and not in connection with the
borrowing of money, (h) Liens of or resulting from any judgment
or award that do not result in and reasonably could not be
expected to result in a Material Adverse Change and as to which
the time for the appeal or petition for rehearing of which has
not yet expired, or in respect of which Borrower is in good faith
prosecuting an appeal or proceeding for a review and in respect
of which a stay of execution pending such appeal or proceeding
for review has been secured, (i) Liens with respect to the Oil
and Gas Property Collateral that are exceptions to the title
opinions issued in connection with the Oil and Gas Property
Mortgages, as accepted by Agent, (j) with respect to any Oil and
Gas Property Collateral consisting of Mineral Interests acquired
by Borrower or any of its Subsidiaries after the date of this
Agreement, (I) minor easements, rights of way, servitudes,
permits, surface leases and other rights in respect to the
surface operations, pipelines, grazing, logging, canals, ditches,
reservoirs or the like, conditions, covenants and other
restrictions, and easements of streets, alleys, highways,
pipelines, telephone lines, power lines, railways and other
easements and rights of way on, over or in respect of the
Borrower's assets or properties and other minor defects in title
which (A) do not affect the Defensible Title of or restrict the
full use or other benefits of ownership by Borrower or such
Subsidiary, as the case may be, thereto to an extent unacceptable
to Agent in its reasonable judgement and (B) do not affect the
ability of Borrower or such Subsidiary, as the case may be, to
receive a share of production or proceeds from, allocated to, or
attributable to such Mineral Interests equal to the interest of
Borrower or such Subsidiary, as the case may be, therein as
represented herein or in the other Loan Documents, and (C) do not
materially interfere with the ordinary conduct of the business of
Borrower or such Subsidiary, as the case may be, and (D) do not
interfere with or impair the value of Agent's Lien therein for
the benefit of the Lender Group, and (E) are customarily waived
by reasonable and prudent Mineral Interest owners, and (II) Liens
reserved in leases or farmout agreements for rent or royalties
and for compliance with the terms of the farmout agreements or
leases in the case of leasehold estates, to the extent that any
such Lien referred to in this clause does not materially impair
the use of the Mineral Interest covered by such Lien for the
purposes for which such Mineral Interest is held by the Borrower
or any Subsidiary, does not materially interfere with or impair
the value of such Mineral Interest subject thereto or Agent's
Lien therein for the benefit of the Lender Group, is customarily
waived by reasonable and prudent operators, and is consented to
in writing by Agent, (k) farmout, carried working interests,
joint operating, unitization, royalty, overriding royalty, sales
and similar agreements relating to the exploration or development
of, or production from, Oil and Gas Properties or the sale of the
hydrocarbons after they are produced which are existing at the
time of acquisition of such Oil and Gas Property, are usual and
customary for the industry, and are disclosed to and approved by
Agent in writing prior to any Proved Developed Producing Reserves
attributable to such Oil and Gas Property being included in
Eligible Proved Developed Producing Reserves.
"Permitted Protest" means the right of Borrower to
protest any Lien other than any such Lien that secures the
Obligations, tax (other than payroll taxes or taxes that are the
subject of a United States federal tax lien), or rental payment,
provided that (a) a reserve with respect to such obligation is
established on the books of Borrower in an amount that is
satisfactory to Agent, (b) any such protest is instituted and
diligently prosecuted by Borrower in good faith, and (c) Agent is
satisfied that, while any such protest is pending, there will be
no impairment of the enforceability, validity, or priority of any
of the Agent's Liens in and to the Collateral.
"Permitted SWP Merger" means the merger or
consolidation after the Closing Date, but on or before March 31,
2001, of Southwest Partners, L.P., with and into Borrower (and no
other entities involved) in a transaction in which Borrower is
the sole surviving entity of the transaction; provided that (i)
there has not occurred or then exist any Default or Event of
Default, and no Default or Event of Default would is likely to
occur or exist after giving effect thereto, (ii) the sole
consideration in the transaction is the exchange of partnership
interests in Southwest Partners, L.P., for shares of common Stock
of Borrower, (iii) all documentation and compliance with Legal
Requirements pertaining to the transaction has been provided to
Agent and is satisfactory to Agent in its reasonable discretion,
(iv) neither Borrower nor any of its Subsidiaries incurs any
indebtedness, liabilities or other obligations in connection with
or as a result of the transaction other than up to $500,000 of
indebtedness for borrowed money owing to Western National Bank,
Odessa, Texas, (v) neither Borrower nor any of its Subsidiaries
incurs or suffers to exist any Liens in connection with or
resulting from the transaction other than Liens (other than
Permitted Liens) existing on the date of this Agreement in favor
of Western National Bank, Odessa, Texas, which encumber only the
Mineral Interests acquired by Borrower in the transaction to the
extent of only up to $500,000 of the same indebtedness for
borrowed money owing to Western National Bank, Odessa, Texas, as
is described in the immediately preceding clause (iv), and
Borrower shall have provided to Agent such searches of UCC filing
offices, Title Opinions and such other evidence thereof as may be
requested by Agent, and (vi) no Person receives any consideration
in connection with or resulting from the transaction which would
not otherwise be permitted to be paid to such Person at such time
under this Agreement.
"Person" means and includes natural persons,
corporations, limited liability companies, limited partnerships,
general partnerships, limited liability partnerships, joint
ventures, trusts, land trusts, business trusts, or other
organizations, irrespective of whether they are legal entities,
and governments and agencies and political subdivisions thereof.
"Personal Property Collateral" means all
Collateral other than the Oil and Gas Property Collateral and
other than the Real Property Collateral.
"Plan" means any employee benefit plan, program,
or arrangement maintained or contributed to by Borrower or with
respect to which it may incur liability.
"Prior Credit Agreement" has the meaning set forth
in the recitals hereto.
"Prior Lender Assignment Agreements" means the
assignment agreements in the form and substance of Exhibit P-1
attached hereto.
"Prior Lenders" has the meaning set forth in the
recitals.
"Property" means any interest in any kind of
property or asset, whether real, personal or mixed, tangible or
intangible.
"Pro Rata Share" means:
(a) with respect to a Lender's obligation to
make an Advance and receive payments of principal, interest,
fees, costs, and expenses with respect thereto, the percentage
obtained by dividing (i) such Lender's Commitment by (ii) the
aggregate Commitments of all Lenders, and
(b) with respect to all other matters
(including the indemnification obligations arising under
Section 17.7), the percentage obtained by dividing (i) such
Lender's Commitment, by (ii) the aggregate amount of Commitments
of all Lenders;
provided, however, that, in each case, in the event that all
Commitments have been terminated, Pro Rata Share shall be
determined according to the Commitments in effect immediately
prior to such termination.
"Proved Developed Non-Producing Reserves" means
Proved Reserves of the Borrowing Base Entities, other than Proved
Developed Producing Reserves and Proved Undeveloped Reserves,
that can be expected to be recovered through existing xxxxx with
existing equipment and operating methods.
"Proved Developed Producing Reserves" means Proved
Reserves of Borrowing Base Entities, other than Proved Developed
Non-Producing Reserves and Proved Undeveloped Reserves, that can
be expected to be recovered from currently producing zones under
the continuation of present operating methods.
"Proved Reserves" means at any particular time,
the estimated quantities of Hydrocarbons which geological and
engineering data demonstrate with reasonable certainty to be
recoverable in future years from known reservoirs attributable to
Mineral Interests included or to be included in the Reserve
Report under existing economic and operating conditions.
"Proved Undeveloped Reserves" means Proved
Reserves of the Borrowing Base Entities, other than Proved
Developed Producing Reserves and Proved Developed Non-Producing
Reserves, that are expected to be recovered from new xxxxx on
undrilled acreage, or from existing xxxxx where a relatively
major expenditure is required for recompletion.
"Qualified Subsequent Oil and Gas Property" means,
as at any date of determination thereof, Oil and Gas Properties
acquired subsequent to the date of this Agreement with respect to
which all of the representations specified in Section 5.2 are
true and correct and Borrower has delivered to Agent the Oil and
Gas Mortgages, opinions, certificates and other items and
information described on Exhibit B-1.
"Real Property" means any estates or interests in
real property now owned or hereafter acquired by Borrower or any
Subsidiary of Borrower, excluding Oil and Gas Properties.
"Real Property Collateral" means the parcel or
parcels of real property and the related improvements thereto
identified on Schedule 5.1(d) and any Real Property hereafter
acquired by Borrower.
"Real Property Mortgages" means one or more
mortgages, deeds of trust, or deeds to secure debt, executed by
Borrower and each of its Subsidiaries in favor of Agent, or to
the Prior Agent and assigned to Agent, the form and substance of
which shall be satisfactory to Agent, that encumber the Real
Property Collateral and the related improvements thereto.
"Reference Rate" means the variable rate of
interest, per annum, most recently announced by Xxxxx Fargo Bank,
National Association, or any successor thereto, as its "prime
rate," irrespective of whether such announced rate is the best
rate available from such financial institution.
"Refinancing Letter" means a letter, in form and
substance reasonably satisfactory to Agent, from Prior Lender
respecting the amount necessary to purchase and refinance in full
all of the obligations of Borrower owing to Prior Lenders and
obtain an assignment to Agent of all of the Liens existing in
favor of Prior Lenders in and to the properties or assets of
Borrower.
"Renewal Date" has the meaning set forth in
Section 3.4.
"Reportable Event" means any of the events
described in Section 4043(c) of ERISA or the regulations
thereunder other than a Reportable Event as to which the
provision of 30 days notice to the PBGC is waived under
applicable regulations.
"Required Lenders" means, at any time, Lenders
whose Pro Rata Shares aggregate 51% or more of the Commitments,
or, if the Commitments have been terminated irrevocably, 51% of
the Obligations then outstanding.
"Reserve Report" means a report, in form and
substance satisfactory to Agent, prepared by Borrower and audited
by Xxxxx Xxxxx Company, Xxxxxxx Xxxx & Xxxxxxxx or another firm
of independent petroleum engineers selected by Borrower and
acceptable to Agent evaluating the oil and gas reserves
attributable to the Mineral Interests of the Borrowing Base
Entities (and no other Persons) which shall, among other things,
(a) identify the xxxxx covered thereby, (b) specify said third
party's opinions with respect to the total volume of Proved
Reserves (specifying with such opinions the terms of categories
Proved Developed Producing Reserves, Proved Developed Non-
Producing Reserves and Proved Undeveloped Reserves) which
Borrower has the right to produce (or cause to be produced) for
its own account, (c) set forth said firm's opinions with respect
to the NYMEX Value of each of the categories of the Proved
Reserves as specified in subclause (b) above, (d) set forth said
firm's opinions with respect to the projected future rate of
production of the Proved Reserves, (e) contain such other
information as requested by Agent with respect to the projected
rate of production, gross revenues, operating expenses, net
income, taxes, capital expenditures and other capital costs, net
revenues and present value of future net revenues attributable to
such reserves and production therefrom, and (f) contain a
statement of the price and escalation parameters, procedures and
assumptions upon which such determinations were based.
"Reserves Against Availability" means such
reserves as Agent determines in Agent's sole discretion as being
appropriate to reflect impediments to Agent's ability to realize
upon the Collateral or impairments or reductions to the value of
the Collateral. Without limiting the generality of the
foregoing, Reserves Against Availability may include (but are not
limited to) reserves based upon the following:
(a) accounts payable which are 45 days or more
past the original invoice date thereof;
(b) past due or accrued taxes or other
governmental charges, including ad valorem, personal
property, production, severance and other taxes which
may have priority over the Liens or security interests
of Agent in the Collateral;
(c) Liens in favor of third Persons (whether or
not such Liens are Permitted Liens);
(d) deposits which are due or scheduled to become
due during the immediately following 180 day period
under deposit or escrow arrangement concerning costs,
expenses and liabilities relating to the plugging and
abandonment of Oil and Gas Properties;
(e) estimates of present and future costs,
expenses, deposits and liabilities related to the
plugging and abandonment of the Oil and Gas Properties
net of the amount thereof which has been taken into
account in the most recent Reserve Report or is fully
secured by an escrow arrangement acceptable to Agent;
(f) sums which any Borrowing Base Entity may be
required to pay which are due or are scheduled to
become due during such period as shall be determined by
Agent with respect to rental, lease and other amounts
payable under leases or the Oil and Gas Properties
(except for commercial building leases with respect to
which Borrower has delivered to Agent a Collateral
Access Agreement);
(g) without duplication of the foregoing, amounts
owing by any Borrowing Base Entity to any Person to the
extent secured by a Lien (whether or not such Lien is a
Permitted Lien) on, or trust (constructive or
otherwise) over, any of the Collateral (including
proceeds thereof or collections from the sale of
Hydrocarbons or Mineral Interests which may from time
to time come into the possession of any of the Lender
Group or its agents), which Lien or trust, in the
determination of Agent (from the perspective of an
asset-based lender), has a possibility of having a
priority superior to the Agent's Liens (such as
landlord liens, ad valorem taxes, production taxes,
severance taxes, sales taxes, Collections attributable
to Mineral Interests of Persons other than a Borrowing
Base Entity) in and to such item of Collateral,
proceeds or collection; and
(h) to the extent not taken into account in the
most recent Reserve Report submitted to Agent in the
determination of the NYMEX Value of any Proved Reserves
of the Borrowing Base Entities used in determining the
Borrowing Base, sums which Agent determines are
appropriate to account for minority interests and other
interests of Persons other than a Borrowing Base Entity
and any natural gas balancing liabilities of Borrower.
"Retiree Health Plan" means an "employee welfare
benefit plan" within the meaning of Section 3(1) of ERISA that
provides benefits to individuals after termination of their
employment, other than as required by Section 601 of ERISA.
"Revolving Facility Usage" means, as of any date
of determination, the aggregate amount of Advances outstanding.
"SEC" means the United States Securities and
Exchange Commission and any successor Federal agency having
similar powers.
"Securities Account" means a "securities account"
as that term is defined in Section 8501 of the Code.
"Security Agreements" means, collectively, any and
all of the security agreement, pledges, mortgages, deeds of
trust, assignments, stock pledge agreements, assignments of
partnership interests, and such other agreements, documents and
instruments, in form and substance satisfactory to Agent, which
are, or are to be, executed by Borrower and/or any one or more of
its Subsidiaries in favor of Agent and/or the Lenders as may be
required from time to time by Agent to provide Agent for the
benefit of the Lender Group with Liens upon all of the assets and
properties of Borrower and its Subsidiaries as security for the
payment and performance in full of the Obligations, in each case
as the same may be amended, modified, restated, supplemented,
increased, renewed, extended, substituted for or replaced from
time to time, together with the Prior Lender Assignment
Agreements and the security agreements, pledges, mortgages, deeds
of trust, assignments, stock pledge agreements, assignments of
partnership interests, and other agreements, documents and
instruments covered thereby.
"Settlement" has the meaning set forth in Section
2.1(h)(i).
"Settlement Date" has the meaning set forth in
Section 2.1(h)(i).
"Solvent" means, with respect to any Person on a
particular date, that on such date (a) at fair valuations, all of
the properties and assets of such Person are greater than the sum
of the debts, including contingent liabilities, of such Person,
(b) the present fair salable value of the properties and assets
of such Person is not less than the amount that will be required
to pay the probable liability of such Person on its debts as they
become absolute and matured, (c) such Person is able to realize
upon its properties and assets and pay its debts and other
liabilities, contingent obligations and other commitments as they
mature in the normal course of business, (d) such Person does not
intend to, and does not believe that it will, incur debts beyond
such Person's ability to pay as such debts mature, and (e) such
Person is not engaged in business or a transaction, and is not
about to engage in business or a transaction, for which such
Person's properties and assets would constitute unreasonably
small capital after giving due consideration to the prevailing
practices in the industry in which such Person is engaged. In
computing the amount of contingent liabilities at any time, it is
intended that such liabilities will be computed at the amount
that, in light of all the facts and circumstances existing at
such time, represents the amount that reasonably can be expected
to become an actual or matured liability.
"Standard & Poor's" means Standard & Poor's
Ratings Services, a division of The XxXxxx-Xxxx Companies, Inc.,
and any successor thereto.
"Stock" means all shares, options, warrants,
interests, participations, or other equivalents (regardless of
how designated) of or in a corporation or equivalent entity,
whether voting or nonvoting, including common stock, preferred
stock, or any other "equity security" (as such term is defined in
Rule 3a11-1 of the General Rules and Regulations promulgated by
the SEC under the Exchange Act).
"Subsidiary" of a Person means a corporation,
partnership, limited liability company, or other entity in which
that Person directly or indirectly owns or controls the shares of
Stock or other ownership interests having ordinary voting power
to elect a majority of the board of directors (or appoint other
comparable managers) of such corporation, partnership, limited
liability company, or other entity; provided, however, that (i)
Blue Heel shall at all times be considered a Subsidiary of
Borrower for purposes of this Agreement, (ii) Basic Energy
Services, Inc., a Delaware corporation, shall not be considered a
Subsidiary of Borrower for purposes of this Agreement, and (iii)
none of the Designated Affiliated Limited Partnerships shall be
considered a Subsidiary of Borrower for purposes of this
Agreement other than for purposes of the definitions of "Benefit
Plan", "Environmental Laws" and "ERISA Event" contained herein
and for purposes of Sections 2.7, 5.8, 5.13, 5.14, 5.15, 5.18,
5.22, 6.2(l), 6.2(m), 6.9, 6.13, 6.14, 7.7, 7.8, 7.19, 7.24,
7.28, 17.3, 17.6, and 17.8 of this Agreement.
"Tangible Net Worth" means, as of any date of
determination, the difference of (a) Borrower's total
stockholder's equity, minus (b) the sum of: (i) all Intangible
Assets of Borrower, (ii) all of Borrower's prepaid expenses, and
(iii) all amounts due to Borrower from Affiliates.
"Title Opinion" has the meaning set forth in
Section 3.1(l).
"Transfer Order Letters" means transfer order
letters in the form of Exhibit T-1 attached hereto containing the
information as provided for therein.
"Unsecured Notes" means those certain 10 1/2%
unsecured notes in the aggregate original principal amount of
$200,000,000, dated as of October 15, 1997, and maturing on
October 15, 2004, issued under the Unsecured Notes Indenture, as
amended, modified, renewed or restated from time to time.
"Unsecured Notes Indebtedness Limitation" means at
any particular date the maximum amount of Obligations which may
at such time be outstanding pursuant to this Agreement that
constitute "Permitted Indebtedness" (as such term is defined in
the Unsecured Notes Indenture) and not cause or result in a
violation of the Unsecured Notes Indenture or cause or result in
any holders of the Unsecured Notes (or any trustee or agent for
the benefit thereof) having the right to demand repayment,
repurchase, retirement or redemption thereof or any similar right
with respect thereto, as determined by Agent in its sole
discretion.
"Unsecured Notes Indenture" means that certain
Indenture, dated as of October 15, 1997, among Borrower, Parent
and State Street Bank and Trust Company, as Trustee, pursuant to
which the Unsecured Notes have been issued, as amended, modified,
renewed or restated from time to time.
"Voidable Transfer" has the meaning set forth in
Section 18.7.
"Working Interest" means that interest in an oil
and gas mineral lease which gives the owner the right to explore
for, develop, exploit, and/or produce the minerals and includes
the obligation to pay the expense of such activities.
1.2 Accounting Terms. All accounting terms not
specifically defined herein shall be construed in accordance with
GAAP. When used herein, the term "financial statements" shall
include the notes and schedules thereto. Whenever the term
"Borrower" is used in respect of a financial covenant or a
related definition, it shall be understood to mean Borrower on a
consolidated basis unless the context clearly requires otherwise.
1.3 Code. Any terms used in this Agreement that are
defined in the Code shall be construed and defined as set forth
in the Code unless otherwise defined herein.
1.4 Construction. Unless the context of this
Agreement or any other Loan Document clearly requires otherwise,
references to the plural include the singular, references to the
singular include the plural, the term "including" is not
limiting, and the term "or" has, except where otherwise
indicated, the inclusive meaning represented by the phrase
"and/or." The words "hereof," "herein," "hereby," "hereunder,"
and similar terms in this Agreement or any other Loan Document
refer to this Agreement or any other Loan Documents, as the case
may be, as a whole and not to any particular provision of this
Agreement or such other Loan Document, as the case may be. An
Event of Default shall "continue" or be "continuing" until such
Event of Default has been waived in writing by Agent. Section,
subsection, clause, schedule, and exhibit references herein are
to this Agreement unless otherwise specified. Any reference in
this Agreement or in the Loan Documents to this Agreement or any
of the Loan Documents shall include all alterations, amendments,
changes, extensions, modifications, renewals, replacements,
substitutions, joinders, and supplements, thereto and thereof, as
applicable.
1.5 Schedules and Exhibits. All of the schedules and
exhibits attached to this Agreement shall be deemed incorporated
herein by reference.
2. LOAN AND TERMS OF PAYMENT
2.1 Revolving Advances.
(a) Subject to the terms and conditions of this
Agreement and during the term of this Agreement, each Lender
(severally, not jointly or jointly and severally) agrees to make
advances ("Advances") to Borrower in an amount at any one time
outstanding not to exceed such Lender's Pro Rata Share of an
amount equal to the least of (i) the Maximum Revolving Amount, or
(ii) the Borrowing Base, or (iii) the Unsecured Note Indebtedness
Limitation. For purposes of this Agreement, the "Borrowing
Base," as of any date of determination (which, in the absence of
the occurrence and continuation of an Event of Default, shall be
determined no less frequently than monthly), shall mean the
result of:
(x) 45% of Borrower's Eligible Proved
Developed Producing Reserves, minus
(y) the sum of aggregate amount of
reserves, if any, established by Agent under Section
2.1(b).
In determining the Borrowing Base as of any date of
determination, the Proved Developed Producing Reserves of any
Mineral Interest shall be based upon the volumetric quantity and
production forecasts and the related lease operating expenses of
the Proved Developed Producing Reserves of such Mineral Interest
estimated in the Reserve Report covering the same most recently
delivered to Agent minus the amount of Proved Developed Producing
Reserves of such Mineral Interest that has been projected to be
produced since the date of such Reserve Report as set forth in
the independent petroleum engineer's opinion with respect to the
projected rate of such future production contained in such
Reserve Report (subject to adjustment if the amount actually
produced since such date exceeds the amount projected to be
produced since such date). Unless otherwise required by Agent,
the Borrowing Base shall be determined on the first day of each
month. The Borrowing Base on the Closing Date shall be based
upon the volumetric quantity and production forecasts of Proved
Developed Producing Reserves as of June 30, 2000, multiplied by
the NYMEX Price as of the day which is not more than 5 Business
Days immediately preceding the Closing Date.
The Lenders shall have no obligation to make additional Advances
hereunder to the extent such additional Advances would cause the
outstanding Revolving Facility Usage to exceed the least of (i)
the Maximum Revolving Amount, or (ii) the Borrowing Base, or
(iii) the Unsecured Note Indebtedness Limitation.
Amounts borrowed pursuant to this Section 2.1 may be repaid and,
subject to the terms and conditions of this Agreement, reborrowed
at any time during the term of this Agreement.
(b) Advance Rate Adjustments and Reserves; Proved
Developed Producing Reserves Reappraisals.
(i) Anything to the contrary in this Section
notwithstanding, Agent shall have the right to establish reserves
against the Borrowing Base in such amounts as Agent, in its
credit judgment (from the perspective of an asset-based lender)
shall deem necessary or appropriate, including reserves on
account of (A) sums that Borrower is required to pay (such as
taxes, assessments, insurance premiums, or, in the case of leased
assets, rents or other amounts payable under such leases) and has
failed to pay under any Section of this Agreement or any other
Loan Document, (B) without duplication of the foregoing, amounts
owing by such Borrower to any Person to the extent secured by a
Lien on, or trust over, any of the Collateral, which Lien or
trust, in the determination of Agent (from the perspective of an
asset-based lender), could have a priority superior to the
Agent's Liens (such as landlord liens, ad valorem taxes, or sales
taxes where given priority under applicable law) in and to such
item of Collateral, and (C) without duplication of the foregoing,
Reserves Against Availability.
(ii) Agent shall have the right to require,
from time to time, Borrower to deliver updated Reserve Reports
whereby the volumetric quantity and production forecasts and
related lease operating expenses of Proved Developed Producing
Reserves are redetermined from time to time by a qualified
petroleum engineer approved by Agent after the Closing Date for
the purpose of recalculating the NYMEX Value of the Proved
Developed Producing Reserves located at the Oil and Gas Property
Collateral. In the absence of the occurrence and continuation of
an Event of Default, such redeterminations shall occur semi-
annually on such dates of each year as shall be required by
Agent, and such appraisals shall be delivered to Agent not later
than 90 days after each such date.
(c) Procedure for Borrowing. Each Borrowing
shall be made upon Borrower's irrevocable request therefor (the
"Borrowing Request") either delivered in writing or made by
telephone to Agent (which notice must be received by Agent no
later than 10:00 a.m. (California time) on the fifth (5th)
Business Day preceding the requested Funding Date specifying (i)
the amount of the Borrowing, and (ii) the requested Funding Date,
which shall be a Business Day, and each such Borrowing Request
shall be accompanied by a Reserve Report with respect to any Oil
and Gas Properties which are to be acquired by Borrower. All
Advances requested in any Borrowing Request must be in an amount
not less than $1,000,000 and integral multiples of $500,000 in
excess thereof, unless the amount available for further Revolving
Advances under Section 2.1(a) is less than $1,000,000, in which
event the Borrowing Request must be in an amount equal to the
maximum amount then available for further Revolving Advances.
There may be no more than one Advance made during any specific
seven consecutive day period.
(d) Agent's Election. Promptly after receipt of
a request for a Borrowing pursuant to Section 2.1(c), Agent shall
elect, in its discretion, (i) to have the terms of Section 2.1(e)
apply to such requested Borrowing, or (ii) to request Foothill to
make a Foothill Loan pursuant to the terms of Section 2.1(f) in
the amount of the requested Borrowing; provided, however, that if
Foothill declines in its sole discretion to make a Foothill Loan
pursuant to Section 2.1(f), Agent shall elect to have the terms
of Section 2.1(e) apply to such requested Borrowing.
(e) Making of Advances.
(i) In the event that Agent shall elect to
have the terms of this Section 2.1(e) apply to a requested
Borrowing as described in Section 2.1(d), then promptly after
receipt of a request for a Borrowing pursuant to Section 2.1(c),
Agent shall notify the Lenders, not later than 1:00 p.m.
(California time) on the Business Day immediately preceding the
Funding Date applicable thereto, by telecopy, telephone, or other
similar form of transmission, of the requested Borrowing. Each
Lender shall make the amount of such Lender's Pro Rata Share of
the requested Borrowing available to Agent in immediately
available funds, to such account of Agent as Agent may designate,
not later than 10:00 a.m. (California time) on the Funding Date
applicable thereto. After Agent's receipt of the proceeds of
such Advances, upon satisfaction of the applicable conditions
precedent set forth in Section 3 hereof, Agent shall make the
proceeds of such Advances available to Borrower on the applicable
Funding Date by transferring same day funds equal to the proceeds
of such Advances received by Agent to Borrower's Designated
Account; provided, however, that, subject to the provisions of
Section 2.1(k), Agent shall not request any Lender to make, and
no Lender shall have the obligation to make, any Advance if Agent
shall have received written notice from any Lender, or otherwise
has actual knowledge, that (1) one or more of the applicable
conditions precedent set forth in Section 3 will not be satisfied
on the requested Funding Date for the applicable Borrowing unless
such condition has been waived by Agent, or (2) the requested
Borrowing would exceed the Availability of the Borrower
requesting the Advance on such Funding Date.
(ii) Unless Agent receives notice from a
Lender on or prior to the Closing Date or, with respect to any
Borrowing after the Closing Date, at least one (1) Business Day
prior to the date of such Borrowing, that such Lender will not
make available as and when required hereunder to Agent for the
account of Borrower the amount of that Lender's Pro Rata Share of
the Borrowing, Agent may assume that each Lender has made or will
make such amount available to Agent in immediately available
funds on the Funding Date and Agent may (but shall not be so
required), in reliance upon such assumption, make available to
Borrower on such date a corresponding amount. If and to the
extent any Lender shall not have made its full amount available
to Agent in immediately available funds and Agent in such
circumstances has made available to Borrower such amount, that
Lender shall on the Business Day following such Funding Date make
such amount available to Agent, together with interest at the
Defaulting Lenders Rate for each day during such period. A
notice submitted by Agent to any Lender with respect to amounts
owing under this subsection shall be conclusive, absent manifest
error. If such amount is so made available, such payment to
Agent shall constitute such Lender's Advance on the date of
Borrowing for all purposes of this Agreement. If such amount is
not made available to Agent on the Business Day following the
Funding Date, Agent will notify Borrower of such failure to fund
and, upon demand by Agent, Borrower shall pay such amount to
Agent for Agent's account, together with interest thereon for
each day elapsed since the date of such Borrowing, at a rate per
annum equal to the interest rate applicable at the time to the
Advances composing such Borrowing. The failure of any Lender to
make any Advance on any Funding Date shall not relieve any other
Lender of any obligation hereunder to make an Advance on such
Funding Date, but no Lender shall be responsible for the failure
of any other Lender to make the Advance to be made by such other
Lender on any Funding Date.
(iii) Agent shall not be obligated to
transfer to a Defaulting Lender any payments made by Borrower to
Agent for the Defaulting Lender's benefit; nor shall a Defaulting
Lender be entitled to the sharing of any payments hereunder.
Amounts payable to a Defaulting Lender shall instead be paid to
or retained by Agent. Agent may hold and, in its discretion, re-
lend to Borrower the amount of all such payments received or
retained by it for the account of such Defaulting Lender. Solely
for the purposes of voting or consenting to matters with respect
to the Loan Documents and determining Pro Rata Shares, such
Defaulting Lender shall be deemed not to be a "Lender" and such
Lender's Commitment shall be deemed to be zero (-0-). This
section shall remain effective with respect to such Lender until
(x) the Obligations under this Agreement shall have been declared
or shall have become immediately due and payable or (y) the
requisite non-Defaulting Lenders and Agent shall have waived such
Lender's default in writing. The operation of this section shall
not be construed to increase or otherwise affect the Commitment
of any Lender, or relieve or excuse the performance by Borrower
of its duties and obligations hereunder.
(f) Making of Foothill Loans.
(i) In the event Agent shall elect, with the
consent of Foothill as a Lender, to have the terms of this
Section 2.1(f) apply to a requested Borrowing as described in
Section 2.1(d), Foothill as a Lender shall make an Advance in the
amount of such Borrowing (any such Advance made solely by
Foothill as a Lender pursuant to this Section 2.1(f) being
referred to as a "Foothill Loan" and such Advances being referred
to collectively as "Foothill Loans") available to Borrower on the
Funding Date applicable thereto by transferring same day funds to
Borrower's Designated Account. Each Foothill Loan is an Advance
hereunder and shall be subject to all the terms and conditions
applicable to other Advances, except that all payments thereon
shall be payable to Foothill as a Lender solely for its own
account (and for the account of the holder of any participation
interest with respect to such Advance). Subject to the
provisions of Section 2.1(k), Agent shall not request Foothill as
a Lender to make, and Foothill as a Lender shall not make, any
Foothill Loan if Agent shall have received written notice from
any Lender, or otherwise has actual knowledge, that (i) one or
more of the applicable conditions precedent set forth in Section
3 will not be satisfied on the requested Funding Date for the
applicable Borrowing unless such condition has been waived, or
(ii) the requested Borrowing would exceed the Availability of
Borrower on such Funding Date. Foothill as a Lender shall not
otherwise be required to determine whether the applicable
conditions precedent set forth in Section 3 have been satisfied
on the Funding Date applicable thereto prior to making, in its
sole discretion, any Foothill Loan.
(ii) The Foothill Loans shall be secured by
the Collateral and shall constitute Advances and Obligations
hereunder, and shall bear interest at the rate applicable from
time to time to Advances pursuant to Section 2.6 hereof.
(g) Agent Advances.
(i) Subject to the limitations set forth in
the proviso contained in this Section 2.1(g), Agent hereby is
authorized by Borrower and the Lenders, from time to time in
Agent's sole discretion, (1) after the occurrence and during the
continuance of a Default or an Event of Default, or (2) at any
time that any of the other applicable conditions precedent set
forth in Section 3 have not been satisfied, to make Advances to
Borrower on behalf of the Lenders that Agent, in its reasonable
business judgment, deems necessary or desirable (A) to preserve
or protect the Collateral, or any portion thereof, (B) to enhance
the likelihood of repayment of the Obligations, or (C) to pay any
other amount chargeable to Borrower pursuant to the terms of this
Agreement, including Lender Group Expenses and the costs, fees,
and expenses described in Section 10 (any of the Advances
described in this Section 2.1(g) shall be referred to as "Agent
Advances"). Each Agent Advance is an Advance hereunder and shall
be subject to all the terms and conditions applicable to other
Advances, except that all payments on such Agent Advance shall be
payable to Agent solely for its own account (and for the account
of the holder of any participation interest with respect to such
Agent Advance).
(ii) Agent Advances shall be repayable on
demand and secured by the Collateral, shall constitute Advances
and Obligations hereunder, and shall bear interest at the rate
applicable from time to time to the Advances pursuant to Section
2.6 hereof.
(h) Settlement. It is agreed that each Lender's
funded portion of the Advances is intended by the Lenders to
equal, at all times, such Lender's Pro Rata Share of the
outstanding Advances. Such agreement notwithstanding, Agent,
Foothill, and the other Lenders agree (which agreement shall not
be for the benefit of or enforceable by Borrower) that in order
to facilitate the administration of this Agreement and the other
Loan Documents, settlement among them as to the Advances, the
Foothill Loans, and the Agent Advances shall take place on a
periodic basis in accordance with the following provisions:
(i) Agent shall request settlement
("Settlement") with the Lenders on a weekly basis, or on a more
frequent basis if so determined by Agent, (1) on behalf of
Foothill, with respect to each outstanding Foothill Loan, (2) for
itself, with respect to each Agent Advance, and (3) with respect
to Collections received, as to each by notifying the Lenders by
telecopy, telephone, or other similar form of transmission, of
such requested Settlement, no later than 2:00 p.m. (California
time) on the Business Day immediately prior to the date of such
requested Settlement (the date of such requested Settlement being
the "Settlement Date"). Such notice of a Settlement Date shall
include a summary statement of the amount of outstanding
Advances, Foothill Loans, and Agent Advances for the period since
the prior Settlement Date, the amount of repayments received in
such period, and the amounts allocated to each Lender of the
interest, fees, and other charges for such period. Subject to
the terms and conditions contained herein (including Section
2.1(e)(iii)): (y) if a Lender's balance of the Advances, Foothill
Loans, and Agent Advances exceeds such Lender's Pro Rata Share of
the Advances, Foothill Loans, and Agent Advances as of a
Settlement Date, then Agent shall by no later than 12:00 p.m.
(California time) on the Settlement Date transfer in immediately
available funds to the account of such Lender as such Lender may
designate, an amount such that each such Lender shall, upon
receipt of such amount, have as of the Settlement Date, its Pro
Rata Share of the Advances, Foothill Loans, and Agent Advances;
and (z) if a Lender's balance of the Advances, Foothill Loans,
and Agent Advances is less than such Lender's Pro Rata Share of
the Advances, Foothill Loans, and Agent Advances as of a
Settlement Date, such Lender shall no later than 12:00 p.m.
(California time) on the Settlement Date transfer in immediately
available funds to such account of Agent as Agent may designate,
an amount such that each such Lender shall, upon transfer of such
amount, have as of the Settlement Date, its Pro Rata Share of the
Advances, Foothill Loans, and Agent Advances. Such amounts made
available to Agent under clause (z) of the immediately preceding
sentence shall be applied against the amounts of the applicable
Foothill Loan or Agent Advance and, together with the portion of
such Foothill Loan or Agent Advance representing Foothill's Pro
Rata Share thereof, shall constitute Advances of such Lenders.
If any such amount is not made available to Agent by any Lender
on the Settlement Date applicable thereto to the extent required
by the terms hereof, Agent shall be entitled to recover for its
account such amount on demand from such Lender together with
interest thereon at the Defaulting Lenders Rate.
(ii) In determining whether a Lender's
balance of the Advances, Foothill Loans, and Agent Advances is
less than, equal to, or greater than such Lender's Pro Rata Share
of the Advances, Foothill Loans, and Agent Advances as of a
Settlement Date, Agent shall, as part of the relevant Settlement,
apply to such balance the portion of payments actually received
in good funds by Agent or Foothill with respect to principal,
interest, fees payable by Borrower and allocable to the Lenders
hereunder, and proceeds of Collateral. To the extent that a net
amount is owed to any such Lender after such application, such
net amount shall be distributed by Agent or Foothill to that
Lender as part of such next Settlement.
(iii) Between Settlement Dates, Agent, to
the extent no Agent Advances or Foothill Loans are outstanding,
may pay over to Foothill any payments received by Agent, that in
accordance with the terms of this Agreement would be applied to
the reduction of the Advances, for application to Foothill's Pro
Rata Share of the Advances. If, as of any Settlement Date,
Collections received since the then immediately preceding
Settlement Date have been applied to Foothill's Pro Rata Share of
the Advances other than to Foothill Loans or Agent Advances, as
provided for in the previous sentence, Foothill shall pay to
Agent for the accounts of the Lenders, and Agent shall pay to the
Lenders, to be applied to the outstanding Advances of such
Lenders, an amount such that each Lender shall, upon receipt of
such amount, have, as of such Settlement Date, its Pro Rata Share
of the Advances. During the period between Settlement Dates,
Foothill with respect to Foothill Loans, Agent with respect to
Agent Advances, and each Lender with respect to the Advances
other than Foothill Loans and Agent Advances, shall be entitled
to interest at the applicable rate or rates payable under this
Agreement on the daily amount of funds employed by Foothill,
Agent, or the Lenders, as applicable.
(i) Notation. Agent shall record on its books
the principal amount of the Advances owing to each Lender,
including the Foothill Loans owing to Foothill, and Agent
Advances owing to Agent, and the interests therein of each
Lender, from time to time. In addition, each Lender is
authorized, at such Lender's option, to note the date and amount
of each payment or prepayment of principal of such Lender's
Advances in its books and records, including computer records,
such books and records constituting rebuttably presumptive
evidence, absent manifest error, of the accuracy of the
information contained therein.
(j) Lenders' Failure to Perform. All Advances
(other than Foothill Loans and Agent Advances) shall be made by
the Lenders simultaneously and in accordance with their Pro Rata
Shares. It is understood that (i) no Lender shall be responsible
for any failure by any other Lender to perform its obligation to
make any Advances hereunder, nor shall any Commitment of any
Lender be increased or decreased as a result of any failure by
any other Lender to perform its obligation to make any Advances
hereunder, and (ii) no failure by any Lender to perform its
obligation to make any Advances hereunder shall excuse any other
Lender from its obligation to make any Advances hereunder.
(k) Optional Overadvances. Any contrary
provision of this Agreement notwithstanding, if the condition for
borrowing under Section 3.2(d) cannot be fulfilled, the Lenders
nonetheless hereby authorize Agent or Foothill, as applicable,
and Agent or Foothill, as applicable, may, but is not obligated
to, knowingly and intentionally continue to make Advances
(including Foothill Loans) to Borrower such failure of condition
notwithstanding, so long as, at any time (i) the outstanding
Revolving Facility Usage does not exceed the Borrowing Base by
more than five percent (5.0%) of the Borrowing Base, and (ii) the
outstanding Revolving Facility Usage (except for and excluding
amounts charged to the Loan Account for interest, fees, or Lender
Group Expenses) does not exceed the Maximum Revolving Amount.
The foregoing provisions are for the sole and exclusive benefit
of Agent, Foothill, and the Lenders and are not intended to
benefit Borrower in any way. The Advances and Foothill Loans, as
applicable, that are made pursuant to this Section 2.1(k) shall
be subject to the same terms and conditions as any other Advance
or Foothill Loan, as applicable, except that the rate of interest
applicable thereto shall be the rates set forth in Section 2.6(b)
hereof without regard to the presence or absence of a Default or
Event of Default; provided, that the Required Lenders may, at any
time during the continuance of an Event of Default or if Borrower
fails to satisfy any other material lending condition, revoke
Agent's authorization contained in this Section 2.1(k) to make
Overadvances (except for and excluding amounts charged to the
Loan Account for interest, fees, or Lender Group Expenses), any
such revocation to be in writing and to become effective upon
Agent's receipt thereof.
In the event Agent obtains actual knowledge that
Revolving Facility Usage exceeds the amount permitted by the
preceding paragraph, regardless of the amount of or reason for
such excess, Agent shall notify Lenders as soon as practicable
(and prior to making any, or any further, intentional
Overadvances (except for and excluding amounts charged to the
Loan Account for interest, fees, or Lender Group Expenses) unless
Agent determines that prior notice would result in imminent harm
to the Collateral or its value), and the Lenders thereupon shall,
together with Agent, jointly determine the terms of arrangements
that shall be implemented with Borrower intended to reduce,
within a reasonable time, the outstanding principal amount of the
Advances to Borrower to an amount permitted by the preceding
paragraph. In the event any Lender disagrees over the terms of
reduction and/or repayment of any Overadvance, the terms of
reduction and/or repayment thereof shall be implemented according
to the determination of the Required Lenders.
Each Lender shall be obligated to settle with
Agent as provided in Section 2.1(h) for the amount of such
Lender's Pro Rata Share of any unintentional Overadvances by
Agent reported to such Lender, any intentional Overadvances made
as permitted under this Section 2.1(k), and any Overadvances
resulting from the charging to the Loan Account of interest,
fees, or Lender Group Expenses.
(l) Effect of Bankruptcy. If a case is commenced
by or against Borrower under the U.S. Bankruptcy Code, or other
statute providing for debtor relief, then, unless otherwise
agreed by all Lenders, the Lender Group shall not make additional
loans or provide additional financial accommodations under the
Loan Documents to Borrower as debtor or debtor-in-possession, or
to any trustee for Borrower, nor consent to the use of cash
collateral (provided that the Loan Account shall continue to be
charged, to the fullest extent permitted by law, for accruing
interest, fees, and Lender Group Expenses).
2.2 [Intentionally Omitted].
2.3 [Intentionally Omitted].
2.4 Payments.
(a) Payments by Borrower.
(i) All payments to be made by Borrower
shall be made without set-off, recoupment, deduction, or
counterclaim, except as otherwise required by law. Except as
otherwise expressly provided herein, all payments by Borrower
shall be made to Agent for the account of the Lenders at Agent's
address set forth in Section 12, and shall be made in immediately
available funds, no later than 11:00 a.m. (California time) on
the date specified herein. Any payment received by Agent later
than 11:00 a.m. (California time), at the option of Agent, shall
be deemed to have been received on the following Business Day and
any applicable interest or fee shall continue to accrue until
such following Business Day.
(ii) Whenever any payment is due on a day
other than a Business Day, such payment shall be made on the
following Business Day, and such extension of time shall in such
case be included in the computation of interest or fees, as the
case may be.
(iii) Unless Agent receives notice from
Borrower prior to the date on which any payment is due to the
Lenders that Borrower will not make such payment in full as and
when required, Agent may assume that Borrower has made such
payment in full to Agent on such date in immediately available
funds and Agent may (but shall not be so required), in reliance
upon such assumption, distribute to each Lender on such due date
an amount equal to the amount then due such Lender. If and to
the extent Borrower has not made such payment in full to Agent,
each Lender shall repay to Agent on demand such amount
distributed to such Lender, together with interest thereon at the
Reference Rate for each day from the date such amount is
distributed to such Lender until the date repaid.
(b) Apportionment, Application, and Reversal of
Payments. Except as otherwise provided with respect to
Defaulting Lenders and except as may otherwise be agreed among
the Lenders, aggregate principal and interest payments shall be
apportioned ratably among the Lenders (according to the unpaid
principal balance of the Advances to which such payments relate
held by each Lender) and payments of the fees (other than fees
designated for Agent's sole and separate account) shall, as
applicable, be apportioned ratably among the Lenders. All
payments shall be remitted to Agent and all such payments not
relating to principal or interest of specific Advances, or not
constituting payment of specific fees, and all proceeds of
Accounts or other Collateral received by Agent, shall be applied,
first, to pay any fees, or expense reimbursements then due to
Agent from Borrower; second, to pay any fees or expense
reimbursements then due to the Lenders from Borrower; third, to
pay interest due in respect of all Advances (including Foothill
Loans and Agent Advances); fourth, to pay or prepay principal of
Foothill Loans and Agent Advances; fifth, ratably to pay
principal of the Advances (other than Foothill Loans and Agent
Advances); and sixth, ratably to pay any other Obligations due to
Agent or any Lender by Borrower.
2.5 Overadvances. If, at any time or for any reason,
the amount of Obligations pursuant to Sections 2.1 is greater
than either the Dollar or percentage limitations set forth in
Sections 2.1 (an "Overadvance"), Borrower immediately shall pay
to Agent, in cash, the amount of such excess, which amount shall
be used by Agent to reduce the Obligations in accordance with the
priority set forth in Section 2.4(b).
2.6 Interest, Rates, Payments, and Calculations.
(a) Interest Rate. Except as provided in clause
(c) and clause (d) below, all Obligations shall bear interest on
the Daily Balance at a per annum rate equal to the sum of (i) one
and one-half percent (1.5%), plus (ii) the Reference Rate.
(b) [Intentionally omitted.]
(c) Default Rate. Upon the occurrence and during
the continuation of an Event of Default, all Obligations shall
bear interest at a per annum rate equal to the sum of (i) five
and one-half percent (5.5%), plus (ii) the Reference Rate.
(d) Minimum Interest. In no event shall the rate
of interest chargeable under Section 2.6(a) for any day be less
than 9% per annum. To the extent that interest accrued hereunder
at the rate set forth in such section would be less than the
foregoing minimum daily rate, the interest rate chargeable
hereunder for such day automatically shall be deemed increased to
the minimum rate.
(e) Payments. Interest payable hereunder shall
be due and payable, in arrears, on the first day of each month
during the term hereof. Borrower hereby authorizes Agent, at its
option, without prior notice to Borrower, to charge such
interest, all Lender Group Expenses (as and when incurred), the
fees and charges provided for in Section 2.11 (as and when
accrued or incurred), and all installments or other payments due
under any Loan Document to Borrower's Loan Account, which amounts
thereafter shall accrue interest at the rate then applicable to
Advances hereunder. Any interest not paid when due shall be
compounded and shall thereafter accrue interest at the rate then
applicable to Advances hereunder.
(f) Computation. The Reference Rate as of the
date of this Agreement is 9.5% per annum. In the event the
Reference Rate is changed from time to time hereafter, the rate
of interest provided for in Section 2.6(a) and Section 2.6(c)
automatically and immediately shall be increased or decreased by
an amount equal to such change in the Reference Rate. All
interest and fees chargeable under the Loan Documents shall be
computed on the basis of a 360 day year for the actual number of
days elapsed.
(g) Intent to Limit Charges to Maximum Lawful
Rate. It is the intention of the parties hereto that the Agent
or each Lender shall conform strictly to usury laws applicable to
it. Accordingly, if the transactions contemplated hereby or by
any other Loan Document would be usurious as to the Agent or any
Lender under laws applicable to it (including the laws of the
United States of America and the State of California or any other
jurisdiction whose laws may be mandatorily applicable to such
Lender notwithstanding the other provisions of this Agreement),
then, in that event, notwithstanding anything to the contrary in
any of the Loan Documents or any agreement entered into in
connection with or as security for the Indebtedness, it is agreed
as follows: (i) the aggregate of all consideration which
constitutes interest under law applicable to Agent or any Lender
that is contracted for, taken, reserved, charged or received by
Agent or such Lender under any of the Loan Documents or
agreements or otherwise in connection with the Indebtedness shall
under no circumstances exceed the maximum amount allowed by such
applicable law, and any excess shall be canceled automatically
and if theretofore paid shall be credited by the Agent or such
Lender on the principal amount of the Indebtedness (or, to the
extent that the principal amount of the Indebtedness shall have
been or would thereby be paid in full, refunded by the Agent or
such Lender, as applicable, to the Borrower); and (ii) in the
event that the maturity of the Indebtedness is accelerated by
reason of an election of the holder thereof resulting from any
Event of Default under this Agreement or otherwise, or in the
event of any required or permitted prepayment, then such
consideration that constitutes interest under law applicable to
Agent or any Lender may never include more than the maximum
amount allowed by such applicable law, and excess interest, if
any, provided for in this Agreement or otherwise shall be
canceled automatically by Agent or such Lender, as applicable, as
of the date of such acceleration or prepayment and, if
theretofore paid, shall be credited by Agent or such Lender, as
applicable, on the principal amount of the Indebtedness (or, to
the extent that the principal amount of the Indebtedness shall
have been or would thereby be paid in full, refunded by Agent or
such Lender to the Borrower). All sums paid or agreed to be paid
to Agent or any Lender for the use, forbearance or detention of
sums due hereunder shall, to the extent permitted by law
applicable to Agent or such Lender, be amortized, prorated,
allocated and spread throughout the full term of the Obligations
until payment in full so that the rate or amount of interest on
account of any Obligations hereunder does not exceed the maximum
amount allowed by such applicable law. If at any time and from
time to time (i) the amount of interest payable to Agent or any
Lender on any date shall be computed at the Highest Lawful Rate
(as defined below) applicable to Agent or such Lender pursuant to
this Section 2.6(g) and (ii) in respect of any subsequent
interest computation period the amount of interest otherwise
payable to Agent or such Lender would be less than the amount of
interest payable to Agent or such Lender computed at the Highest
Lawful Rate applicable to Agent or such Lender, then the amount
of interest payable to Agent or such Lender in respect of such
subsequent interest computation period shall continue to be
computed at the Highest Lawful Rate applicable to Agent or such
Lender until the total amount of interest payable to Agent or
such Lender shall equal the total amount of interest which would
have been payable to Agent or such Lender if the total amount of
interest had been computed without giving effect to this
Section 2.6(g). For purposes of this Section 2.6(g), the term
"applicable law" shall mean that law in effect from time to time
and applicable to the loan transaction between Borrower and the
Lender Group that lawfully permits the charging and collection of
the highest permissible, lawful non-usurious rate of interest on
such loan transaction and this Agreement, including laws of the
State of California and, to the extent controlling, laws of the
United States of America. For purposes of this Section 2.6(g),
"Highest Lawful Rate" means, with respect to Agent or any Lender,
the maximum non-usurious interest rate, if any, that at any time
or from time to time may be contracted for, taken, reserved,
charged or received on the Obligations under the laws applicable
to Agent or such Lender which are currently in effect or, to the
extent allowed by law, under such applicable laws which may
hereafter be in effect and which allow a higher maximum non-
usurious interest rate than applicable laws now allow.
2.7 Collection of Accounts.
(a) Borrower shall, as of the date of this
Agreement establish and at all times thereafter maintain
lockboxes (the "Lockboxes") at the Lockbox Banks and, immediately
after the Closing Date (i) shall, and shall cause each of its
Subsidiaries to, instruct all Account Debtors with respect to the
Accounts, General Intangibles, and Negotiable Collateral of
Borrower or such Subsidiary, as the case may be, to remit all
Collections in respect thereof to such Lockboxes, and (ii) shall,
and shall cause each of its Subsidiaries to, deposit all other
Collections received by Borrower or such Subsidiary from any
source immediately upon receipt into the Lockboxes, and (iii)
shall request in writing and otherwise take such steps as are
necessary to ensure that all Account Debtors forward payment
directly to such Lockboxes. From time to time as requested by
Agent, Borrower shall, and shall cause each of its Subsidiaries
to, execute and deliver Transfer Orders to Agent, in form and
substance satisfactory to Agent, with respect to all present and
future rights to payment relating to or arising from the Oil and
Gas Property Collateral. Borrower, each of Borrower's
Subsidiaries, Agent, and the Lockbox Banks shall enter into the
Lockbox Agreements, which among other things shall provide for
the opening of a Lockbox Account for the deposit of Collections
at a Lockbox Bank. Borrower agrees that all Collections and
other amounts received by Borrower or any of its Subsidiaries
from any Account Debtor or any other source (other than the
Advances made under this Agreement) immediately upon receipt
shall be deposited into a Lockbox Account. No Lockbox Agreement
or arrangement contemplated thereby shall be modified by Borrower
or any of its Subsidiaries without the prior written consent of
Agent. Upon the terms and subject to the conditions set forth in
the Lockbox Agreements, following Agent giving notice to the
applicable Lockbox Bank to do so (which notice Agent agrees not
to give to the applicable Lockbox Bank prior to the occurrence of
a Triggering Event), all amounts received in each Lockbox Account
shall be wired each Business Day into the Agent's Account;
provided, however, that Agent reserves the right, in its sole
discretion, to require that any amounts received in any Lockbox
Account which may represent amounts attributable to trust funds
(i.e., production taxes, severance taxes, or payroll taxes) or
amounts attributable to Mineral Interests of third Persons be
segregated by the Lockbox Bank and held in a separate account or
otherwise as directed by Agent. From and after the occurrence of
a Triggering Event, no Borrower shall, or shall cause or permit
any Subsidiary thereof to, accumulate or maintain cash in
disbursement or payroll accounts as of any date of determination
in excess of checks outstanding against such accounts as of that
date and amounts necessary to meet minimum balance requirements.
As used in this Agreement, "Triggering Event" means: (A) the
occurrence or continued existence of an Event of Default or
(B) the occurrence or continued existence of the sum of (I)
Availability of Borrower, plus Borrower's immediately available
unrestricted cash on hand, minus an amount determined by Agent in
its sole discretion that would be sufficient to maintain
Borrower's and its Subsidiaries' accounts payable and other
current liabilities within reasonable terms (as determined on a
consolidated basis) is less than (II) $2,500,000 at any time.
(b) Borrower shall not establish any bank
accounts other than the Lockbox Accounts after the date of this
Agreement except upon not less than 10 days prior written notice
to Agent and the delivery to Agent of a tri-party blocked account
agreement in form and substance acceptable to Agent among such
bank, Agent and Borrower. Each such blocked account agreement
shall provide, among other things, that (i) all Collections and
proceeds thereof deposited in such accounts are held by such
banks as agent or bailee-in-possession for Agent, (ii) the bank
executing such agreement has no rights of setoff or recoupment or
any other claim against such account, as the case may be, other
than for payment of its service fee and other charges directly
related to the administration of such account and for returned
checks or other items of payment, and (iii) following Agent
giving notice to such bank to do so (which notice Agent agrees
not to give to such bank prior to the occurrence of a Triggering
Event), such bank agrees to immediately forward all amounts
received in the applicable account to the Agent's Account.
(c) The Lockboxes, the Lockbox Accounts and the
Designated Account shall be cash collateral accounts, with all
cash, checks and similar items of payment in such accounts
securing payment of the Obligations and all other Indebtedness,
and in which each Loan Party shall have granted a Lien to Agent
hereunder and pursuant to the other Loan Documents.
(d) Borrower shall and shall cause its
Subsidiaries, Affiliates, officers, employees, agents, directors
or other Persons acting for or in concert with such Borrower
(each a "Related Person") to (i) hold in trust for Agent all
Collections received by Borrower or any such Related Person, and
(ii) immediately upon receipt by Borrower or any Related Person
of any Collections, deposit the same into a Lockbox Account of
Borrower. Borrower and each Related Person thereof acknowledges
and agrees that all Collections are the property of Agent for the
benefit of the Lenders. Without limiting the foregoing, all
proceeds of the sale or other disposition of any Collateral,
shall be deposited directly into the applicable Lockbox Account.
2.8 Crediting Payments; Application of Collections.
The receipt of any payment item by Agent (whether from transfers
to Agent by the Lockbox Banks pursuant to the Lockbox Agreements
or otherwise) shall not be considered a payment on account unless
such payment item is a wire transfer of immediately available
federal funds and is made to the Agent's Account or unless and
until such payment item is honored when presented for payment;
provided, however, that Agent reserves the right, in its sole
discretion, to exclude from such provisional reduction and
payment the amount of any such Collections that Agent determines
may constitute trust funds (e.g., production taxes, severance
taxes, or payroll taxes) or amounts attributable to Mineral
Interests of third Persons. From and after the Closing Date,
Agent shall be entitled to charge Borrower for 1 Business Day of
`clearance' or `float' at the rate then applicable to the
Obligations under Section 2.6(a) or Section 2.6(c), as the case
may be, on all Collections that are received by Borrowers, the
Lockbox Banks or Agent (regardless of whether forwarded by
Borrower or the Lockbox Banks to Agent, whether provisionally
applied to reduce the Obligations under Section 2.1, whether wire
transferred or otherwise paid to the Agent Account, or
otherwise). This across-the-board 1 Business Day clearance or
float charge on all Collections is acknowledged by the parties to
constitute an integral aspect of the pricing of the financing of
Borrower, and shall apply irrespective of the characterization of
whether receipts are owned by Borrower or Agent, and whether or
not there are any outstanding monetary Obligations; the effect of
such clearance or float charge being the equivalent of charging 1
Business Day of interest on such Collections. Should any
Collection item not be honored when presented for payment, then
Borrower shall be deemed not to have made such payment, and
interest shall be recalculated accordingly. Anything to the
contrary contained herein notwithstanding, any Collection item
shall be deemed received by Agent only if it is received into the
Agent Account on a Business Day on or before 11:00 a.m.
California time. If any Collection item is received into the
Agent Account on a non-Business Day or after 11:00 a.m.
California time on a Business Day, it shall be deemed to have
been received by Agent as of the opening of business on the
immediately following Business Day. The parties acknowledge and
agree that the economic benefit of the foregoing provisions of
this Section 2.8 shall be for the exclusive benefit of Agent.
2.9 Designated Account. Agent, Foothill, and the
Lenders are authorized to make the Advances, and the Letters of
Credit under this Agreement based upon telephonic or other
instructions received from anyone purporting to be an Authorized
Person, or without instructions if pursuant to Section 2.6(e).
Borrower agrees to establish and maintain the Designated Account
with the Designated Account Bank for the purpose of receiving the
proceeds of the Advances requested by Borrower and made by Agent,
Foothill or the Lenders hereunder. Unless otherwise agreed by
Agent and Borrower, any Advance requested by Borrower and made
hereunder shall be made to the Designated Account.
2.10 Maintenance of Loan Account; Statements of
Obligations. Agent shall maintain an account on its books in the
name of Borrower (the "Loan Account") on which Borrower will be
charged with all Advances made by Agent, Foothill, or the Lenders
to Borrower or for Borrower's account, including, accrued
interest, Lender Group Expenses, and any other payment
Obligations of Borrower. In accordance with Section 2.8, the
Loan Account will be credited with all payments received by Agent
from Borrower or for Borrower's account, including all amounts
received in the Agent Account from any Lockbox Bank. Agent shall
render statements regarding the Loan Account to Borrower,
including principal, interest, fees, and including an itemization
of all charges and expenses constituting Lender Group Expenses
owing, and such statements shall be conclusively presumed to be
correct and accurate and constitute an account stated between
Borrower and the Lender Group unless, within 30 days after
receipt thereof by Borrower, Borrower shall deliver to Agent
written objection thereto describing the error or errors
contained in any such statements.
2.11 Fees. Borrower shall pay to Agent, for the
ratable benefit of the Lender Group (except as otherwise
indicated), the following fees:
(a) Closing Fee. On the Closing Date, a closing
fee of $1,500,000, which amount shall be fully earned and
nonrefundable as of the Closing Date, and payment thereof shall
be as follows: (i) $500,000 due on the Closing Date; (ii)
$500,000 due on the earlier to occur of (A) the first anniversary
of the Closing Date or (B) the date of the termination of this
Agreement; and (iii) $500,000 due on the earlier to occur of (A)
the second anniversary of the Closing Date or (B) the date of the
termination of this Agreement.
(b) Unused Line Fee. On the first day of each
month during the term of this Agreement, an unused line fee in an
amount equal to 0.50% per annum times the Average Unused Portion
of the Maximum Revolving Amount during the immediately preceding
month, payable in arrears.
(c) [Intentionally Omitted]
(d) Financial Examination, Documentation, and
Appraisal Fees. For the sole and separate account of Agent:
Agent's customary fee of $750 per day per examiner, plus Agent's
out-of-pocket expenses for each financial analysis and
examination (i.e., audits) of Borrower performed by personnel
employed by Agent; Agent's customary appraisal fee of $1,500 per
day per appraiser, plus Agent's out-of-pocket expenses for each
appraisal of the Collateral performed by personnel employed by
Agent; and, the actual charges paid or incurred by Agent if it
elects to employ the services of one or more third Persons to
perform such financial analyses and examinations (i.e., audits)
of Borrower or to appraise the Collateral.
(e) Loan Servicing Fee. For the sole and
separate account of Agent, on the first day of each month during
the term of this Agreement, a loan servicing fee in an amount
equal to $5,000 per month, which amount shall be fully earned and
nonrefundable, and be payable in arrears on the first day of each
month.
2.12 Loan Under Prior Credit Agreement. On the Closing
Date:
(a) Borrower shall pay all accrued and unpaid
commitment fees outstanding under the Prior Credit Agreement for
the account of each Prior Lender under the Prior Credit
Agreement;
(b) each loan, advance or other extension of
credit under the Prior Loan Agreement shall be deemed to be an
Advance under this Agreement; and
(c) the Prior Credit Agreement and the
commitments thereunder shall be superceded by this Agreement and
such commitments shall terminate.
3. CONDITIONS; TERM OF AGREEMENT.
3.1 Conditions Precedent to the Initial Advance. The
obligation of the Lender Group (or any member thereof) to make
the initial Advance is subject to the fulfillment, to the
satisfaction of Agent and its counsel, of each of the following
conditions on or before the Closing Date:
(a) the Closing Date shall occur on or before
August 19, 2000;
(b) Agent shall have received all financing
statements and fixture filings required by Agent, duly executed
by Borrower, and Agent shall have received searches of all
recording offices requested by Agent reflecting the filing of all
such financing statements and fixture filings, together with
searches of such other offices as Agent may require (including
those of Borrower, and the Subsidiaries of Borrower), each such
search dated a date within 15 days of the Closing Date;
(c) Agent shall have received each of the
following documents, in form and substance satisfactory to Agent,
duly executed (and acknowledged, as the case may be) by all
parties and formalities contemplated thereunder, and each such
document shall be in full force and effect:
i. the tri-party blocked account
agreements;
ii. the Disbursement Letter;
iii. the Refinancing Letter, together with
the Prior Lender Assignment Agreements, UCC assignment
statements, UCC termination statements and other
documentation evidencing the assignment and/or
termination (as determined by Agent) by the Prior
Lenders (and all other holders, if any, of the
indebtedness, liabilities and other obligations under
or relating to the Prior Credit Agreement) and each
other holder of Liens against the properties or assets
of Borrower or any of its Subsidiaries (other than
Permitted Liens), of its Liens in and to the properties
and assets of Borrower and its Subsidiaries;
iv. the Oil and Gas Property Mortgages,
dated as of the Closing Date, covering each of the Oil
and Gas Properties;
v. Guaranty Agreements, in form and
substance acceptable to Agent, executed by each of
Borrower's Subsidiaries;
vi. Security Agreements, in form and
substance acceptable to Agent, executed by Borrower and
each of Borrower's Subsidiaries, with respect to all of
the assets and properties of any and all of them;
vii. the governmental permits, approvals and
orders for such xxxxx and such units as may be required
by Agent pertaining to the Oil and Gas Properties
described in the Oil and Gas Property Mortgages, which
shall be in form and substance satisfactory to Agent;
viii. the Transfer Order Letters for such
purchasers of production from xxxxx on the Oil and Gas
Properties as may be required by Agent, which shall be
in form and substance satisfactory to Agent;
ix. assignments in form and substance
acceptable to Agent of each Material Contract
pertaining to the Oil and Gas Property Collateral which
either (i) affects Borrower's or any of its
Subsidiaries', as the case may be, title to the Oil and
Gas Property Collateral or otherwise affects the value,
use or operation of the Oil and Gas Property Collateral
in any material respect or (ii) creates or evidences a
material obligation or liability on the part of
Borrower or any or its Subsidiaries, together with
copies of each such Material Contract attached thereto;
x. a solvency certificate with respect to
Borrower and each of its Subsidiaries, in the form and
substance acceptable to Agent, executed by an executive
officer of Borrower;
xi. the Mortgage Amendment Agreements, dated
as of the Closing Date covering each of the mortgages,
deeds of trust and other mineral interest security
agreements assigned to Agent for the benefit of the
Lenders pursuant to the Prior Lender Assignment
Agreements;
xii. all original Stock certificates and
other instruments or certificates evidencing all the
issued and outstanding shares of capital Stock or other
equity interests, as the case may be, of Blue Heel
owned by Borrower, together with Stock powers and other
assignments and powers, as the case may be, duly
executed in blank by Borrower;
xiii. all original Stock certificates
evidencing all the issued and outstanding shares of
capital Stock of Borrower owned by Parent or any other
Person, together with Stock powers duly executed in
blank by Parent and all of the other holders of all of
the legal and beneficial ownership thereof;
xiv. the Real Property Mortgages, dated as of
the Closing Date; and
xv. such other documents as shall be
required by Agent.
(d) Agent shall have received a certificate from
the Secretary of Borrower attesting to the resolutions of
Borrower's Board of Directors authorizing its execution,
delivery, and performance of this Agreement and the other Loan
Documents to which Borrower is a party and authorizing specific
officers of Borrower to execute the same;
(e) Agent shall have received copies of
Borrower's Governing Documents, as amended, modified, or
supplemented by the Closing Date, certified by the Secretary of
Borrower;
(f) Agent shall have received a certificate of
status with respect to Borrower, dated within 10 days of the
Closing Date, such certificate to be issued by the appropriate
officer of the jurisdiction of organization of Borrower, which
certificate shall indicate that Borrower is in good standing in
such jurisdiction;
(g) Agent shall have received certificates of
status with respect to Borrower, each dated within 15 days of the
Closing Date, such certificates to be issued by the appropriate
officer of the jurisdictions in which its failure to be duly
qualified or licensed would constitute a Material Adverse Change,
which certificates shall indicate that Borrower is in good
standing in such jurisdictions;
(h) Agent shall have received a certificate of
insurance, which names Agent for the benefit of the Lender Group
as loss payee and additional insured on all of Borrower's
policies of insurance (other than worker's compensation
insurance) as are required by Section 6.10, the form and
substance of which shall be satisfactory to Agent and its
counsel;
(i) Agent shall have received such Collateral
Access Agreements from lessors, warehousemen, bailees, and other
third persons with respect to (i) Borrower's leased premises at
which its chief executive offices, (ii) all locations at which
Borrower's Books are located from time to time, and (iii) each
other location of Borrower except the Oil and Gas Properties;
(j) Agent shall have received copies of all
contracts set forth on Schedule 5.1(c), and such contracts shall
be in form and substance satisfactory to Agent;
(k) Agent shall have received an opinion of
Borrower's and Guarantor's counsel in form and substance
satisfactory to Agent in its sole discretion, and opinions of
Borrower's and Guarantors' counsel in such other states and
jurisdictions as may be requested by Agent in form and substance
satisfactory to Agent in its sole discretion;
(l) Agent shall have received (i) appraisals of
the Oil and Gas Properties in the form of Reserve Reports
prepared by a third party petroleum engineering firm (including,
but not limited to, appraisals, verifications and liquidation
analyses of Borrower's Proved Reserves) covering the Borrowing
Base Entities' Mineral Interests listed on Schedule 5.1(a) in
each case satisfactory to Agent, (ii) confirmations for such of
the Oil and Gas Properties as shall be required by Agent, in its
sole discretion, issued to Agent for the benefit of the Lender
Group, by abstractors satisfactory to Agent who record the Oil
and Gas Property Mortgages, that there have been no intervening
Liens, transfers or conveyances pertaining to such Oil and Gas
Properties since the date of the updated title opinions described
in subparagraph (A) below of this subparagraph (l), and (iii)
title reports and/or opinions for such of the Oil and Gas
Properties as shall be required by Agent, in its sole discretion,
issued to Agent for the benefit of the Lender Group by a legal
counsel to Borrower or such other person that is experienced in
the examination of title to such Oil and Gas Properties and is
satisfactory to Agent (each a "Title Opinion" and, collectively,
the "Title Opinions"), to the extent of at least $94,000,000 of
NYMEX Value in the aggregate as of the Closing Date, each of
which Title Opinions (and other legal opinions supplemental
thereto) shall be in form and substance satisfactory to Agent and
shall:
(A) as to the Oil and Gas Properties as shall be
required by Agent, in its sole discretion, covered by a
mortgage, deed of trust, or deed to secure debt executed by
Borrower in favor of or for the benefit of the Prior Agent
and/or a Prior Lender, be updated to a date within 15 days
prior to the Closing Date to confirm the priority of the
Lien created under such mortgage, deed of trust or deed to
secure debt, as the case may be (together with a
confirmation by an abstractor satisfactory to Agent who
records the Prior Lender Assignment Agreements with respect
to such Oil and Gas Properties that there has been no
intervening Liens, transfers or conveyances pertaining to
such Oil and Gas Properties since the date of the most
recent Title Opinion covering the same),
(B) opine as to such matters incident to such Oil and
Gas Properties as Agent may reasonably request including the
following with respect to the Mineral Interests in the
particular Oil and Gas Property Collateral being reviewed:
(I) Borrower or its Subsidiary, as the case may
be, that is the grantor under the Oil and Gas Property
Mortgage covering the Oil and Gas Properties has good
and marketable title to such Oil and Gas Properties to
the extent of the Mineral Interests as specified
therein, free and clear of all Liens and defects except
Permitted Liens.
(II) Borrower or its Subsidiary, as the case may
be, that is the grantor under the Oil and Gas Property
Mortgage covering the Oil and Gas Properties is
entitled to receive, after giving effect to all
royalties, overriding royalties and other burdens
payable out of production, a decimal share of all
Hydrocarbons produced and sold from such Oil and Gas
Properties, before and after payout, not less than set
forth in the opinion.
(III) The operating interest in such Oil and
Gas Properties of Borrower or its Subsidiary, as the
case may be, that is the grantor under the Oil and Gas
Property Mortgage covering the Oil and Gas Properties,
is not obligated to bear a decimal share of all costs
and expenses from the operation thereof in excess of
that set forth therein.
(IV) The Liens created by the Oil and Gas Property
Mortgage are valid and enforceable first priority
mortgage Liens which are first in right and prior in
time and superior to all other Liens against such
Mineral Interests and other Oil and Gas Properties
other than Permitted Liens.
(m) The Mineral Interests in the Oil and Gas
Property Collateral shall not be less than the Mineral Interests
for such properties furnished by the Borrowing Base Entities to
Agent in connection with Agent's credit evaluation in connection
with this Agreement;
(n) Borrower shall have delivered to Agent
evidence satisfactory to Agent confirming that each of the
producing xxxxx that are included in the most recent Reserve
Report delivered to Agent covering the Oil and Gas Properties
listed on Schedule 5.1(b) is located on an Oil and Gas Property
(i) covered by the Title Opinions to the extent required by Agent
and (ii) described in the legal description contained in an Oil
and Gas Property Mortgage which has been duly executed and
delivered to Agent;
(o) Borrower shall have delivered to Agent such
existing environmental reports as Borrower currently has (whether
prepared internally or by an outside party) with respect to the
Oil and Gas Property Collateral, including, without limitation,
spill prevention and control plans, and the matters contained
therein shall be reasonably acceptable to Agent;
(p) Agent shall have received satisfactory
evidence that all tax returns required to be filed by Borrower
have been timely filed and all taxes upon Borrower or its
properties, assets, income, and franchises (including real
property taxes and payroll taxes) have been paid prior to
delinquency, except such taxes that are the subject of a
Permitted Protest;
(r) Agent shall have received satisfactory
reference investigation reports of key officers and employees;
(s) On the Closing Date, Borrower shall have not
less than $10,000,000 of Availability and unrestricted
immediately available cash on hand after making the payments
described in Section 7.17(a)(i) and making the payment of the
$500,000 due on the Closing Date pursuant to Section 2.11(a)(i)
and after reserving as an additional deduction from Availability
an amount determined by Agent in its sole discretion that would
be sufficient to maintain Borrower's and its Subsidiaries'
accounts payable and other current liabilities within reasonable
terms (with Borrower providing to Agent such evidence of the
aging of such accounts payable and other liabilities as is in
form and substance acceptable to Agent);
(t) Agent shall have reviewed Borrower's and each
of its Subsidiaries' Hedging Agreements and other hedging
arrangements (with respect to its present and future Hydrocarbon
production and otherwise), and all of such Hedging Agreements and
other hedging arrangements shall be acceptable to Agent;
(u) Agent shall have received evidence
satisfactory to Agent including, without limitation, a
certificate executed by the chief financial officer of Borrower,
to such effect, that no Material Adverse Change has occurred in
the business, assets, operations, prospects or financial or other
condition of Borrower or any of its Subsidiaries since March 31,
2000;
(v) Agent and counsel to Agent shall have
received and reviewed all documentation relating to the Unsecured
Notes, including, without limitation, the Unsecured Notes
Indenture, and all of such documentation, and the terms and
provisions of such documentation, including, without limitation,
the Unsecured Notes and the Unsecured Notes Indenture, shall be
acceptable to Agent and its counsel;
(w) Agent shall have received and reviewed the
final appraisal report prepared as of June 26, 2000, by Xxxxxxx,
Xxxx & Xxxxxxxx or such other petroleum engineering consultant to
Agent as may be selected by Agent, relating to the Reserve Report
prepared as of such date, and such report shall contain such
information as may be requested by Agent and shall be in form and
substance satisfactory to Agent;
(x) Agent shall have received commitments from
Lenders other than Foothill Capital Corporation to acquire or
purchase Commitments under this Agreement in the amount of
$20,000,000, such Lenders to be acceptable to Agent and such
commitments to be in form and substance satisfactory to Agent;
(y) Agent shall have received evidence of the
dissolution and liquidation of each of Threading Products
International, LLC, a Delaware limited liability company, and SWV
Aviation, LLC, a Texas limited liability company, in form and
substance satisfactory to Agent;
(z) Agent shall have received evidence of the
merger of Midland Southwest Software, Inc., a Delaware
corporation, and e-xxxxx Solutions, Inc., a Delaware corporation,
with and into Borrower, with Borrower as the sole surviving
entity, in form and substance satisfactory to Agent;
(aa) [intentionally omitted];
(bb) Agent shall have received an "Absolute
Assignment" of each key man life insurance policy listed on
Schedule 5.16 attached hereto; and
(cc) all other documents and legal matters in
connection with the transactions contemplated by this Agreement
shall have been delivered, executed, or recorded and shall be in
form and substance satisfactory to Agent and its counsel.
3.2 Conditions Precedent to all Advances. The
obligation of the Lender Group (or any member thereof) to make
all Advances shall be subject to the following conditions
precedent:
(a) the representations and warranties contained
in this Agreement and the other Loan Documents shall be true and
correct in all respects on and as of the date of such extension
of credit, as though made on and as of such date (except to the
extent that such representations and warranties relate solely to
an earlier date);
(b) no Default or Event of Default shall have
occurred and be continuing on the date of such extension of
credit, nor shall either result from the making thereof;
(c) no injunction, writ, restraining order, or
other order of any nature prohibiting, directly or indirectly,
the extending of such credit shall have been issued and remain in
force by any governmental authority against any Borrower, Agent,
the Lender Group, or any of their respective Affiliates;
(d) the amount of the Revolving Facility Usage,
after giving effect to the requested Advance, shall not exceed
the Availability; and
(e) no Material Adverse Change shall have
occurred.
The foregoing conditions precedent are not conditions to each
Lender participating in or reimbursing Foothill or the Agent for
such Lenders' Pro Rata Share of any Foothill Loan or Agent
Advance as provided herein.
3.3 Condition Subsequent. As conditions subsequent to
initial closing hereunder, Borrower shall perform or cause to be
performed the following (the failure by Borrower to so perform or
cause to be performed constituting an Event of Default):
(a) within 45 days of the Closing Date, deliver
to Agent the certified copies of the policies of insurance,
together with the endorsements thereto, as are required by
Section 6.10, the form and substance of which shall be
satisfactory to Agent and its counsel;
(b) within 60 days of the Closing Date, deliver
to Agent an original of each "Absolute Assignment" of each key
man life insurance policy listed on Schedule 5.16 which has been
executed by the issuer of the respective policy and evidences
that it has been recorded with such issuer and that such issuer
has accepted such assignment; and
(c) within seven (7) days immediately following
the date of recordation of the Prior Lender Assignment Agreements
and the Mortgage Amendment Agreements, Borrower shall cause to be
issued to Agent for the benefit of the Lender Group updated Title
Opinions and other legal opinions supplemental thereto in form
and substance satisfactory to Agent which conform to the
requirements described in subparagraph (B) of Section 3.1(l)
covering such of the Oil and Gas Properties, the Prior Lender
Assignment Agreements and the Mortgage Amendment Agreements as
shall be required by Agent.
3.4 Term; Automatic Renewal.
(a) This Agreement shall become effective upon
the execution and delivery hereof by Borrower and the Lender
Group and shall continue in full force and effect for a term
ending on the date (the "Renewal Date") that is 3 years from the
Closing Date and automatically shall be renewed for successive 1
year periods thereafter.
(b) Either party may terminate this Agreement on
the Renewal Date or on any 1 year anniversary of the Renewal Date
by giving the other party at least 90 days prior written notice.
The foregoing notwithstanding, the Lender Group shall have the
right to terminate its obligations under this Agreement
immediately and without notice upon the occurrence and during the
continuation of an Event of Default.
3.5 Effect of Termination
(a) On the date of termination of this Agreement,
all Obligations immediately shall become due and payable without
notice or demand. No termination of this Agreement, however,
shall relieve or discharge Borrower of Borrower's duties,
Obligations, or covenants hereunder or under the other Loan
Documents, and Agent's continuing security interests in the
Collateral, for the benefit of the Lender Group, shall remain in
effect until all Obligations have been fully and finally
discharged and the Lender Group's obligations to provide
additional credit hereunder have been terminated.
(b) If Borrower has sent a notice of termination
pursuant to the provisions of Section 3.4, but fails to pay the
Obligations in full on the date set forth in such notice, then
the Lender Group may, but shall not be required to, renew this
Agreement for an additional term of 1 years.
3.6 Early Termination by Borrower. The provisions of
Section 3.4 that allow termination of this Agreement by Borrower
only on the Renewal Date and certain anniversaries thereof
notwithstanding, Borrower has the option, at any time upon 30
days prior written notice to Agent, to terminate this Agreement
by paying to Agent, for the ratable benefit of the Lender Group,
in cash, the Obligations in full, together with a premium (the
"Early Termination Premium") equal to (a) if the termination
occurs on or before the first anniversary of the Closing Date, an
amount equal to 3% of the Maximum Revolving Amount, (ii) if the
termination occurs after the first anniversary of the Closing
Date but on or before the second anniversary of the Closing Date,
an amount equal to 2% of the Maximum Revolving Amount, and (iii)
if the termination occurs after the second anniversary of the
Closing Date (other than on the Renewal Date or on the last day
of any successive renewal period), an amount equal to 1% of the
Maximum Revolving Amount.
3.7 Termination Upon Event of Default. If the Lender
Group terminates this Agreement upon the occurrence of an Event
of Default, in view of the impracticability and extreme
difficulty of ascertaining actual damages and by mutual agreement
of the parties as to a reasonable calculation of the Lender
Group's lost profits as a result thereof, Borrower shall pay to
Agent, for the ratable benefit of the Lender Group, upon the
effective date of such termination, a premium in an amount equal
to the Early Termination Premium. The Early Termination Premium
shall be presumed to be the amount of damages sustained by the
Lender Group as the result of the early termination and Borrower
agrees that it is reasonable under the circumstances currently
existing. The Early Termination Premium provided for in this
Section 3.7 shall be deemed included in the Obligations.
4. CREATION OF SECURITY INTEREST.
4.1 Grant of Security Interest. Borrower hereby
grants to Agent, for the benefit of the Lender Group, continuing
Liens on all right, title, and interest of Borrower in and to all
currently existing and hereafter acquired or arising Collateral
in order to secure prompt repayment of any and all Obligations
and in order to secure prompt performance by Borrower of each of
its covenants and duties under the Loan Documents (the "Agent's
Liens"). The Agent's Liens in and to the Collateral shall attach
to all Collateral without further act on the part of the Lender
Group or Borrower. Anything contained in this Agreement or any
other Loan Document to the contrary notwithstanding, except for
the sale of Inventory to buyers in the ordinary course of
business and except as specifically permitted under Section 7.4,
Borrower has no authority, express or implied, to dispose of any
item or portion of the Collateral. Subject to Section 2.4(b),
the secured claims of the Lender Group secured by the Collateral
shall be of equal priority, and ratable according to the
respective Obligations due each member of the Lender Group.
4.2 Negotiable Collateral. In the event that any
Collateral, including proceeds, is evidenced by or consists of
Negotiable Collateral, Borrower promptly shall, and shall cause
each of its Subsidiaries to, endorse and deliver physical
possession of such Negotiable Collateral to Agent.
4.3 Collection of Accounts, General Intangibles, and
Negotiable Collateral. At any time, Agent or Agent's designee
may (a) notify customers or Account Debtors that the Accounts,
General Intangibles, or Negotiable Collateral have been assigned
to Agent for the benefit of the Lender Group, or that Agent, for
the benefit of the Lender Group, has a security interest therein
and (b) collect the Accounts, General Intangibles, and Negotiable
Collateral directly and charge the collection costs and expenses
to the Loan Account. Borrower agrees that it will, and will
cause each of its Subsidiaries to, hold in trust for the Lender
Group, as the Lender Group's trustee, any Collections that it
receives and immediately will deliver said Collections to Agent
in their original form as received by Borrower or any of its
Subsidiaries, as the case may be.
4.4 Delivery of Additional Documentation Required. At
any time upon the request of Agent, Borrower shall, and shall
cause each of its Subsidiaries to, execute and deliver to Agent
all financing statements, collateral assignments, continuation
financing statements, fixture filings, security agreements,
pledges, assignments, mortgages, leasehold mortgages, deeds of
trust, leasehold deeds of trust, endorsements of certificates of
title, applications for title, affidavits, reports, notices,
schedules of accounts, letters of authority, and all other
documents that Agent reasonably may request, in form satisfactory
to Agent, to perfect and continue perfected the Agent's Liens on
the Collateral (whether now owned or hereafter arising or
acquired) or to give notice of perfection of Agent's Liens on the
Collateral, and in order to consummate fully all of the
transactions contemplated hereby and under the other the Loan
Documents.
4.5 Power of Attorney. Borrower hereby irrevocably
makes, constitutes, and appoints Agent (and any of Agent's
officers, employees, or agents designated by Agent) as Borrower's
true and lawful attorney, with power to (a) if Borrower refuses
to, or fails timely to execute and deliver any of the documents
described in Section 4.4, sign the name of Borrower on any of the
documents described in Section 4.4, (b) at any time that an Event
of Default has occurred and is continuing, sign Borrower's name
on any invoice or xxxx of lading relating to any Account, drafts
against Account Debtors, schedules and assignments of Accounts,
verifications of Accounts, and notices to Account Debtors, (c)
send requests for verification of Accounts, (d) endorse
Borrower's name on any Collection item that may come into the
Lender Group's possession, (e) at any time that an Event of
Default has occurred and is continuing, notify the post office
authorities to change the address for delivery of Borrower's mail
to an address designated by Agent, to receive and open all mail
addressed to Borrower, and to retain all mail relating to the
Collateral and forward all other mail to Borrower, (f) at any
time that an Event of Default has occurred and is continuing,
make, settle, and adjust all claims under Borrower's policies of
insurance and make all determinations and decisions with respect
to such policies of insurance, and (g) at any time that an Event
of Default has occurred and is continuing, settle and adjust
disputes and claims respecting the Accounts directly with Account
Debtors, for amounts and upon terms that Agent determines to be
reasonable, and Agent may cause to be executed and delivered any
documents and releases that Agent determines to be necessary.
The appointment of Agent as Borrower's attorney, and each and
every one of Agent's rights and powers, being coupled with an
interest, is irrevocable until all of the Obligations have been
fully and finally repaid and performed and the Lender Groups'
obligations to extend credit hereunder are terminated.
4.6 Right to Inspect. Agent (through any of its
officers, employees, or agents) shall have the right, from time
to time hereafter to inspect the Books and to check, test, audit
and appraise the Collateral in order to verify Borrower's and its
Subsidiaries' financial condition or the amount, quality, value,
condition of, or any other matter relating to, the Collateral
(including checks, tests and audits by a qualified engineer
selected by Agent of Borrower's and each of its Subsidiaries'
onshore and offshore (if any) xxxxx, rigs, pipeline distribution
systems and operations).
4.7 Control Agreements. Borrower agrees that it will
not, and that it will cause each of its Subsidiaries not to,
transfer assets out of any Securities Accounts other than as
permitted under Section 7.22 and, if to another securities
intermediary, unless each of Borrower, such Subsidiary, Agent,
and the substitute securities intermediary have entered into a
Control Agreement. No arrangement contemplated hereby or by any
Control Agreement in respect of any Securities Accounts or other
investment property shall be modified by Borrower or any of its
Subsidiaries without the prior written consent of Agent. Upon
the occurrence and during the continuance of a Default or Event
of Default, Agent may notify any securities intermediary to
liquidate or transfer the applicable Securities Account or any
related investment property maintained or held thereby and remit
the proceeds thereof to the Agent Account.
5. REPRESENTATIONS AND WARRANTIES.
In order to induce the Lender Group to enter into this
Agreement, Borrower makes the following representations and
warranties to the Lender Group which shall be true, correct, and
complete in all respects as of the date hereof, and shall be
true, correct, and complete in all respects as of the Closing
Date, and at and as of the date of the making of each Advance
made thereafter, as though made on and as of the date of the
making of such Advance (except to the extent that such
representations and warranties relate solely to an earlier date)
and such representations and warranties shall survive the
execution and delivery of this Agreement:
5.1 No Encumbrances. The Borrowing Base Entities have
good, valid and Defensible Title to the Collateral, free and
clear of all Liens (except for Permitted Liens), including but
not limited to:
(a) Ownership of the Oil and Gas Properties as
listed on Schedule 5.1(a);
(b) The amount of the Working Interest and Net
Revenue Interest of the Oil and Gas Properties, as set forth on
Schedule 5.1(b);
(c) All rights under the Material Contracts
listed on Schedule 5.1(c); and
(d) Ownership of the Real Property listed on
Schedule 5.1(d).
5.2 Eligible Proved Developed Producing Reserves;
Ownership of Oil and Gas Properties.
(a) All Eligible Proved Developed Producing
Reserves are Proved Developed Producing Reserves of which a
Borrowing Base Entity has fee simple legal title to or valid
leasehold interest in (in each case, either good, marketable and
indefeasible, or Defensible Title, except for Permitted Liens),
and of which a Borrowing Base Entity is the beneficial owner of,
to the full extent of the quantity of interest specified in the
most recent Reserve Report delivered to Agent by Borrower, and
all of the information with respect thereto contained on
Schedules 5.1(a), 5.1(b), 5.1(c), and 5.2(b) attached hereto (and
with respect to all future Eligible Proved Developed Producing
Reserves other than those listed on Schedule 5.1(a), the
analogous supplemental schedules contemplated on Exhibit B-1
attached hereto and made a part hereof with respect thereto) is
true and correct. All Mineral Interests of which the Eligible
Proved Developed Producing Reserves are a part are in full force
and effect and each of the Borrowing Base Entities is in
compliance in all material respects with its obligations
thereunder. All xxxxx drilled and Hydrocarbons produced by a
Borrowing Base Entity with respect to Eligible Proved Developed
Producing Reserves were drilled and produced in compliance with
all applicable regulations. To the best of Borrower's knowledge,
all xxxxx drilled and Hydrocarbons produced by any Person other
than a Borrowing Base Entity with respect to such Eligible Proved
Developed Producing Reserves were drilled and produced in
compliance with all applicable regulations. To the best of
Borrower's knowledge, Schedule 5.2(a) attached hereto sets forth
all authorities for expenditures outstanding as of the date of
this Agreement and as of the Closing Date. To the best of
Borrower's knowledge, there are no outstanding authorities for
expenditures with respect to any Eligible Proved Developed
Producing Reserves which are not reflected in the most recent
Reserve Report delivered by Borrower to Agent, except for those
which first arise after the Closing Date and have been reported
to Agent in writing as and when required under Section 6.2(b).
Except as set forth in Section 5.2(a), there are no proposed,
current or completed operations under any operating agreement,
unit agreement, governmental order or otherwise associated with
any Oil and Gas Properties with respect to which any Borrowing
Base Entity has become or intends to become a non-consenting
party other than those operations commencing after the Closing
Date as to which Borrower shall have given to Agent prior written
notice of such Borrowing Base Entity's intention to non-consent
within the time periods specified in Section 7.25. All of such
Eligible Proved Developed Producing Reserves are a part of the
Oil and Gas Properties described in Schedule 5.1(a), are covered
by the engineering reports which Borrower has delivered to and
which have been relied upon by Agent in connection with this
Agreement prior to their inclusion in Eligible Proved Developed
Producing Reserves, are part of the Oil and Gas Property
Collateral covered by the Oil and Gas Property Mortgages, and are
covered by Title Opinions and other legal opinions supplemental
thereto in form and substance satisfactory to Agent which conform
to the requirements described in subparagraph (B) of
Section 3.1(l), Section 6.17 and Section 6.18. Except as set
forth on Schedule 5.23, all bills in excess of $2,500 (except for
those which are less than 60 days past original invoice date (or
those for which neither Borrower nor any of its Subsidiaries has
received any invoice), are not past due and do not give rise to a
Lien other than a Permitted Lien) and taxes have been paid with
respect to all Eligible Proved Developed Producing Reserves,
other than those which are the subject of a bona fide dispute
which is being contested in good faith by Borrower by appropriate
proceedings as to which a reserve is established on the books of
Borrower in an amount that is satisfactory to Agent (and if a
Lien secures the same or may secure the same, such Lien is
subject to a Permitted Protest).
(b) To the best of Borrower's knowledge, all of
each Borrowing Base Entity's marketing arrangements with respect
to its Proved Reserves are valid, enforceable and in full force
and effect. There do not exist any cumulative imbalances in gas
production or receipt of "take or pay" payments except as
disclosed (as to both existence and extent) on Schedule 5.2(b)
attached hereto.
(c) Without limiting the foregoing, after giving
full effect to the Permitted Liens, each Borrowing Base Entity
owns the respective net revenue interests in production
attributable to the Oil and Gas Properties covered by the Oil and
Gas Property Mortgages as is reflected in the most recently
delivered Reserve Report and the ownership of such Properties
shall not in any material respect obligate any Borrowing Base
Entity to bear the costs and expenses relating to the
maintenance, development and operations of each such Property in
an amount in excess of the working interest of each such Property
set forth in the most recently delivered Reserve Report. All
information contained in the most recently delivered Reserve
Report is true and correct in all material respects as of the
date thereof.
(d) Without limiting the foregoing, after giving
full effect to the Permitted Liens, Borrower owns the net revenue
interests in production attributable to the Oil and Gas
Properties covered by the Oil and Gas Property Mortgages as is
reflected in the most recently delivered Reserve Report, and the
ownership of such Properties shall not in any material respect
obligate Borrower to bear the costs and expenses relating to the
maintenance, development and operations of each such Property in
an amount in excess of the working interest of each such Property
set forth in the most recently delivered Reserve Report. All
information contained in the most recently delivered Reserve
Report is true and correct in all material respects as of the
date thereof.
(e) There has not been any Material Adverse
Change in the Oil and Gas Properties since December 31, 1999.
5.3 Operations of Oil and Gas Properties. With
respect to each Mineral Interest which is a working interest,
Schedule 5.1(b) attached hereto sets forth (i) the Oil and Gas
Property as to which each Borrowing Base Entity is the operator,
(ii) the Oil and Gas Property as to which the operator is a
Person other than a Borrowing Base Entity, and (iii) the Oil and
Gas Property which currently has no operator.
5.4 Equipment. All of the Equipment is used or held
for use in Borrower's business and is fit for such purposes,
subject to (a) normal wear and tear and (b) dispositions
permitted under Section 7.4.
5.5 Location of Inventory and Equipment.
(a) The Inventory and Equipment are located on
the Oil and Gas Property Collateral or otherwise are located in
Texas, New Mexico or Oklahoma. From time to time upon the
request of Agent, Borrower shall provide to Agent a list of the
specific locations of the Inventory and Equipment and the names
and addresses of any bailee, warehouseman or similar party with
whom such Inventory or Equipment is stored (and upon the
reasonable request of Agent, Borrower shall obtain and deliver to
Agent a Collateral Access Agreement executed by each such bailee,
warehouseman or similar party with respect to such Inventory and
Equipment).
(b) The primary accounting and business books,
records and papers of Borrower (including those pertaining to the
Collateral) are kept and maintained solely at Borrower's chief
executive office set forth in the beginning of this Agreement.
The name and address of Borrower's landlord for the premises of
Borrower's chief executive office set forth in the beginning of
this Agreement is Xxxxxx X. Xxxxxx Foundation, 777 South Xxxxxx
Drive, Xxxx Xxxxx, Xxxxx 0000, Xxxx Xxxx Xxxxx, Xxxxxxx 00000,
Attention: Xxxxx Xxxxxx.
5.6 Oil and Gas Property Collateral Records and
Inventory Records. Borrower keeps correct and accurate records
itemizing and describing the kind, type, quality, and quantity of
the Oil and Gas Property Collateral and the Inventory, and
Borrower's cost therefor.
5.7 Location of Chief Executive Office; FEIN. The
chief executive office of Borrower is located at the address
indicated in the preamble to this Agreement and Borrower's FEIN
is 00-0000000. The chief executive office of Parent is located
at 000 Xxxxx Xxx Xxxxxx Xxxxxx, Xxxxx 000, Xxxxxxx, Xxxxx 00000
and Parent's FEIN is 00-0000000. The chief executive office of
Blue Heel is located at 000 Xxxxx Xxx Xxxxxx Xxxxxx, Xxxxx 000,
Xxxxxxx, Xxxxx 00000. Blue Heel's FEIN is 00-0000000.
5.8 Due Organization and Qualification; Subsidiaries.
(a) Borrower is duly organized and existing and
in good standing under the laws of the jurisdiction of its
incorporation and qualified and licensed to do business in, and
in good standing in, any state where the failure to be so
licensed or qualified could be expected to constitute a Material
Adverse Change. Each of Borrower's Subsidiaries is duly organized
and existing and in good standing under the laws of the
jurisdiction of its incorporation or organization and qualified
and licensed to do business in, and in good standing in, any
state where the failure to be so licensed or qualified could be
expected to constitute a Material Adverse Change.
(b) Set forth on Schedule 5.8 is a complete and
accurate description of the authorized capital Stock of Borrower,
by class, and, as of the Closing Date, a description of the
number of shares of each such class that are issued and
outstanding and the number of such shares that are held in
Borrower's treasury. All such outstanding shares have been
validly issued and, as of the Closing Date, are fully paid,
nonassessable shares free of contractual preemptive rights. The
issuance and sale of all such shares have been in compliance with
all applicable federal and state securities laws. Other than as
described on Schedule 5.8, there are no subscriptions, options,
warrants, or calls relating to any shares of Borrower's capital
Stock, including any right of conversion or exchange under any
outstanding security or other instrument. Neither Borrower nor
any of its Subsidiaries is subject to any obligation (contingent
or otherwise) to repurchase or otherwise acquire or retire any
shares of its capital Stock or any security convertible into or
exchangeable for any of its capital Stock.
(c) Set forth on Schedule 5.8 is a complete and
accurate list of Borrower's direct and indirect Subsidiaries,
showing: (i) the jurisdiction of their incorporation or
organization; (ii) the number of shares of each class of common
and preferred Stock authorized for each of such Subsidiaries; and
(iii) the number and the percentage of the outstanding shares of
each such class owned directly or indirectly by Borrower. All of
the outstanding capital Stock of each such Subsidiary has been
validly issued and is fully paid and non-assessable. Borrower
has no direct or indirect interest in any partnerships (other
than as set forth in Schedule 5.8). Borrower has no equity
interest having a value in excess of $5,000 in any Person other
than as set forth in Schedule 5.8.
(d) Except as set forth on Schedule 5.8 no
capital Stock (or any securities, instruments, warrants, options,
purchase rights, conversion or exchange rights, calls,
commitments or claims of any character convertible into or
exercisable for capital Stock) of any direct or indirect
Subsidiary of Borrower is subject to the issuance of any
security, instrument, warrant, option, purchase right, conversion
or exchange right, call, commitment or claim of any right, title,
or interest therein or thereto.
(e) On or before the Closing Date, (I) Borrower
has caused to be dissolved and liquidated each of Threading
Products International, LLC, a Delaware limited liability
company, and SWV Aviation, LLC, a Texas limited liability
company, in form and substance satisfactory to Agent, and (II)
Borrower has caused the merger of Midland Southwest Software,
Inc., a Delaware corporation, and e-xxxxx Solutions, Inc., a
Delaware corporation, with and into Borrower, with Borrower as
the sole surviving entity, in form and substance satisfactory to
Agent; and all of the foregoing dissolutions, liquidations and
mergers have been consummated in full on or before the Closing
Date.
5.9 Due Authorization; No Conflict.
(a) The execution, delivery, and performance by
Borrower of this Agreement and the Loan Documents to which it is
a party have been duly authorized by all necessary corporate
action.
(b) The execution, delivery, and performance by
Borrower of this Agreement and the Loan Documents to which it is
a party do not and will not (i) violate any provision of federal,
state, or local law or regulation (including Regulations U and X
of the Federal Reserve Board) applicable to Borrower, the
Governing Documents of Borrower, or any order, judgment, or
decree of any court or other Governmental Authority binding on
Borrower, (ii) conflict with, result in a breach of, or
constitute (with due notice or lapse of time or both) a default
under any Material Contract or other material contractual
obligation or material lease of Borrower, (iii) result in or
require the creation or imposition of any Lien of any nature
whatsoever upon any properties or assets of Borrower, other than
Permitted Liens, or (iv) require any approval of stockholders or
any approval or consent of any Person under any Material Contract
or other material contractual obligation of Borrower.
(c) Other than the taking of any action expressly
required under this Agreement and the Loan Documents, the
execution, delivery, and performance by Borrower of this
Agreement and the Loan Documents to which Borrower is a party do
not and will not require any registration with, consent, or
approval of, or notice to, or other action with or by, any
federal, state, foreign, or other Governmental Authority or other
Person.
(d) This Agreement and the Loan Documents to
which Borrower is a party, and all other documents contemplated
hereby and thereby, when executed and delivered by Borrower will
be the legally valid and binding obligations of Borrower,
enforceable against Borrower in accordance with their respective
terms, except as enforcement may be limited by equitable
principles or by bankruptcy, insolvency, reorganization,
moratorium, or similar laws relating to or limiting creditors'
rights generally.
(e) The Agent's Liens granted by Borrower to
Agent, for the benefit of the Lender Group, in and to its
properties and assets pursuant to this Agreement and the other
Loan Documents are validly created, perfected, and first priority
Liens, subject only to Permitted Liens.
(f) Neither the Borrower nor any of its
Subsidiaries has violated, and neither the Borrower nor any
Subsidiary will be in violation of, any provisions of the Natural
Gas Act or the Natural Gas Policy Act of 1978 or any other
Federal or State law or any of the regulations thereunder
(including those of the respective Conservation Commissions and
Land Offices of the various jurisdictions having authority over
its Oil and Gas Properties) with respect to its Oil and Gas
Properties which would create a Material Adverse Change, and the
Borrower and each Subsidiary have or will have made all necessary
rate filings, certificate applications, well category filings,
interim collection filings and notices, and any other filings or
certifications, and has or will have received all necessary
regulatory authorizations (including without limitation necessary
authorizations, if any, with respect to any processing
arrangements conducted by it or others respecting its Oil and Gas
Properties or production therefrom) required under said laws and
regulations with respect to all of its Oil and Gas Properties or
production therefrom so as not to create a Material Adverse
Change. Said material rate filings, certificate applications,
well category filings, interim collection filings and notices,
and other filings and certifications contain no untrue statements
of material facts nor do they omit any statements of material
facts necessary in said filings.
5.10 Claims, Disputes, and Litigation. There are no
actions or proceedings pending by or against Borrower before any
court or administrative agency and Borrower does not have
knowledge or belief of any pending or threatened litigation,
governmental investigations, or claims, complaints, actions, or
prosecutions involving Borrower or any guarantor of the
Obligations, except for: (a) ongoing collection matters in which
Borrower is the claimant, petitioner or plaintiff; (b) matters
disclosed on Schedule 5.10; (c) matters existing on the date of
this Agreement which do not involve an amount in controversy of
more than $25,000 individually or $100,000 in the aggregate; and
(d) matters arising after the date hereof that, if decided
adversely to Borrower, reasonably could not be expected to result
in a Material Adverse Change.
5.11 No Material Adverse Change. All financial
statements relating to Borrower or any guarantor of the
Obligations that have been delivered by Borrower to the Lender
Group have been prepared in accordance with GAAP (except, in the
case of unaudited financial statements, for the lack of footnotes
and being subject to year-end audit adjustments) and fairly
present Borrower's (or such guarantor's, as applicable) financial
condition as of the date thereof and Borrower's results of
operations for the period then ended. There has not been a
Material Adverse Change with respect to Borrower (or such
guarantor, as applicable) since the date of the latest financial
statements submitted to the Lender Group on or before the
Closing Date.
5.12 No Fraudulent Transfer.
(a) Borrower and each of its Subsidiaries is
Solvent.
(b) No transfer of property is being made by
Borrower and no obligation is being incurred by Borrower or any
of its Subsidiaries in connection with the transactions
contemplated by this Agreement or the other Loan Documents with
the intent to hinder, delay, or defraud either present or future
creditors of Borrower or any of its Subsidiaries.
5.13 Employee Benefits. None of Borrower, any of its
Subsidiaries, or any of their ERISA Affiliates maintains or
contributes to any Benefit Plan, other than those listed on
Schedule 5.13. Borrower, each of its Subsidiaries and each ERISA
Affiliate have satisfied the minimum funding standards of ERISA
and the IRC with respect to each Benefit Plan to which it is
obligated to contribute. No ERISA Event has occurred nor has any
other event occurred that may result in an ERISA Event that
reasonably could be expected to result in a Material Adverse
Change. None of Borrower or its Subsidiaries, any ERISA
Affiliate, or any fiduciary of any Plan is subject to any direct
or indirect liability with respect to any Plan under any
applicable law, treaty, rule, regulation, or agreement. None of
Borrower or its Subsidiaries or any ERISA Affiliate is required
to provide security to any Plan under Section 401(a)(29) of the
IRC.
5.14 Environmental Condition. Borrower has disclosed
in writing to Agent any currently known and pending environmental
conditions or matters which could result in a Material Adverse
Change. Other than as disclosed, to the knowledge of Borrower
and its Subsidiaries: none of the Oil and Gas Properties or the
Real Property has ever been used in the disposal of, or to
produce, store, handle, treat, release or transport any Hazardous
Materials in a manner which could result in a Material Adverse
Change, or has ever been designated or identified in any manner
pursuant to any Environmental Laws is a Hazardous Materials
disposal site or as a candidate for closure. No Lien arising
under any Environmental Laws has attached to any revenues or to
any real or personal property owned or operated by Borrower or by
any Subsidiary of Borrower. Neither Borrower nor any Subsidiary
of Borrower has received a summons, citation, notice, or
directive from the Environmental Protection Agency or any other
federal or state governmental agency concerning any action or
omission by Borrower or any Subsidiary of Borrower resulting in
the releasing or disposing of Hazardous Materials into the
environment and which could result in a Material Adverse Change.
To the knowledge of Borrower and its Subsidiaries, no Hazardous
Materials, solid waste, or oil and gas exploration and production
wastes, have been disposed of or otherwise released on or to any
Property of Borrower or any of its Subsidiaries except in
compliance in all material respects with Environmental Laws and
so as not to pose an imminent and substantial endangerment to
public health or welfare or the environment. To the extent
applicable, and to the knowledge of Borrower and its
Subsidiaries, all Property of Borrower and each of its
Subsidiaries currently satisfies in all material respects all
design, operation, and equipment requirements imposed by the OPA
or known to Borrower to be or scheduled as of the Closing Date to
be imposed by OPA during the term of this Agreement, and Borrower
does not have any reason to believe that such Property, to the
extent subject to OPA, will not be able to maintain in all
material respects compliance with the OPA requirements during the
term of this Agreement. Neither Borrower nor any of its
Subsidiaries has any known contingent liability in connection
with any release or threatened release of any oil, Hazardous
Materials or solid waste into the environment. To the knowledge
of Borrower and its Subsidiaries, all Hazardous Materials, solid
waste, and oil and gas exploration and production wastes, if any,
generated at any and all Property of Borrower or any of its
Subsidiaries have in the past been transported, treated and
disposed of in accordance with Environmental Laws and so as not
to pose an imminent and substantial endangerment to public health
or welfare or the environment, and so as not to create a risk of
Material Adverse Change to Borrower or any of its Subsidiaries.
5.15 Compliance with the Law. To their knowledge,
neither Borrower nor any of its Subsidiaries has violated any
requirement of a Governmental Authority or failed to obtain any
license, permit, franchise or other governmental authorization
necessary for the ownership of the Property or the conduct of its
business, which violation or failure could be expected to result
in (in the event such violation or failure were asserted by any
Person through appropriate action) a Material Adverse Change.
Except for such acts or failures to act as do not result in and
could not be expected to result in a Material Adverse Change, the
Oil and Gas Properties have been maintained, operated and
developed in a good and workmanlike manner and in conformity with
all applicable laws and all rules, regulations and orders of all
duly constituted authorities having jurisdiction and in
conformity with the provisions of all leases, subleases or other
contracts comprising a part of the Mineral Interests and other
contracts and agreements forming a part of the Oil and Gas
Properties; specifically in this connection, (i) after the
Closing Date, no Oil and Gas Properties are subject to having
allowable production reduced below the full and regular allowable
(including the maximum permissible tolerance) because of any
overproduction (whether or not the same was permissible at the
time) prior to the Closing Date and (ii) none of the xxxxx
comprising a part of the Oil and Gas Properties are deviated from
the vertical more than the maximum permitted by applicable laws,
regulations, rules and orders, and such xxxxx are, in fact,
bottomed under and are producing from the Oil and Gas Properties.
Neither Borrower nor any of its Subsidiaries has entered into,
and the Oil and Gas Properties are not subject to, any
agreements, consent orders, administrative orders or similar
obligations based on a violation or alleged violation of Legal
Requirements that could be expected to result in a Material
Adverse Change
5.16 Bonds and Insurance. Schedule 5.16 attached
hereto contains an accurate and complete description of all
performance bonds related to operations on or pertaining to the
Oil and Gas Properties, and all material policies of insurance
owned or held by Borrower and each Subsidiary. Except as set
forth on Schedule 5.16, all such policies are in full force and
effect, all premiums with respect thereto covering all periods up
to and including the Closing Date have been paid, and no notice
of cancellation or termination has been received with respect to
any such policy. Such bonds and policies are sufficient for
compliance with all requirements of law and of all agreements to
which Borrower or any of its Subsidiaries is a party; are valid,
outstanding and enforceable policies; provide adequate coverage
in at least such amounts and against at least such risks (but
including in any event public liability) as are required by
Governmental Authorities and/or usually insured or bonded against
in the same general area by companies engaged in the same or a
similar business for the assets and operations of Borrower and
each of its Subsidiaries; will remain in full force and effect
through the respective dates set forth in Schedule 5.16 without
the payment of additional premiums except as set forth on
Schedule 5.16; and will not in any way be affected by, or
terminate or lapse by reason of, the transactions contemplated by
this agreement. Neither Borrower nor any of its Subsidiaries has
been refused any bonds or insurance with respect to its assets or
operations, nor has its coverage been limited below usual and
customary bond or policy limits, by any bonding company or
insurance carrier to which it has applied for any such bond or
insurance or with which it has carried insurance during the last
three years.
5.17 Hedging Agreement. Schedule 5.17 sets forth, as of
the Closing Date, a true and complete list of all Hedging
Agreements (including commodity price swap agreements, forward
agreements or contracts of sale which provide for prepayment for
deferred shipment or delivery of oil, gas or other commodities)
of the Borrower and each of its Subsidiaries, the material terms
thereof (including the type, term, effective date, termination
date and notional amounts or volumes), the net xxxx to market
value thereof, all credit support agreements relating thereto
(including any margin required or supplied), and the counterparty
to each such agreement. Borrower has delivered true and correct
copies of each of the Hedging Agreements to Agent prior to the
date of this Agreement.
5.18 Brokerage Fees. Except as set forth in
Schedule 5.18, no brokerage commission or finders fees has or
shall be incurred or payable in connection with or as a result of
Borrower's obtaining financing from the Lender Group under this
Agreement, and neither Borrower nor any of its Subsidiaries has
utilized the services of any broker or finder in connection with
Borrower's obtaining financing from the Lender Group under this
Agreement. Borrower acknowledges that neither Agent nor any
Lender is in any way liable for the payment of any brokerage
commission or finders fees in connection with or as a result of
Borrower's obtaining financing from the Lender Group under this
Agreement.
5.19 Permits and other Intellectual Property. Except
as set forth on Schedule 5.19, Borrower owns or possesses
adequate licenses or other rights to use all Permits, patents,
patent applications, trademarks, trademark applications, service
marks, service xxxx applications, trade names, copyrights, trade
secrets and know-how (collectively, the "Intellectual Property")
that are necessary for the operation of its business as currently
conducted. No claim is pending or threatened to the effect that
Borrower infringes upon, or conflicts with, the asserted rights
of any other Person under any Intellectual Property, and to the
best of Borrower's knowledge there is no basis for any such claim
(whether pending or threatened). To the best of Borrower's
knowledge, no claim is pending or threatened to the effect that
any such Intellectual Property owned or licensed by Borrower, or
in which Borrower otherwise has the right to use is invalid or
unenforceable by Borrower, and to the best of Borrower's
knowledge there is no basis for any such claim (whether or not
pending or threatened).
5.20 [Intentionally Omitted].
5.21 Locations; Real Property Leases.
(a) The primary accounting and business books,
records and papers of Borrower and its Subsidiaries (including
those pertaining to the Collateral) are kept and maintained
solely at Borrower's chief executive office set forth in the
beginning of this Agreement. In addition, the Oil and Gas
Property Collateral is kept and maintained solely at those
locations which are listed on Schedule 5.1(a) attached hereto and
at Borrower's chief executive office set forth in the beginning
of this Agreement. In addition, the Collateral consisting of
Inventory and Equipment are kept and maintained solely at those
locations which are listed on Schedule 5.1(a) attached hereto,
those locations specified on Schedule 5.21 attached hereto and at
Borrower's chief executive office set forth in the beginning of
this Agreement, which schedules include the names and addresses
of each of Borrower's landlords. Except (i) to accomplish sales
of Inventory in the ordinary course of business, or (ii) to
dispose of Collateral to the extent prescribed under Section 7.4,
Borrower shall not remove any Collateral from said executive
office or those locations listed on Schedule 5.1(a) or
Schedule 5.21, as the case may be.
(b) Except as Borrower shall have notified in
writing prior thereto and Borrower shall have delivered to Agent
a Collateral Access Agreement in form and substance satisfactory
to Agent, no tangible personal property of Borrower or any of its
Subsidiaries shall be in the care or custody of any third party
or stored or entrusted with a bailee or other third party and
none shall hereafter be placed under such care, custody, storage
or entrustment.
5.22 Absence of Certain Changes. Except as set forth
in Schedule 5.22, since December 31, 1999, there has not been
without Agent's prior written consent:
(a) A waiver of any right relating to the Oil and
Gas Properties;
(b) A sale, lease or other disposition of the Oil
and Gas Properties;
(c) A mortgage, pledge or grant of a lien or
security interest in any of the Oil and Gas Properties;
(d) A contract for the sale of products produced
from the Oil and Gas Properties, except for (i) such contracts
that have been supplied to and reviewed and approved by Agent,
and (ii) such contracts which do not (I) require sales of minimum
quantities by Borrower or any of its Subsidiaries, (II) involve
any advance payments or other advances to or by Borrower or any
of its Subsidiaries, (III) provide for a sale price of less than
70% of (A) for oil, the NYMEX EDQ calendar month price as
reported by The New York Merchantile Exchange on XXXXX.xxx or in
a comparable oil and gas industry publication of nationally
recognized standing (or an equivalent price in the event that
such NYMEX EDQ calendar month price is no longer reported) for
the appropriate category of oil covered by such contract and
(B) for gas, the spot price for the appropriate category of gas
covered by such contract, and (IV) constitute Indebtedness or
otherwise involve any material undertaking by Borrower or any of
its Subsidiaries;
(e) A contract between Borrower and any of its
Subsidiaries; or
(f) A contract or commitment to do any of the
foregoing.
5.23 Operating Costs. Except as set forth in
Schedule 5.23, all costs and expenses incurred in connection with
the operation of the Properties have been fully paid and
discharged by Borrower, except normal costs and expenses incurred
in operating the Oil and Gas Properties within the previous 60
days or for which Borrower has not yet been billed.
5.24 Imbalances. Except as set forth on
Schedule 5.2(b) or on the most recent Reserve Report delivered to
Agent by Borrower pursuant to Section 6.2(h), or following the
Closing Date as permitted pursuant to Section 7.23, no Borrowing
Base Entity has taken or received any amount of gas, oil, liquid
hydrocarbons (or products refined therefrom) so that any person
or entity may thereafter be entitled to receive any portion of
the interests of any Borrowing Base Entity to "balance" any
previous disproportionate allocation.
5.25 No Default. Except as set forth on Schedule
5.1(c), no contracts exist which encumber the Oil and Gas
Properties. The contracts associated with the Oil and Gas
Properties are in full force and effect in accordance with their
respective terms, and there exist no violations or defaults (and
Borrower is not aware of any event or circumstance that with
notice or lapse of time, or both, would constitute a violation or
default) in the performance of any obligation thereunder that
could be expected to result in a Material Adverse Change, or that
is likely to have a material adverse effect on the value of any
such Oil and Gas Properties or the amount that the Lender Group
would be likely to receive (after giving consideration to delays
in payment and costs of enforcement) in the liquidation of such
Oil and Gas Property, or that could be expected to result in a
material impairment of the priority of the Agent's Liens with
respect to such Oil and Gas Property.
5.26 Leases. The oil and gas leases associated with
the Oil and Gas Properties are in full force and effect in
accordance with their respective terms, and there exist no
violations or defaults in the performance of any obligation
thereunder that could be expected to result in a Material Adverse
Change, or that is likely to have a material adverse effect on
the value of any such Oil and Gas Properties or the amount that
the Lender Group would be likely to receive (after giving
consideration to delays in payment and costs of enforcement) in
the liquidation of such Oil and Gas Property, or that could be
expected to result in a material impairment of the priority of
the Agent's Liens with respect to such Oil and Gas Property.
Additionally, Borrower is not aware of any event that with notice
or lapse of time, or both, would constitute a material violation
or default under any such oil and gas leases.
5.27 Marketing Agreements. Except as set forth in
Schedule 5.27 and except to the extent permitted under Section
7.27, the Oil and Gas Properties (and the production therefrom)
are not subject to any purchase agreement, sale agreement or
similar marketing arrangement not cancelable on thirty (30) days
notice, nor are any of the Properties subject to any agreements
with any companies affiliated with Borrower that cannot be
terminated immediately upon Closing without penalty, cost or
liability to Borrower.
5.28 Non-Consent Operations. Since July 31, 2000,
there have been no operations associated with the Oil and Gas
Properties under an operating agreement, unit agreement or
governmental order with respect to which any Borrowing Base
Entity has become a non-consenting party, except for those
described in Schedule 5.2(a) and except for those relating to
periods after the Closing Date to the extent permitted under
Section 7.25.
5.29 Condition of Equipment. All of the xxxxx,
facilities and equipment associated with the Oil and Gas
Properties that are material to the operation thereof are:
(a) structurally sound with no material defects known to
Borrower, (b) in good operating condition, normal wear and tear
excepted, and suitable for the purposes for which they are being
utilized, and (c) have been and are maintained in accordance with
prudent business standards.
5.30 Xxxxx. Each oil or gas well located on the Oil
and Gas Properties is: (a) except as otherwise disclosed on
Schedule 5.1(b), if such oil or gas well is listed on a Reserve
Report, capable of producing in paying quantities, (b) properly
permitted, (c) to the best of Borrower's knowledge, in compliance
with all applicable Laws, and (d) within the production
tolerances allocated by the governmental entity or tribal
authority having appropriate jurisdiction. All of the leaseholds
in which there are located Mineral Interests of a Borrowing Base
Entity are producing Hydrocarbons in commercial quantities except
for those leaseholds which either (i) are listed on the most
recent Reserve Report delivered to Agent as having Proved
Developed Producing Revenues with a NYMEX Value at $10,000 or
less or are not listed on the most recent Reserve Report
delivered to Agent or are not listed on the most recent Reserve
Report delivered to Agent as having Proved Developed Producing
Revenues. Each of Borrowing Base Entity's producing xxxxx listed
on Schedule 5.1(b) as having a NYMEX Value of $100,000 or more is
located on an Oil and Gas Property (i) covered by Title Opinions
to the extent of at least $94,000,000 of NYMEX Value in the
aggregate as of the Closing Date, and thereafter as are required
pursuant to Section 6.17(a), and (ii) described in the legal
description contained in an Oil and Gas Property Mortgage which
has been duly executed and delivered to Agent, except as
otherwise disclosed on Schedule 5.30 attached hereto.
6. AFFIRMATIVE COVENANTS.
Borrower covenants and agrees that, so long as any
credit hereunder shall be available and until full and final
payment of the Obligations, Borrower shall, and shall cause each
of its Subsidiaries to, do all of the following:
6.1 Accounting System. Maintain a standard and modern
system of accounting that enables Borrower to produce financial
statements in accordance with GAAP, and maintain records
pertaining to the Collateral that contain information as from
time to time may be requested by Agent. Borrower also shall keep
a modern joint interest billing and remittance system with
respect to each of the Oil and Gas Properties on which it is the
operator and a modern reporting system that shows, among other
things, the value, revenues and profits/losses of the Oil and Gas
Properties, volume of production and value of sales of
Hydrocarbon production, the location and condition of the
Equipment and Borrower's positions and liability exposure under
the Hedging Agreements.
6.2 Collateral Reporting. Provide Agent with the
following documents at the following times in form satisfactory
to Agent during the term of this Agreement:
(a) By no later than the last day of each month,
(i) a detailed update, for the previous month, of the Borrowing
Base on the form of the Borrowing Base Certificate which is
attached hereto as Exhibit 6.2 (or on such other form as Agent in
its sole discretion may require), including a detailed
calculation of the NYMEX Value of each of the Oil and Gas
Properties included in the Eligible Proved Developed Producing
Reserves (such update and calculation shall include Oil and Gas
Properties converted to Eligible Proved Developed Producing
Reserves during such previous month, if any, as approved by Agent
and for which a Reserve Report described in Section 6.2(i) shall
have been prepared by Xxxxxxx Xxxx & Xxxxxxxx and received by
Agent), and (ii) a detailed calculation of the Unsecured Notes
Indebtedness Limitation;
(b) By no later than forty-five (45) days after
the end of each fiscal quarter of Borrower (or with such greater
frequency as Agent may request from time to time), a detailed
update, for the previous month, of the Borrowing Base on the form
of the Borrowing Base Certificate which is attached hereto as
Exhibit 6.2 (or on such other form as Agent in its sole
discretion may require), including (i) a detailed calculation of
the NYMEX Value of each of the Oil and Gas Properties
(categorized by Proved Developed Producing Reserves, Proved
Developed Non-Producing Reserves and Proved Undeveloped Reserves,
Eligible Proved Developed Producing Reserves, and "other"), (ii)
a reconciliation and explanation of the changes of categorization
of any Oil and Gas Properties among Proved Developed Producing
Reserves, Proved Developed Non-Producing Reserves and Proved
Undeveloped Reserves, Eligible Proved Developed Producing
Reserves, and "other", since the date of the immediately
preceding Borrowing Base Certificate, (iii) an updated schedule,
in substantially the form of Schedule 5.2(f) or such other form
as may be requested by Agent, setting forth as to each Oil and
Gas Property owned by any Borrowing Base Entity the name,
location, lease description, operator and ownership percentage of
costs and revenue associated with such property and also
indicating any changes in such working interest or net revenue
interest in the Oil and Gas Property Collateral since the
previous report, (iv) a schedule of the aggregate amount of all
authorities for expenditures for all Proved Reserves which are
outstanding as of such date, and (v) list of all authorities for
expenditures for any Proved Reserves requiring an expenditure in
excess of $25,000 by any Borrowing Base Entity on a combined
basis for any single operation since the date of the previous
report;
(c) By no later than the last day of each month,
(i) Borrower's "Lease Cash Flow Report", in form and substance
reasonably acceptable to Agent, which will include a detailed
statement of sales and revenues derived from all products
produced from the Oil and Gas Properties, for the previous month,
including prices received, lease operating expenses and such
other information as Agent may deem necessary or appropriate, in
Agent's sole discretion, (ii) Borrower's "Monthly O&G Revenue
Accrual Report", in form and substance reasonably acceptable to
Agent, which will include the prior period adjustments to such
revenues and prices, and any Material Adverse Change affecting
the sales or marketing agreements or arrangements with the
purchasers of such products and historical production data of the
oil and gas reserves included in the Oil and Gas Property
Collateral since the date of the most recent Reserve Report
(except that with respect to the portion of such reserves which
are being produced from Oil and Gas Properties on which neither
Borrower nor any of its Affiliates is the operator, the
information pertaining thereto described in this subclause (ii)
shall be due by no later than the 15th day after the last day of
such month, rather than being due on the last day of such month),
and (iii) a receivables aging as to all customers of Borrower and
its Subsidiaries;
(d) By no later than the last day of each month,
a written report to Agent, in form and substance acceptable to
Agent, detailing and aging each Borrowing Base Entity's unpaid
lease operating expenses and unpaid other liabilities, for the
previous month, with respect to which a mineral lien,
subcontractor's lien, mechanic's lien, materialmen's lien or
other Lien against any of the Collateral may arise which may have
a priority superior to Agent's Lien on such Collateral;
(e) By no later than the last day of each month,
notice of all claims, disputes, and litigation that have arisen
since the date of the most recent statement to Agent pursuant to
this Section 6.2(e) through the last day of the immediately
preceding month; except (i) ongoing collection matters in which
Borrower is the claimant or plaintiff; and (ii) matters that, if
decided adversely to any Loan Party, do not result in and could
not be expected to result in a Material Adverse Change;
(f) By no later than the last day of each month,
for the previous month, a written report, in form and substance
acceptable to Agent, detailing the costs incurred and revenues
received by each Borrowing Base Entity under its Hedging
Agreements for oil and gas production;
(g) By the last day of the month following each
calendar quarter (i.e., the last day of April, July, October and
January), a report: (i) listing the total amount actually paid
by each Borrowing Base Entity during the preceding quarter for:
(A) plugging and abandonment costs for previous or ongoing
plugging and abandonment operations pertaining to the Oil and Gas
Properties, and (B) general bond and supplemental bond payments
pertaining to plugging and abandonment costs; and (ii) estimating
the future payments for the items described in the immediately
preceding subclause (i) for each of the succeeding two quarters
if the estimated aggregate amount thereof is greater than $25,000
for such period;
(h) Reserve Reports prepared by Borrower and
audited by Xxxxx Xxxxx Company or other qualified independent
petroleum engineering consultant selected by Borrower and
approved by Agent pertaining to the six-month period ending
December 31st and June 30th of each year (with such Reserve
Reports to be delivered as soon as available, but in any event
not later than the 90th day following such six-month period).
Each Reserve Report described in this subparagraph (h) shall be
in form and substance satisfactory to Agent, and shall: (i) be
accompanied by a certification of Borrower to the effect that
nothing has occurred since the date of the last Reserve Report
that could reasonably be expected to result in a Material Adverse
Change, except that which has previously been disclosed to Agent
in writing; (ii) be accompanied by a reconciliation showing any
changes in the Oil and Gas Property Collateral since the date of
the most recent of such Reserve Report in each Borrowing Base
Entity's Working Interest or net revenue interest; and (iii)
contain such other information as may be requested by Agent;
(i) Promptly following the preparation thereof,
Reserve Reports prepared by Borrower and audited by Xxxxxxx Xxxx
& Xxxxxxxx or other qualified independent petroleum engineering
consultant selected by Borrower and approved by Agent pertaining
to Oil and Gas Properties of a Borrowing Base Entity which were
included in the then most recent Reserve Report described in
Section 6.2(h) as reserves other than Proved Developed Producing
Reserves and since the date thereof were converted to Proved
Developed Producing Reserves of such Borrowing Base Entity. Each
Reserve Report described in this subparagraph (i) shall be in
form and substance satisfactory to Agent and shall contain such
other information as may be requested by Agent;
(j) Upon request by Agent from time to time,
copies of each Borrowing Base Entity's lease files, well files
and contract files (including production reports on each well,
marketing contracts, and information regarding locations of and
equipment located on each well);
(k) Such other information, reports, statements,
materials and data as to the xxxxx operated by a Borrowing Base
Entity or in which a Borrowing Base Entity otherwise has an
interest and the accounting and billing procedures utilized by
such Borrowing Base Entity in connection with such xxxxx as shall
be requested by Agent, including, without limitation, relevant
computer programs, disks and tapes;
(l) On a weekly basis, Collections reports
specifying Borrower's and each other Loan Party's, and each of
their respective Subsidiaries', Collections for the immediately
preceding calendar week; and
(m) Such other reports as to the Collateral or
the business or financial condition of Borrower or its
Subsidiaries as Agent may request from time to time.
Each delivery of a Reserve Report or a Borrowing Base Certificate
by Borrower to Agent shall constitute a representation and
warranty by Borrower to Agent that, unless otherwise disclosed to
Agent in writing on or prior to the date of such delivery, (I)
Borrower (or its Subsidiary, as the case may be) owns the Oil and
Gas Properties described in the Reserve Report free and clear of
any Liens (except Permitted Liens), and (II) the Oil and Gas
Properties described in such Reserve Report constitute at least
ninety-five percent (95%) of the value of Borrower's Proved
Developed Producing Reserves.
6.3 Financial Statements, Reports, Certificates.
Deliver to Agent, with copies to each Lender: (a) as soon as
available, but in any event within 45 days after the end of each
month during each of Borrower's fiscal years, a company prepared
balance sheet, income statement, and statement of cash flow
covering Borrower's operations during such period; and (b) as
soon as available, but in any event within 90 days after the end
of each of Borrower's fiscal years, financial statements of
Borrower for each such fiscal year, audited by independent
certified public accountants reasonably acceptable to Agent and
certified, without any qualifications, by such accountants to
have been prepared in accordance with GAAP, together with a
certificate of such accountants addressed to Agent stating that
such accountants do not have knowledge of the existence of any
Default or Event of Default. Such audited financial statements
shall include a balance sheet, profit and loss statement, and
statement of cash flow and, if prepared, such accountants' letter
to management. If Borrower is a parent company of one or more
Subsidiaries, or Affiliates, or is a Subsidiary or Affiliate of
another company, then, in addition to the financial statements
referred to above, Borrower agrees to deliver financial
statements prepared on a consolidating basis acceptable to Agent
so as to present Borrower and each such related entity
separately, and on a consolidated basis.
Together with the above, Borrower also shall deliver to
Agent, with copies to each Lender, Borrower's Form 10-Q Quarterly
Reports, Form 10-K Annual Reports, and Form 8-K Current Reports,
and any other filings made by Borrower with the SEC, if any, as
soon as the same are filed, or any other information that is
provided by Borrower to its shareholders, and any other
information reasonably requested by the Lender Group relating to
the financial condition of Borrower.
Each month, together with the financial statements
provided pursuant to Section 6.3(a), Borrower shall deliver to
Agent, with copies to each Lender, a certificate signed by its
chief financial officer to the effect that: (i) all financial
statements delivered or caused to be delivered to any one or more
members of the Lender Group hereunder have been prepared in
accordance with GAAP (except, in the case of unaudited financial
statements, for the lack of footnotes and being subject to year-
end audit adjustments) and fairly present the financial condition
of Borrower, (ii) the representations and warranties of Borrower
contained in this Agreement and the other Loan Documents are true
and correct in all material respects on and as of the date of
such certificate, as though made on and as of such date (except
to the extent that such representations and warranties relate
solely to an earlier date), (iii) for each month that also is the
date on which a financial covenant in Section 7.20 is to be
tested, a Compliance Certificate demonstrating in reasonable
detail compliance at the end of such period with the applicable
financial covenants contained in Section 7.20, and (iv) on the
date of delivery of such certificate to Agent there does not
exist any condition or event that constitutes a Default or Event
of Default (or, in the case of clauses (i), (ii), or (iii), to
the extent of any non-compliance, describing such non-compliance
as to which he or she may have knowledge and what action Borrower
has taken, is taking, or proposes to take with respect thereto).
As soon as available and in any event within forty-five
(45) days after the last day of each calendar quarter, a report,
in form and substance satisfactory to the Agent, setting forth as
of the last Business day of such calendar quarter, a true and
complete list of all Hedging Agreements (including commodity
price swap agreements, forward agreements or contracts of sale
which provide for prepayment for deferred shipment or delivery of
oil, gas or other commodities) of the Borrower and each
Subsidiary, the material terms thereof (including the type, term,
effective date, termination date and notional amounts or
volumes), the net xxxx to market values therefor, any new credit
support agreements relating thereto, any margin required or
supplied under any credit support document, and the counterparty
to each such agreement; provided, however, that if there have
been no changes since the date of the immediately preceding such
report delivered by Borrower to Agent, delivery by Borrower of a
report which states "no changes since date of immediately
preceding report" (or words of equivalent substance) shall be
acceptable for purposes of this paragraph.
Borrower shall have issued written instructions to its
independent certified public accountants authorizing them to
communicate with Agent and to release to Agent whatever financial
information concerning Borrower that Agent may request. Borrower
hereby irrevocably authorizes and directs all auditors,
accountants, or other third parties to deliver to Agent, at
Borrower's expense, copies of Borrower's financial statements,
papers related thereto, and other accounting records of any
nature in their possession, and to disclose to Agent any
information they may have regarding Borrower's business affairs
and financial conditions.
6.4 Tax Returns. Deliver to Agent copies of each of
Borrower's future federal income tax returns, and any amendments
thereto, within 30 days of the filing thereof with the Internal
Revenue Service.
6.5 Guarantor Reports. Cause any Guarantor of any of
the Obligations to deliver its annual financial statements at the
time when Borrower provides its audited financial statements to
Agent and copies of all federal income tax returns as soon as the
same are available and in any event no later than 45 days after
the same are required to be filed by law.
6.6 [Intentionally Omitted].
6.7 Title to Equipment. Upon Agent's request,
Borrower promptly shall deliver to Agent, properly endorsed, any
and all evidences of ownership of, certificates of title, or
applications for title to any items of Equipment.
6.8 Maintenance of Oil and Gas Property Collateral and
Equipment; Operation of Business.
(a) At its expense, do or cause to be done all
things necessary to preserve and keep in good repair, working
order and efficiency (except for normal wear and tear) all of its
Oil and Gas Property Collateral and other material Properties
including, without limitation, all equipment, machinery and
facilities material thereto, and from time to time make all the
necessary repairs, renewals and replacements so that at all times
the state and condition of its Oil and Gas Property Collateral
and other material Property will be fully preserved and
maintained, allowing for depletion in the ordinary course of
business, except (x) to the extent a portion of such Oil and Gas
Property Collateral is no longer capable of producing
Hydrocarbons in commercial quantities (in which case Borrower or
the relevant Subsidiary of Borrower, as the case may be, shall
fully comply with all of its obligations and Legal Requirements
pertaining to plugging and abandoning its xxxxx related to such
portion), and (y) as long as no Default or Event of Default then
exists and no Default or Event of Default would result therefrom,
Borrower and its Subsidiaries shall be permitted to abandon
Mineral Interests which have NYMEX Value as only Proved
Undeveloped Reserves, probable reserves or possible reserves (but
no NYMEX Value as Proved Developed Producing Reserves and no
NYMEX Value as Proved Developed Non-Producing Reserves) of up to
$500,000 in the aggregate during any fiscal year of Borrower.
Borrower and its Subsidiaries shall be permitted to. Borrower
shall, and shall cause each of its Subsidiaries to, promptly: (i)
pay and discharge, or make reasonable and customary efforts to
cause to be paid and discharged, all delay rentals, royalties,
expenses and indebtedness accruing under the leases or other
agreements affecting or pertaining to its Oil and Gas Property
Collateral; (ii) perform or make reasonable and customary efforts
to cause to be performed, in accordance with industry standards,
all obligations required by each and all of the assignments,
deeds, leases, sub-leases, contracts and agreements affecting its
interests in its Oil and Gas Property Collateral and other
material Properties necessary or desirable to maintain its
interests therein in full force and effect, and all other
material obligations required under such assignments, deeds,
leases, subleases, contracts and agreements affecting its
interests in its Oil and Gas Property Collateral and other
material Properties; (iii) shall, and shall cause each of its
Subsidiaries to, do all other things necessary to keep
unimpaired, except for Permitted Liens, its rights with respect
to each and all of the assignments, deeds, leases, sub-leases,
contracts and agreements affecting its interests in its Oil and
Gas Property Collateral and other material Property and prevent
any forfeiture thereof or a default thereunder, except (A) to the
extent a portion of such Oil and Gas Property Collateral is no
longer capable of producing Hydrocarbons in economically
reasonable amounts and (B) for dispositions permitted by Section
7.4 hereof. Borrower shall, and shall cause each of its
Subsidiaries, to operate its Oil and Gas Property Collateral and
other material Property or cause or make reasonable and customary
efforts to cause such Oil and Gas Property Collateral and other
material Properties to be operated in a reasonably prudent manner
in accordance with the practices of the industry and in
compliance in all material respects with all applicable contracts
and agreements and in compliance in all material respects with
all Legal Requirements.
(b) At its expense, maintain all material
Equipment in good operating condition and repair (ordinary wear
and tear excepted), and make all necessary replacements thereto,
so that the value and operating efficiency thereof shall at all
times be maintained and preserved. Other than those items of
Equipment that constitute fixtures attached to the lands covered
by Mineral Interests subject to the Oil and Gas Mortgages,
Borrower shall not permit any item of Equipment to become a
fixture to real estate or an accession to other property, and
such Equipment shall at all times remain personal property.
(c) At its expense, (i) develop and cause the
other Borrowing Base Entities to develop (to the extent
reasonably necessary to maintain the lease) and maintain, and
cause the other Borrowing Base Entities to maintain, the leases,
xxxxx, units and acreage to which the Oil and Gas Property
Collateral pertains in a prudent and economical manner, (ii) act
prudently (and to cause the other Borrowing Base Entities to act
prudently) and in accordance with customary industry standards in
managing or operating the Oil and Gas Property Collateral, (iii)
pay and promptly discharge all rentals, delay rentals, royalties,
overriding royalties, payments of production and other
indebtedness or obligations accruing under the leases comprising
the Oil and Gas Property Collateral, and perform (and cause the
other Borrowing Base Entities to perform) every commercially
reasonable act required to keep such leases in full force and
effect, (iv) deliver all operating agreements, pooling or
unitization agreements, sales or processing contracts, drilling
and/or development agreements, pipeline transportation agreements
and other material agreements which pertain to the Oil and Gas
Property Collateral, (v) deliver production information on a
monthly basis, (vi) deliver copies of all reports, forms and
other documents and data submitted by Borrower or any of its
Subsidiaries to the Federal Energy Regulatory Commission, the
applicable state conservation agencies and any other applicable
Governmental Authorities, (vii) not mortgage, pledge or otherwise
encumber or sell (and not permit any other Borrowing Base Entity
to mortgage, pledge or otherwise encumber or sell) the Oil and
Gas Property Collateral except to the limited extent specifically
permitted under this Agreement, (viii) not alter (or permit any
other Borrowing Base Entity to alter) any Material Contract
relating to the Oil and Gas Property Collateral except to the
limited extent specifically permitted under this Agreement, (ix)
pay on or before the due date thereof all of Borrower's and each
of its Subsidiaries' lease operating expenses and other
liabilities with respect to which a mineral lien, subcontractor's
lien, mechanic's lien, materialmen's lien or other Lien against
any of the Collateral may arise which may have a priority
superior to Agent's Lien on such Collateral, and (x) perform all
acts and execute such documents as Agent may reasonably require
in order to maintain the existence, perfection and first priority
of Agent's Lien on the Oil and Gas Property Collateral and the
other Collateral.
6.9 Taxes.
(a) Cause all assessments and taxes, whether
real, personal, or otherwise, due or payable by, or imposed,
levied, or assessed against Borrower (or any Subsidiary of
Borrower) or any of its property or assets to be paid in full,
before delinquency or before the expiration of any extension
period, except to the extent that the validity of such assessment
or tax (other than production taxes, severance taxes, payroll
taxes or taxes that are the subject of a United States federal
tax lien) shall be the subject of a Permitted Protest.
(b) Make due and timely payment or deposit of all
such federal, state, and local taxes, assessments, or
contributions required of it (or any Subsidiary of Borrower) by
law, and will execute and deliver to Agent, on demand,
appropriate certificates attesting to the payment thereof or
deposit with respect thereto.
(c) Make timely payment or deposit of all tax
payments and withholding taxes required of it and its
Subsidiaries by applicable laws, including those laws concerning
F.I.C.A., F.U.T.A., state disability, and local, state, and
federal income taxes, and will, upon request, furnish Agent with
proof satisfactory to Agent indicating that Borrower has made
such payments or deposits.
6.10 Insurance.
(a) At its expense, keep the Collateral insured
against loss or damage by such hazards and risks as are
ordinarily insured against by other owners in similar businesses
and in such amounts as shall be reasonably required by Agent.
Borrower shall also maintain such public liability and property
damage insurance relating to Borrower's ownership and use of
Collateral as is ordinarily maintained by other owners in similar
businesses and in such amounts as shall be reasonably required by
Agent. In addition to and not in limitation of the foregoing,
Borrower shall at its expense maintain the insurance policies
described in Schedule 5.16 in full force and effect.
(b) [Intentionally Omitted.]
(c) All such policies of insurance shall be in
such form, with such companies, and in such amounts as may be
reasonably satisfactory to Agent. All hazard insurance and such
other insurance as Agent shall specify, shall contain a lender's
loss payable endorsement (or equivalent endorsement) satisfactory
to Agent, showing Agent as sole loss payee thereof, and shall
contain a waiver of warranties. Every policy of insurance
referred to in this Section 6.10 shall contain an agreement by
the insurer that it will not cancel such policy except after 30
days prior written notice to Agent and that any loss payable
thereunder shall be payable notwithstanding any act or negligence
of Borrower or the Lender Group which might, absent such
agreement, result in a forfeiture of all or a part of such
insurance payment and notwithstanding (i) occupancy or use of the
Collateral for purposes more hazardous than permitted by the
terms of such policy, (ii) any foreclosure or other action or
proceeding taken by the Lender Group pursuant to the Oil and Gas
Mortgages or the Real Property Mortgages upon the happening of an
Event of Default, or (iii) any change in title or ownership of
the Collateral. Borrower shall deliver to Agent certified copies
of such policies of insurance and evidence of the payment of all
premiums therefor.
(d) Original policies or certificates thereof
satisfactory to Agent evidencing such insurance shall be
delivered to Agent at least 30 days prior to the expiration of
the existing or preceding policies. Borrower shall give Agent
prompt notice of any loss covered by such insurance. Prior to
the occurrence or existence of a Default or an Event of Default,
Borrower shall have the right to adjust any loss which,
individually and collectively, is less than $50,000. Agent shall
have the exclusive right to adjust all losses payable under any
such insurance policies in excess of $50,000, and during the
existence of a Default or an Event of Default Agent shall have
the right to adjust all losses payable under any such insurance
policies, in each case without any liability to Borrower or any
Subsidiary of Borrower whatsoever in respect of such adjustments.
Borrower shall be permitted to discuss proposed adjustments of
losses with its insurance carriers; provided, however, that (i)
Borrower shall not have the authority to agree to or settle
without Agent's prior written approval any loss which Agent has
the exclusive right to adjust hereunder, and (ii) Agent reserves
the right to adjust such losses independently of Borrower and any
Subsidiary of Borrower at any time. Any monies received as
payment for any loss under any insurance policy including the
insurance policies mentioned above, shall be paid over to Agent
to be applied at the option of the Required Lenders either to the
prepayment of the Obligations without premium, in such order or
manner as Agent may elect, or shall be disbursed to Borrower
under stage payment terms satisfactory to Agent for application
to the cost of repairs, replacements, or restorations. All
repairs, replacements, or restorations shall be effected with
reasonable promptness and shall be of a value at least equal to
the value of the items or property destroyed prior to such damage
or destruction. Upon the occurrence of an Event of Default, the
Lender Group shall have the right to apply all prepaid premiums
to the payment of the Obligations in such order or form as Agent
shall determine.
(e) Neither Borrower nor any Subsidiary of
Borrower shall take out separate insurance concurrent in form or
contributing in the event of loss with that required to be
maintained under this Section 6.10, unless Agent is included
thereon as named insured with the loss payable to Agent under a
lender's loss payable endorsement (or its equivalent)
satisfactory to Agent. Borrower immediately shall notify Agent
whenever such separate insurance is taken out, specifying the
insurer thereunder and full particulars as to the policies
evidencing the same, and originals of such policies immediately
shall be provided to Agent.
(f) Borrower shall, and shall cause each of its
Subsidiaries to, either (i) maintain its own, or (ii) use its
best efforts to cause the operator of each Oil and Gas Property
Collateral in which Borrower or any of its Subsidiaries owns a
non-operating Working Interest to maintain for the benefit of all
Working Interest owners, insurance of the types and in the
coverage amounts and with reasonable deductibles as is usual and
customary, including those specified in Section 6.10(b), to name
the non-operating Working Interest owners, including Borrower and
its Subsidiaries, as an additional insured on the liabilities,
and to otherwise have the such insurance comply with the
requirements specified in Section 6.10(c). Borrower shall, and
shall cause each of its Subsidiaries to, use its best efforts to
obtain from its operators certificates of insurance evidencing
coverage of the Oil and Gas Property Collateral as set forth
above as and when requested by Agent.
(g) Borrower shall furnish Agent with an
"Absolute Assignment" of each key man life insurance policy
listed on Schedule 5.16 attached hereto, shall record each such
"Absolute Assignment" with the issuer of the respective policy,
and shall finish proof of such issuer's acceptance of such
assignment. All proceeds payable under such key man life
insurance policies shall be payable to Agent to be applied on
account of the Obligations.
6.11 No Setoffs or Counterclaims Make payments
hereunder and under the other Loan Documents by or on behalf of
Borrower without setoff or counterclaim and free and clear of,
and without deduction or withholding for or on account of, any
federal, state, or local taxes.
6.12 Location of Inventory and Equipment Keep the
Inventory and Equipment only at the locations identified in
Schedule 5.21, the locations specified in the Oil and Gas
Property Mortgages in Schedule 5.1(a) and in the States listed
(or only in the counties listed, in cases in which counties in
any State are listed) on Schedule 6.12 attached hereto; provided,
however, that Borrower may amend Schedule 5.21 and Schedule 6.12
so long as such amendment occurs by written notice to Agent not
more than 15 days after the date on which the Inventory or
Equipment is moved to such new location, so long as such new
location is within the continental United States, and so long as,
at the time of such written notification, Borrower provides any
financing statements or fixture filings necessary or advisable to
perfect and continue perfected the Agent's Liens on such assets
and also provides to Agent a Collateral Access Agreement.
6.13 Compliance with Laws.
(a) Comply with the requirements of all
applicable laws, rules, regulations, and orders of any
Governmental Authority, including all Environmental Laws, the
Fair Labor Standards Act and the Americans With Disabilities Act,
other than laws, rules, regulations, and orders the non-
compliance with which, individually or in the aggregate, would
not result in and reasonably could not be expected to result in a
Material Adverse Change.
(b) Establish and implement such procedures as
may be necessary to continuously determine and assure that any
failure of the following would not result in and could not be
expected to result in a Material Adverse Change: (i) all Property
of the Borrower and its Subsidiaries and the operations conducted
thereon and other activities of the Borrower and its Subsidiaries
are in compliance with and do not violate the requirements of any
Environmental Laws, (ii) no oil, Hazardous Materials or solid
wastes are disposed of or otherwise released on or to any
Property owned by any such party except in compliance with
Environmental Laws, (iii) no Hazardous Materials will be released
on or to any such Property in a quantity equal to or exceeding
that quantity which requires reporting pursuant to Section 103 of
CERCLA, and (iv) no oil, oil and gas exploration and production
wastes, or Hazardous Materials is released on or to any such
Property so as to pose an imminent and substantial endangerment
to public health or welfare or the environment.
(c) Promptly notify Agent in writing of any
threatened action, investigation or inquiry by any Governmental
Authority of which Borrower or any of its Subsidiaries has
knowledge in connection with any Environmental Laws, excluding
routine testing and minor corrective action.
(d) Provide environmental audits and tests in
accordance with American Society for Testing and Materials
standards, as reasonably requested by Agent or as otherwise
reasonably required to be obtained by Agent or by any
Governmental Authority in connection with Borrower's existing and
hereafter acquired Oil and Gas Properties or other material
Properties.
6.14 Employee Benefits.
(a) Cause to be delivered to Agent: (i) promptly,
and in any event within 15 Business Days after Borrower or any of
its Subsidiaries knows or has reason to know that an ERISA Event
has occurred that has resulted in or reasonably could be expected
to result in a Material Adverse Change, a written statement of
the chief financial officer of Borrower describing such ERISA
Event and any action that is being taking with respect thereto by
Borrower, any such Subsidiary or ERISA Affiliate, and any action
taken or threatened by the IRS, Department of Labor, or PBGC.
Borrower or such Subsidiary, as applicable, shall be deemed to
know all facts known by the administrator of any Benefit Plan of
which it is the plan sponsor, (ii) promptly, and in any event
within 5 Business Days after the filing thereof with the IRS, a
copy of each funding waiver request filed with respect to any
Benefit Plan and all communications received by Borrower, any of
its Subsidiaries or, to the knowledge of Borrower, any ERISA
Affiliate with respect to such request, and (iii) promptly, and
in any event within 5 Business Days after receipt by Borrower,
any of its Subsidiaries or, to the knowledge of Borrower, any
ERISA Affiliate, of the PBGC's intention to terminate a Benefit
Plan or to have a trustee appointed to administer a Benefit Plan,
copies of each such notice.
(b) Cause to be delivered to Agent, promptly, and
in any event within 15 Business Days, after Agent's request
therefor, each of the following: (i) a copy of each Plan (or,
where any such plan is not in writing, complete description
thereof) (and if applicable, related trust agreements or other
funding instruments) and all amendments thereto; (ii) the most
recent determination letter issued by the IRS with respect to
each Benefit Plan, if any; (iii) for the three most recent plan
years, annual reports on Form 5500 Series required to be filed
with any governmental agency for each Benefit Plan, if any;
(iv) all actuarial reports prepared for the last three plan years
for each Benefit Plan; (v) a listing of all Multiemployer Plans,
with the aggregate amount of the most recent annual contributions
required to be made by Borrower or any ERISA Affiliate to each
such plan and copies of the collective bargaining agreements
requiring such contributions; (vi) any information that has been
provided to Borrower or any ERISA Affiliate regarding withdrawal
liability under any Multiemployer Plan; and (vii) the aggregate
amount of the most recent annual payments made to former
employees of Borrower or its Subsidiaries under any Retiree
Health Plan.
6.15 Leases. Pay when due all rents and other amounts
payable under any material leases to which Borrower or any
Subsidiary of Borrower is a party or by which Borrower's or such
Subsidiary's Oil and Gas Properties or other material properties
and assets are bound, unless such payments are the subject of a
Permitted Protest. To the extent that Borrower or any Subsidiary
of Borrower fails timely to make payment of such rents and other
amounts payable when due under its leases, Agent shall be
entitled, in its discretion, to reserve an amount equal to such
unpaid amounts against the Borrowing Base.
6.16 Broker Commissions. Pay any and all brokerage
commission or finders fees incurred or payable in connection with
or as a result of Borrower's obtaining financing from the Lender
Group under this Agreement.
6.17. Oil and Gas Property Title Information.
(a) Within 90 days following the delivery to
Agent of each Reserve Report required by Section 2.1(b) or
Section 6.2, Borrower will provide Agent with current Title
Opinions covering such of the Oil and Gas Property Collateral
which are acquired after the Closing Date, which become Proved
Developed Producing Reserves after the Closing Date, or the value
of the Proved Developed Producing Reserves portion of which
increases materially after the date of the Closing as shall
reasonably be required by Agent for which current Title Opinions
have not previously been provided to Agent, and covering such
other Oil and Gas Property Collateral as Agent may from time to
time require so that at all times the value of Eligible Proved
Developed Producing Reserves for which Title Opinions are or have
been provided to Agent shall equal or exceed seventy-five percent
(75%) of the NYMEX Value of all Oil and Gas Property Collateral
as set forth in the most recently delivered Reserve Report of
Proved Developed Producing Reserves.
(b) Borrower shall cure all title defects or
exceptions which are not Permitted Liens, or substitute
acceptable Oil and Gas Property Collateral with no title defects
or exceptions except for Permitted Liens covering Oil and Gas
Property Collateral of an equivalent value, within 90 days after
a request by Agent to cure such defects or exceptions. If the
Borrower is unable to cure any title defect requested by Agent to
be cured within the 90 day period, such failure to cure shall not
be a Default or an Event of Default, but instead such Property
shall remain excluded from the Borrowing Base as provided in
Section 2.1 until such time as title is satisfactory to Agent.
Upon the discovery of any title defect or exception which is not
a Permitted Lien, Agent shall have the right to exercise the
right to remedy such title defect or exception in its sole
discretion from time to time (and any failure to so exercise this
remedy at any time shall not be a waiver as to future exercise of
the remedy by Agent).
6.18 Additional Collateral.
(a) (i) Should Borrower or any of its
Subsidiaries purchase, otherwise acquire or own any Oil and Gas
Property having a NYMEX value of $50,000 or more that is not
already included in the Oil and Gas Property Collateral and the
subject of an Oil and Gas Property Mortgage in favor of Agent for
the benefit of the Lender Group, Borrower will grant or cause to
be granted to Agent as security for the Obligations a first-
priority Lien (subject only to Permitted Liens) on all of
Borrower's or such Subsidiary's, as the case may be, interest in
such Oil and Gas Properties not already subject to a Lien of such
an Oil and Gas Property Mortgage simultaneously with Borrower's
or such Subsidiary's purchase, acquisition or ownership of such
Oil and Gas Property which Lien will be created and perfected by
and in accordance with the provisions of an Oil and Gas Property
Mortgage and other security agreements and financing statements,
or other security instruments, all in form and substance
satisfactory to Agent in its sole discretion and in sufficient
executed (and acknowledged where necessary or appropriate)
counterparts for recording purposes; and (ii) should Borrower or
any of its Subsidiaries purchase, otherwise acquire or own any
Real Property that is not already included in the Real Property
Collateral and the subject of a Real Property Mortgage in favor
of Agent for the benefit of the Lender Group, Borrower will grant
or cause to be granted to Agent as security for the Obligations a
first-priority Lien (subject only to Permitted Liens) on all of
Borrower's or such Subsidiary's, as the case may be, interest in
such Real Property not already subject to a Lien of such a Real
Property Mortgage simultaneously with Borrower's or such
Subsidiary's purchase, acquisition or ownership of such Real
Property which Lien will be created and perfected by and in
accordance with the provisions of a Real Property Mortgage and
other security agreements and financing statements, or other
security instruments, all in form and substance satisfactory to
Agent in its sole discretion and in sufficient executed (and
acknowledged where necessary or appropriate) counterparts for
recording purposes,
(b) Concurrently with the granting of the Lien or
other action referred to in Section 6.18(a) above as to Oil and
Gas Property, Borrower will provide to Agent title information
and a title opinion in form and substance satisfactory to Agent
in its sole discretion with respect to Borrower's or such
Subsidiary's, as the case may be, interests in such Oil and Gas
Properties, and concurrently with the granting of the Lien or
other action referred to in Section 6.18(a) above as to Real
Property, Borrower will provide to Agent title information and a
mortgagee title insurance commitment in form and substance
satisfactory to Agent in its sole discretion with respect to
Borrower's or such Subsidiary's, as the case may be, interests in
such Real Property.
(c) Borrower shall cause all of its present and
future Subsidiaries that are 50% or more owned directly or
indirectly by Borrower to execute a Guaranty Agreement and
Security Agreements.
6.19 Hedging Agreements. The Borrowing Base Entities
shall maintain in effect at all times on a continuous basis one
or more Hedging Agreements satisfactory to the Agent with respect
to its Hydrocarbon production with one or more investment grade
counterparties, rated Aa3 or better by Xxxxx'x, A+ or better
according to Standard & Poor's, or the equivalent by a rating
agency acceptable to Agent or with a counterparty otherwise
acceptable to Agent in its reasonable judgment, which Hedging
Agreements taken together shall at all times cover, for the
period ending not less than 6 months from the date of any
determination of compliance with this Section 6.19, aggregate
notional volumes of Hydrocarbons equal to not less than 50% and
not more than 90% of the Borrowing Base Entities' forecasted
Hydrocarbon production for such period from Oil and Gas
Properties classified as Proved Developed Producing Reserves as
of the date of the most recent Reserve Report. Borrower shall
use such Hedging Agreements solely as a part of its normal
business operations as a risk management strategy and/or hedge
against changes resulting from market conditions related to
Borrower's and its Subsidiaries' oil and gas operations and not
as a means to speculate for investment purposes on trends and
shifts in financial or commodities markets. Borrower shall notify
Agent immediately upon becoming aware (in any event not later
than the close of business on the same Business Day) that the
production of Hydrocarbons by Borrower could reasonably be
expected to be insufficient to meet its obligations under any
Hedging Agreements.
6.20 Further Assurances. Cure promptly any defects in
the creation or issuance of the Obligations or the execution or
delivery of the Obligations and/or Loan Documents, including this
Agreement. Borrower at its expense shall, and shall cause each or
its Subsidiaries to promptly execute and deliver to Agent upon
request all such other documents, agreements and instruments to
comply with or accomplish the covenants and agreements of
Borrower or any of its Subsidiaries in the Loan Documents,
including this Agreement, or to further evidence and more fully
describe the collateral intended as security for the Obligations,
or to correct any omissions in the Loan Documents, or to state
more fully the security obligations set out herein or in any of
the Loan Documents, or to perfect, protect or preserve any Liens
created pursuant to any of the Loan Documents, or to make any
recordings, to file any notices or obtain any consents, all as
may be reasonably necessary or appropriate in connection
therewith.
7. NEGATIVE COVENANTS.
Borrower covenants and agrees that, so long as any
credit hereunder shall be available and until full and final
payment of the Obligations, Borrower will not, and will not
permit any of its Subsidiaries to, do any of the following
without the Required Lenders' prior written consent:
7.1 Indebtedness. Create, incur, assume, permit,
guarantee, or otherwise become or remain, directly or indirectly,
liable with respect to any Indebtedness, except:
(a) Indebtedness evidenced by this Agreement;
(b) Indebtedness set forth on Schedule 7.1;
(c) Indebtedness secured by Permitted Liens;
(d) the Unsecured Notes;
(e) accounts payable (for the deferred purchase
price of Property or services) from time to time incurred in the
ordinary course of business which, if greater than 90 days past
the invoice or billing date, are subject to a bona fide dispute
which is being contested in good faith by appropriate proceedings
as to which a reserve is established on the books of Borrower in
an amount that is satisfactory to Agent (and if a Lien secures
the same or may secure the same, such Lien is subject to a
Permitted Protest);
(f) Indebtedness associated with bonds or surety
obligations required by Legal Requirements in connection with the
operation of Borrower's and its Subsidiaries' Oil and Gas
Properties;
(g) Indebtedness which does not exceed $2,000,000
in the aggregate outstanding at any time under Hedging Agreements
(or to issuers of letters of credit for the account of Borrower
which support Hedging Agreements) entered into by Borrower
covering oil or gas entered into as a part of Borrower's normal
business operations as a risk management strategy and/or hedge
against changes resulting from market conditions related to
Borrower's and its Subsidiaries' oil and gas operations (but not
as a means to speculate for investment purposes on trends and
shifts in financial or commodities markets) but only to the
extent that the total volumes hedged for any 12 month period are
not greater than 90% of the forecasted Hydrocarbon production of
the Borrowing Base Entities for such period from Oil and Gas
Properties classified as Proved Developed Producing Reserves as
indicated in the most recent Reserve Report; and
(h) refinancings, replacements, renewals, or
extensions of Indebtedness permitted under clauses (b) and (c) of
this Section 7.1 (and continuance or renewal of any Permitted
Liens associated therewith) and under clause (d) of this Section
7.1, in each such case so long as: (i) the terms and conditions
of such refinancings, replacements, renewals, or extensions do
not materially impair the prospects of repayment of the
Obligations by Borrower, (ii) the net cash proceeds of such
refinancings, replacements, renewals, or extensions do not result
in an increase in the aggregate principal amount of the
Indebtedness so refinanced, renewed, or extended, (iii) such
refinancings, replacements, renewals or extensions do not result
in a shortening of the average weighted maturity of the
Indebtedness so refinanced, renewed, or extended, and (iv) to the
extent that Indebtedness that is refinanced, replaced, renewed or
extended was subordinated in right of payment to the Obligations,
then the subordination terms and conditions of the refinancing,
replacement, renewal or extension, Indebtedness must be at least
as favorable to the Lender Group as those applicable to the
refinanced, replaced, renewed or extended Indebtedness.
7.2 Liens. Create, incur, assume, or permit to exist,
directly or indirectly, any Lien on or with respect to any of its
property or assets, of any kind, whether now owned or hereafter
acquired, or any income or profits therefrom, except for
Permitted Liens (including Liens that are replacements of
Permitted Liens to the extent that the original Indebtedness is
refinanced under Section 7.1(g) and so long as the replacement
Liens only encumber those assets or property that secured the
original Indebtedness).
7.3 Restrictions on Fundamental Changes.
(a) Enter into any merger or consolidation (other
than the Permitted SWP Merger), or any reorganization or
recapitalization, or reclassify its capital Stock (except for
solely an increase in the number of shares of common Stock of
Borrower in connection with the Initial Public Offering).
(b) Liquidate, wind up, or dissolve itself (or
suffer any liquidation or dissolution).
(c) Convey, sell, assign, lease, license,
transfer, or otherwise dispose of, in one transaction or a series
of transactions, all or any substantial part of its property or
assets.
7.4 Disposal of Assets. Sell, lease, assign, farm-
out, convey, transfer, or otherwise dispose of any of any
Borrower's or any of its Subsidiaries' Properties or assets other
than:
(a) sales of Inventory to buyers in the ordinary
course of such Borrower's business as currently conducted;
(b) the sale or transfer of Equipment (other than
in connection with the sale of an Oil and Gas Property, Equipment
located on such Oil and Gas Property which is an essential
component of the existing Hydrocarbon production, if any, of the
xxxxx on such Oil and Gas Property), having a fair saleable value
of less than an aggregate amount of $100,000 during any fiscal
year of Borrower and its Subsidiaries during the term of this
Agreement that is no longer necessary for the business of
Borrower or such Subsidiary or is replaced by Equipment of at
least comparable value and use, provided that the proceeds of
such sale or transfer are immediately paid to Agent for
application to the Obligations by wire transfer of immediately
available funds to the Agent Account; and
(c) cash sales in the ordinary course of business
of Proved Reserves, as long as:
(i) no Default or Event of Default is
existing or would result therefrom and no Overadvance would
result therefrom, and
(ii) Borrower at such time has at least an
aggregate amount of $1.00 of Availability and unrestricted
immediately available cash on hand reserving as an additional
deduction from Availability an amount determined by Agent in its
sole discretion that would be sufficient to maintain Borrower's
and its Subsidiaries' accounts payable and other current
liabilities within reasonable terms, and
(iii) the proceeds of the sale of such
Proved Reserves are immediately paid to Agent for application to
the Obligations by wire transfer of immediately available funds
to the Agent Account, and
(iv) the sale price of such Proved Reserves
is equal to or greater than fifty percent (50%) of the NYMEX
Value of such Proved Reserves as of the date of the most recent
applicable Reserve Report delivered to Agent by Borrower,
provided that:
(w) in the case of Proved Developed
Producing Reserves, the aggregate NYMEX Value of such Proved
Developed Reserves, as of the date of the most recent applicable
Reserve Report delivered by Borrower to Agent, may not exceed
$250,000 in the aggregate during any twelve calendar month period
during the term of this Agreement,
(x) in the case of Proved Reserves other
than Proved Developed Producing Reserves, the aggregate NYMEX
Value of such Proved Reserves, as of the date of the most recent
applicable Reserve Report delivered by Borrower to Agent, may not
exceed $500,000 in the aggregate during the term of this
Agreement,
(y) the Borrowing Base shall be adjusted
by an amount equal to the value, if any, assigned to such Proved
Reserves in the most recently determined Borrowing Base, and
(z) at or prior to the closing date of
any such sale of any such Proved Reserves, and as a condition of
Borrower's authority to do so, Borrower shall deliver to Agent a
certificate executed by the chief executive officer or chief
financial officer of Borrower certifying (I) that no Default or
Event of Default has occurred and is continuing, (II) to the
valuation of the Proved Reserves involved utilizing the NYMEX
Price for valuation purposes, (III) that the dispositions
proposed will not violate the dollar limitation set forth in this
Section 7.4, (IV) that the disposition will not result in an
Overadvance, (V) the consideration and manner of the payment
thereof to be received by Borrower for the disposition of the
Proved Reserves involved, and (VI) that Borrower has the minimum
Availability required for such sale.
7.5 Change Name. Change Borrower's or any of its
Subsidiaries' name, FEIN, corporate structure (within the meaning
of Section 9402(7) of the Code), or identity, or add any new
fictitious name.
7.6 Guarantee. Guarantee or otherwise become in any
way liable with respect to the obligations of any third Person
except by endorsement of instruments or items of payment for
deposit to the account of Borrower or which are transmitted or
turned over to Agent.
7.7 Nature of Business. Make any material change in
the principal nature of Borrower's or any of its Subsidiaries'
business as an independent oil and gas exploration and production
company, except that Borrower may continue to pursue development
of its software and back office outsourcing efforts related to
the oil and gas business provided that the aggregate expenditures
for Borrower and its Subsidiaries thereon does not exceed
$1,000,000 during any fiscal year.
7.8 Prepayments and Amendments.
(a) Except in connection with a refinancing
permitted by Section 7.1(h), prepay, redeem, retire, defease,
purchase, or otherwise acquire any Indebtedness owing to any
third Person (including, but not limited to, the Unsecured
Notes), other than the Obligations in accordance with this
Agreement (provided, however, that Borrower shall be permitted to
repurchase or redeem additional amounts of the Unsecured Notes as
long as a condition precedent thereto, (x) no Default or Event of
Default then exists or reasonably could be expected to result
therefrom, and (y) Borrower at such time, after giving effect
thereto, has at least an aggregate amount of $10,000,000 of
Availability and unrestricted immediately available cash on hand
reserving as an additional deduction from Availability an amount
determined by Agent in its sole discretion that would be
sufficient to maintain Borrower's and its Subsidiaries' accounts
payable within reasonable terms), or
(b) Except in connection with a refinancing
permitted by Section 7.1(h), directly or indirectly, amend,
modify, alter, increase, or change any of the terms or conditions
of any agreement, instrument, document, indenture (including, but
not limited to, the Unsecured Notes Indenture) or other writing
evidencing or concerning Indebtedness permitted under Sections
7.1(b), (c), (d) or (g).
7.9 Change of Control. Cause, permit, or suffer,
directly or indirectly, any Change of Control.
7.10 Consignments. Consign any Inventory or sell any
Inventory on xxxx and hold, sale or return, sale on approval, or
other conditional terms of sale.
7.11 Distributions; Repurchases of Capital Stock. Make
any distribution or declare or pay any dividends (in cash or
other property, other than capital Stock) on, or purchase,
acquire, redeem, or retire any of Borrower's capital Stock, of
any class, whether now or hereafter outstanding.
7.12 Accounting Methods. Modify or change its method
of accounting or enter into, modify, or terminate any agreement
currently existing, or at any time hereafter entered into with
any third party accounting firm or service bureau for the
preparation or storage of Borrower's accounting records without
said accounting firm or service bureau agreeing to provide Agent
information regarding the Collateral or Borrower's financial
condition. Borrower waives the right to assert a confidential
relationship, if any, it may have with any accounting firm or
service bureau in connection with any information requested by
Agent pursuant to or in accordance with this Agreement, and
agrees that Agent may contact directly any such accounting firm
or service bureau in order to obtain such information.
7.13 Investments. Except for Permitted Investments,
directly or indirectly, make or acquire any Investment, or incur
any liabilities (including contingent obligations) for or in
connection with any Investment; provided, however, that:
(a) if no Default or Event of Default is existing or
could be expected to result therefrom, and Borrower at such
time, after giving effect thereto, has at least an aggregate
amount of $1.00 of Availability and unrestricted immediately
available cash on hand reserving as an additional deduction
from Availability an amount determined by Agent in its sole
discretion that would be sufficient to maintain Borrower's
and its Subsidiaries' accounts payable within reasonable
terms, then Borrower may purchase limited partnership
interests in the Designated Affiliated Limited Partnerships
for not more than fair value on an arm's length basis from
the limited partners thereof which are not Affiliates of
Borrower or any of its Subsidiaries for an aggregate amount
which does not exceed $500,000 in the aggregate during any
fiscal year of Borrower; provided further, however, that as
a condition precedent to each such purchase of limited
partner interests described in this subparagraph (a),
Borrower shall have granted to Agent for the benefit of the
Lender Group a first priority perfected Lien on and security
interest in and to all of such limited partnership interests
so purchased; and
(b) if no Default or Event of Default is existing or
could be expected to result therefrom, and Borrower at such
time, after giving effect thereto, has at least an aggregate
amount of $5,000,000 of Availability and unrestricted
immediately available cash on hand reserving as an
additional deduction from Availability an amount determined
by Agent in its sole discretion that would be sufficient to
maintain Borrower's and its Subsidiaries' accounts payable
within reasonable terms, then Borrower may purchase limited
partnership interests in the Designated Affiliated Limited
Partnerships for not more than fair value on an arm's length
basis from the limited partners thereof which are not
Affiliates of Borrower or any of its Subsidiaries for an
aggregate amount which does not exceed $4,000,000 in the
aggregate during any fiscal year of Borrower; provided
further, however, that as a condition precedent to each such
purchase of limited partner interests described in this
subparagraph (b), Borrower shall have granted to Agent for
the benefit of the Lender Group a first priority perfected
Lien on and security interest in and to all of such limited
partnership interests so purchased; and
(c) Borrower shall be permitted to make loans or
advances to Parent in an aggregate amount that does not
exceeding $2,500,000 outstanding at any time; and
(d) Borrower shall be permitted to continue the
$76,000 outstanding balance of accrued unpaid management
fees owing to it on the date of this Agreement from
Southwest Partners II, L.P., a Delaware limited partnership,
and the $325,000 outstanding balance of accrued unpaid
management fees owing to it on the date of this Agreement
from Southwest Partners III, L.P., a Delaware limited
partnership; and
(e) Borrower shall be permitted to maintain balances
of up to $100,000 in the aggregate outstanding at any time
owing to it from Southwest Partners II, L.P., a Delaware
limited partnership, and Southwest Partners III, L.P., a
Delaware limited partnership.
7.14 Transactions with Affiliates. Directly or
indirectly (a) enter into or permit to exist any material
transaction with any Affiliate of Borrower except for
transactions that are in the ordinary course of Borrower's
business, upon fair and reasonable terms, that are fully
disclosed to Agent, and that are no less favorable to Borrower
than would be obtained in an arm's length transaction with a non-
Affiliate or (b) make any payments to or otherwise transfer any
assets or funds to any of Basic Well Services, Inc., a Delaware
corporation, Midland Red Oak Realty, a Delaware corporation,
Parent, or any limited partnership of which Borrower is the
general partner except for (i) those purchases of limited
partnership interests in the Designated Affiliated Limited
Partnerships to the extent permitted under subclauses (a) and (b)
of Section 7.13, and (ii) those loans or advances to Parent to
the extent permitted under subclause (c) of Section 7.13.
7.15 Suspension. Suspend or go out of a substantial
portion of its business.
7.16 Compensation.
(a) Increase the annual fee or per-meeting fees
paid to the members of its Board of Directors during any year by
more than 15% over (i) that paid or accrued in the prior year, or
(ii) for fiscal year 2000 of Borrower, the amounts thereof on the
books of Borrower as of June 30, 2000 as provided to Agent in
writing prior to the date of this Agreement;
(b) Pay or accrue total cash compensation, during
any year, to officers and senior management employees in an
aggregate amount in excess of 125% of that (i) paid or accrued in
the prior year or (ii) for fiscal year 2000 of Borrower, the
budgeted salary and bonus on the books of Borrower as of June 30,
2000 as provided to Agent in writing prior to the date of this
Agreement; or
(c) Pay or accrue any severance amounts or
retirement amounts except as described on Schedule 7.16 attached
hereto.
7.17 Use of Proceeds. Use the proceeds of the Advances
made hereunder for any purpose other than (a) on the Closing
Date, (i) to fund the assignment to the Agent and the Lender
Group in full of the outstanding principal, accrued interest,
accrued fees and expenses owing to Prior Lenders, and (ii) to pay
transactional fees, costs, and expenses incurred in connection
with this Agreement, and (b) thereafter, consistent with the
terms and conditions hereof, for its lawful and permitted
corporate purposes.
7.18 Change in Location of Chief Executive Offices;
Inventory and Equipment. Relocate its chief executive office to
a new location without providing to Agent, within 15 days
immediately following such relocation, written notification
thereof and, at the time of such written notification, any
financing statements or fixture filings necessary to perfect and
continue perfected the Agent's Liens and also provides to Agent a
Collateral Access Agreement with respect to such new location.
The Inventory and Equipment shall not at any time now or
hereafter be stored with a bailee, warehouseman, or similar party
without Agent's prior written consent. Borrower will not, and
will not permit its Subsidiaries to store, warehouse or bail the
Inventory and Equipment of Borrower and its Subsidiaries at Real
Property other than such Real Property listed on Schedule
5.1(d).
7.19 No Prohibited Transactions Under ERISA. Directly
or indirectly:
(a) engage, or permit any Subsidiary of Borrower
to engage, in any prohibited transaction which is reasonably
likely to result in a civil penalty or excise tax described in
Sections 406 of ERISA or 4975 of the IRC for which a statutory or
class exemption is not available or a private exemption has not
been previously obtained from the Department of Labor;
(b) permit to exist with respect to any Benefit
Plan any accumulated funding deficiency (as defined in
Sections 302 of ERISA and 412 of the IRC), whether or not waived;
(c) fail, or permit any Subsidiary of Borrower to
fail, to pay timely required contributions or annual installments
due with respect to any waived funding deficiency to any Benefit
Plan;
(d) terminate, or permit any Subsidiary of
Borrower to terminate, any Benefit Plan where such event would
result in any liability of Borrower, any of its Subsidiaries or
any ERISA Affiliate under Title IV of ERISA;
(e) fail, or permit any Subsidiary of Borrower to
fail, to make any required contribution or payment to any
Multiemployer Plan;
(f) fail, or permit any Subsidiary of Borrower to
fail, to pay any required installment or any other payment
required under Section 412 of the IRC on or before the due date
for such installment or other payment;
(g) amend, or permit any Subsidiary of Borrower
to amend, a Plan resulting in an increase in current liability
for the plan year such that either of Borrower, any Subsidiary of
Borrower or any ERISA Affiliate is required to provide security
to such Plan under Section 401(a)(29) of the IRC; or
(h) withdraw, or permit any Subsidiary of
Borrower to withdraw, from any Multiemployer Plan where such
withdrawal is reasonably likely to result in any liability of any
such entity under Title IV of ERISA;
which, individually or in the aggregate, results in or reasonably
would be expected to result in a claim against or liability of
Borrower, any of its Subsidiaries or any ERISA Affiliate in
excess of $50,000.
7.20 Financial Covenants. Fail to maintain:
(a) Tangible Net Worth. As of the last day of
each month set forth below, a consolidated Tangible Net Worth of
Borrower and its Subsidiaries of at least the amount set forth
below corresponding to such month:
Month Amount
Each month during the ($90,750,000)
period commencing on the
Closing Date and ending on
November 30, 2001
December 2001 and each ($88,400,000);
month thereafter
provided, however, that with respect to each month ending on or
after December 31, 2001, the applicable Amount pertaining thereto
may be modified upon mutual written agreement between Borrower
and Agent in accordance with the following procedure: (i) on or
before the 30th day prior to the last day of each calendar year
ending on or after December 31, 2001, Borrower shall deliver to
Agent Borrower's financial projections for the next following
calendar year, which financial projections shall be in form and
substance acceptable to Agent, and (ii) Borrower and Agent shall
negotiate in good faith regarding the proposed minimum Tangible
Net Worth amounts to be the applicable Amounts for each month
during such next following calendar year; and
(b) Consolidated Interest Coverage Ratio. As of
the last day of each month set forth below, Borrower's ratio of
(i) consolidated EBITDA for the three-month period then ended, to
(ii) consolidated Interest Expense for the three-month period
then ended, of not less than the ratio set forth below
corresponding to such period:
Month Ratio
Each month during the period 1.0:1.0
commencing on the Closing Date
and ending on September 30, 2000
October 2000 and each month 1.6:1.0;
ending thereafter
provided, however, that with respect to each month ending on or
after December 31, 2001, the applicable Ratio pertaining thereto
may be modified upon mutual written agreement between Borrower
and Agent in accordance with the following procedure: (i) on or
before the 30th day prior to the last day of each calendar year
ending on or after December 31, 2001, Borrower shall deliver to
Agent Borrower's financial projections for the next following
calendar year, which financial projections shall be in form and
substance acceptable to Agent, and (ii) Borrower and Agent shall
negotiate in good faith regarding the proposed minimum ratio to
be the applicable Ratio for each month during such next following
calendar year.
7.21 Capital Expenditures. Make capital expenditures
in any fiscal year in excess of $13,000,000 in the aggregate.
7.22 Securities Accounts. Neither Borrower nor any
Subsidiary of Borrower shall establish or maintain any Securities
Account unless Borrower shall have notified Agent of the
existence, location and other particulars thereof and Agent shall
have received a Control Agreement, duly executed and in full
force and effect, in respect of such Securities Account;
provided, however, that no such Control Agreement shall be
required prior to Agent requesting the same in writing from
Borrower. Borrower agrees that neither it nor any of its
Subsidiaries will transfer assets out of any Securities Accounts;
provided, however, that, so long as no Event of Default has
occurred and is continuing or would result therefrom, Borrower
may use such assets to the extent permitted by this Agreement.
7.23 Gas Imbalances, Take-or-Pay or Other Prepayments.
Borrower shall not, and shall not permit any of its Subsidiaries
to, enter into any contracts or agreements which warrant
production of Hydrocarbons (other than Hedging Agreements
otherwise permitted hereunder) and will not hereafter allow or
accept gas imbalances, take-or-pay or other prepayments with
respect to its Oil and Gas Properties which would require such
Person to deliver Hydrocarbons produced from such Oil and Gas at
some future time without then or thereafter receiving full
payment therefor to exceed, in the aggregate, five percent (5%)
of the current aggregate monthly gas production for such monthly
period from the Oil and Gas Properties.
7.24 Payments on Unsecured Notes Make any payment of
interest, principal, premium or other amount on the Unsecured
Notes, provided, however, that Borrower shall be permitted to
make regularly scheduled payments of interest on the Unsecured
Notes as long as, as a condition precedent thereto, (i) no
Default or Event of Default then exists or reasonably could be
expected to result therefrom, and (ii) Borrower, at such time,
after giving effect thereto, has at least an aggregate amount of
$5,000,000 of Availability and unrestricted immediately available
cash on hand reserving as an additional deduction from
Availability an amount determined by Agent in its sole discretion
that would be sufficient to maintain Borrower's and its
Subsidiaries' accounts payable and other current liabilities
within reasonable terms.
7.25 Non-Consent Operations. Become a non-consenting
party with respect to (a) any operations under any operating
agreement, unit agreement, governmental order or otherwise
associated with any Oil and Gas Property having Proved Developed
Producing Reserves with a NYMEX value of $100,000 or more on
which neither Borrower nor any of its Affiliates is the operator
unless Borrower shall have provided reasonable prior written
notice to Agent of Borrower's intention to become a non-
consenting party with respect thereto, such notice to be not less
than 5 days prior to Borrower becoming a non-consenting party
(except in cases in which the period for notice of non-consent
under the applicable agreement, order or other arrangement
pertaining to the operation is less than 5 days, in which case
Borrower shall provide prior notice to Agent which is not less
than the period for notice of non-consent thereunder), or (b) any
operations under any operating agreement, unit agreement,
governmental order or otherwise associated with any Oil and Gas
Property on which Borrower or any of its Affiliates is the
operator.
7.26 Waivers of Rights Relating to Oil and Gas
Properties. Waive any right relating to any of the Oil and Gas
Properties other than waivers and consents relating to immaterial
easements, rights of way and other similar rights which the
waiver thereof does not have an adverse effect on the value of
such Oil and Gas Property to which it pertains, does not impair
or adversely affect any Lien held by the Agent for the benefit of
the Lender Group, and could not reasonably be expected to result
in a Material Adverse Change.
7.27 Contracts for Sale of Production. Enter into,
renew, extend or continue beyond its original scheduled maturing
date any contract for the sale of Hydrocarbons or other products
produced from the Oil and Gas Properties except (a) for a period
of one month or less at a fixed price or (b) for contracts which
do not (I) require sales of minimum quantities by Borrower or any
of its Subsidiaries, (II) involve any advance payments or other
advances to or by Borrower or any of its Subsidiaries,
(III) provide for a sale price of less than 70% of (A) for oil,
the NYMEX EDQ calendar month price as reported by The New York
Merchantile Exchange on XXXXX.xxx or in a comparable oil and gas
industry publication of nationally recognized standing (or an
equivalent price in the event that such NYMEX EDQ calendar month
price is no longer reported) for the appropriate category of oil
covered by such contract, and (B) for gas, the spot price for the
appropriate category of gas covered by such contract, and
(IV) constitute Indebtedness or otherwise involve any material
undertaking by Borrower or any of its Subsidiaries.
7.28 Exploration. Neither Borrower nor any of its
Subsidiaries shall conduct, consent to or participate in any
exploratory oil and gas activities or operations having
authorities for expenditures of $1,000,000 or more in the
aggregate during any fiscal year attributable to Borrower's or
such Subsidiaries' interest therein on a combined basis.
8. EVENTS OF DEFAULT.
Any one or more of the following events shall
constitute an event of default (each, an "Event of Default")
under this Agreement:
8.1 If Borrower or any other Loan Party fails to pay
when due and payable or when declared due and payable, any
portion of the Obligations (whether of principal, interest
(including any interest which, but for the provisions of the
Bankruptcy Code, would have accrued on such amounts), fees and
charges due the Lender Group, reimbursement of Lender Group
Expenses, or other amounts constituting Obligations); provided,
however, that in the case of Overadvances that are caused by the
charging of interest, fees or Lender Group Expenses to the Loan
Account, such event shall not constitute an Event of Default if,
within 5 Business Days of incurring such Overadvance, Borrower or
any other Loan Party repays, or otherwise eliminates such
Overadvance;
8.2 (a) If Borrower fails or neglects to perform,
keep, or observe any term, provision, condition, covenant, or
agreement contained in Section 6.2 (Collateral Reporting),
6.3 (Financial Statements, Reports, Certificates), 6.4 (Tax
Returns), 6.14 (Employee Benefits), or 6.15 (Leases) of this
Agreement and such failure continues for a period of 5 Business
Days; (b) If Borrower fails or neglects to perform, keep, or
observe any term, provision, condition, covenant, or agreement
contained in Section 6.1 (Accounting System), 6.7 (Title to
Equipment), 6.8 (Maintenance of Oil and Gas Property Collateral
and Equipment), 6.12 (Location of Inventory and Equipment), or
6.13 (Compliance with Laws) of this Agreement and such failure
continues for a period of 15 Business Days following the date
upon which Borrower or any other Loan Party first became aware
(or, with the exercise of reasonable diligence, would have become
aware) of the occurrence of such failure or neglect; or (c) If
Borrower or any other Loan Party fails or neglects to perform,
keep, or observe any other term, provision, condition, covenant,
or agreement contained in this Agreement, or in any of the other
Loan Documents (giving effect to any grace periods, cure periods,
or required notices, if any, expressly provided for in such Loan
Documents); in each case, other than any such term, provision,
condition, covenant, or agreement that is the subject of another
provision of this Section 8, in which event such other provision
of this Section 8 shall govern; provided that, during any period
of time that any such failure or neglect of Borrower or such
other Loan Party referred to in this paragraph exists, even if
such failure or neglect is not yet an Event of Default by virtue
of the existence of a grace or cure period or the pre-condition
of the giving of a notice, neither Agent nor any Lender shall be
required during such period to make Advances to Borrower;
8.3 [Intentionally omitted];
8.4 If any material portion of Borrower's or any other
Loan Party's properties or assets is attached, seized, subjected
to a writ or distress warrant, or is levied upon, or comes into
the possession of any third Person;
8.5 If an Insolvency Proceeding is commenced by
Borrower or any other Loan Party;
8.6 If an Insolvency Proceeding is commenced against
Borrower or any other Loan Party and any of the following events
occur: (a) Borrower or such Loan Party, as the case may be,
consents to the institution of the Insolvency Proceeding against
it; (b) the petition commencing the Insolvency Proceeding is not
timely controverted; (c) the petition commencing the Insolvency
Proceeding is not dismissed within 60 calendar days of the date
of the filing thereof; provided, however, that, during the
pendency of such period, Agent, Foothill, and any other member of
the Lender Group shall be relieved of its obligation to extend
credit hereunder; (d) an interim trustee is appointed to take
possession of all or a substantial portion of the properties or
assets of, or to operate all or any substantial portion of the
business of, Borrower or such Loan Party, as the case may be; or
(e) an order for relief shall have been issued or entered
therein;
8.7 If Borrower or any other Loan Party is enjoined,
restrained, or in any way prevented by court order from
continuing to conduct all or any material part of its business
affairs;
8.8 If a notice of Lien, levy, or assessment is filed
of record with respect to any of Borrower's or any other Loan
Party's properties or assets by the United States Government, or
any department, agency, or instrumentality thereof, or by any
state, county, municipal, or governmental agency, or if any taxes
or debts owing at any time hereafter to any one or more of such
entities becomes a Lien, whether xxxxxx or otherwise, upon any of
Borrower's or any other Loan Party's properties or assets and the
same is not paid on the payment date thereof;
8.9 If a judgment, in excess of $100,000 individually
or in the aggregate for all judgments, becomes a Lien or
encumbrance upon any material portion of Borrower's or any other
Loan Party's properties or assets and such Lien or encumbrance
remains unpaid or the enforcement or execution thereof is not
bonded against and stayed an amount and manner satisfactory to
Agent;
8.10 If a claim (other than a judgment), in excess of
$100,000 individually or in the aggregate for all claims (other
than judgments), becomes a Lien or encumbrance (other than a
Permitted Lien) upon any material portion of Borrower's or any
other Loan Party's properties or assets and such Lien or
encumbrance remains unpaid or the enforcement or execution
thereof is not bonded against and stayed an amount and manner
satisfactory to Agent;
8.12 If there is (a) a default by Borrower or any other
Loan Party in any material agreement (including the Unsecured
Notes or the Unsecured Notes Indenture) to which Borrower or any
other Loan Party is a party with one or more third Persons and
such default (i) occurs at the final maturity of the obligations
thereunder, or (ii) results in a right by such third Person(s),
irrespective of whether exercised, to accelerate the maturity of
Borrower's or any other Loan Party's obligations thereunder, to
terminate such agreement, or to refuse to renew such agreement
pursuant to an automatic renewal right therein, or (b) any
payment default under the Unsecured Notes or the Unsecured Notes
Indenture;
8.12 If Borrower or any other Loan Party makes any
payment on account of Indebtedness that has been contractually
subordinated in right of payment to the payment of the
Obligations, except to the extent such payment is permitted by
the terms of the subordination provisions applicable to such
Indebtedness;
8.13 If any material misstatement or misrepresentation
exists now or hereafter in any warranty, representation,
statement, or report made to the Lender Group by Borrower or any
other Loan Party or any officer, employee, agent, or director of
Borrower or any other Loan Party, or if any such warranty or
representation is withdrawn;
8.14 If the obligation of any Guarantor under its
Guaranty Agreement or under any Loan Document is limited or
terminated by operation of law or by such Guarantor thereunder;
8.15 If this Agreement or any other Loan Document that
purports to create a Lien, shall, for any reason, fail or cease
to create a valid and perfected and, except to the extent
permitted by the terms hereof or thereof, first priority Lien on
or security interest in the Collateral covered hereby or thereby;
or
8.16 Any provision of any Loan Document shall at any
time for any reason be declared to be null and void, or the
validity or enforceability thereof shall be contested by any
Borrower or any other Loan Party, or a proceeding shall be
commenced by Borrower or any other Loan Party, or by any
Governmental Authority having jurisdiction over Borrower or any
other Loan Party, seeking to establish the invalidity or
unenforceability thereof, or Borrower or any other Loan Party
shall deny that Borrower or any other Loan Party has any
liability or obligation purported to be created under any Loan
Document.
9. THE LENDER GROUP'S RIGHTS AND REMEDIES.
9.1 Rights and Remedies. Upon the occurrence, and
during the continuation, of an Event of Default, the Required
Lenders (at their election but without notice of their election
and without demand) may, except to the extent otherwise expressly
provided or required below, authorize and instruct Agent to do
any one or more of the following on behalf of the Lender Group
(and Agent, acting upon the instructions of the Required Lenders,
shall do the same on behalf of the Lender Group), all of which
are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by
this Agreement, by any of the other Loan Documents, or otherwise,
immediately due and payable;
(b) Cease advancing money or extending credit to
or for the benefit of Borrower under this Agreement, under any of
the Loan Documents, or under any other agreement between Borrower
and the Lender Group;
(c) Terminate this Agreement and any of the other
Loan Documents as to any future liability or obligation of the
Lender Group, but without affecting Agent's rights and security
interests, for the benefit of the Lender Group, in the Collateral
and without affecting the Obligations;
(d) Settle or adjust disputes and claims directly
with Account Debtors for amounts and upon terms which Agent
considers advisable, and in such cases, Agent will credit
Borrower's Loan Account with only the net amounts received by
Agent in payment of such disputed Accounts after deducting all
Lender Group Expenses incurred or expended in connection
therewith;
(e) Cause Borrower to hold all returned Inventory
in trust for the Lender Group, segregate all returned Inventory
from all other property of Borrower or in Borrower's possession
and conspicuously label said returned Inventory as the property
of the Lender Group;
(f) Without notice to or demand upon Borrower or
any guarantor, make such payments and do such acts as Agent
considers necessary or reasonable to protect its security
interests in the Collateral. Borrower agrees to assemble the
Personal Property Collateral if Agent so requires, and to make
the Personal Property Collateral available to Agent as Agent may
designate. Borrower authorizes Agent to enter the premises where
the Personal Property Collateral is located, to take and maintain
possession of the Personal Property Collateral, or any part of
it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or Lien that in Agent's determination appears to conflict
with the Agent's Liens and to pay all expenses incurred in
connection therewith. With respect to any of Borrower's owned or
leased premises, Borrower hereby grants Agent a license to enter
into possession of such premises and to occupy the same, without
charge, for up to 120 days in order to exercise any of the Lender
Group's rights or remedies provided herein, at law, in equity, or
otherwise;
(g) Without notice to Borrower (such notice being
expressly waived), and without constituting a retention of any
collateral in satisfaction of an obligation (within the meaning
of the Code), set off and apply to the Obligations any and all
(i) balances and deposits of Borrower held by the Lender Group
(including any amounts received in the Lockbox Accounts), or (ii)
indebtedness at any time owing to or for the credit or the
account of Borrower held by the Lender Group;
(h) Hold, as cash collateral, any and all
balances and deposits of Borrower held by the Lender Group, and
any amounts received in the Lockbox Accounts, to secure the full
and final repayment of all of the Obligations;
(i) Ship, reclaim, recover, store, finish,
maintain, repair, prepare for sale, advertise for sale, and sell
(in the manner provided for herein) the Personal Property
Collateral. Borrower hereby grants to Agent a license or other
right to use, without charge, Borrower's labels, patents,
copyrights, rights of use of any name, trade secrets, trade
names, trademarks, service marks, and advertising matter, or any
property of a similar nature, as it pertains to the Personal
Property Collateral, in completing production of, advertising for
sale, and selling any Personal Property Collateral and Borrower's
rights under all licenses and all franchise agreements shall
inure to the Lender Group's benefit;
(j) Sell the Personal Property Collateral at
either a public or private sale, or both, by way of one or more
contracts or transactions, for cash or on terms, in such manner
and at such places (including Borrower's premises) as Agent
determines is commercially reasonable. It is not necessary that
the Personal Property Collateral be present at any such sale;
(k) Agent shall give notice of the disposition of
the Personal Property Collateral as follows:
(1) Agent shall give Borrower and each
holder of a security interest in the Personal Property Collateral
who has filed with Agent a written request for notice, a notice
in writing of the time and place of public sale, or, if the sale
is a private sale or some other disposition other than a public
sale is to be made of the Personal Property Collateral, then the
time on or after which the private sale or other disposition is
to be made;
(2) The notice shall be personally delivered
or mailed, postage prepaid, to Borrower as provided in Section
12, at least 5 days before the date fixed for the sale, or at
least 5 days before the date on or after which the private sale
or other disposition is to be made; no notice needs to be given
prior to the disposition of any portion of the Personal Property
Collateral that is perishable or threatens to decline speedily in
value or that is of a type customarily sold on a recognized
market. Notice to Persons other than Borrower claiming an
interest in the Personal Property Collateral shall be sent to
such addresses as they have furnished to Agent;
(3) If the sale is to be a public sale,
Agent also shall give notice of the time and place by publishing
a notice one time at least 5 days before the date of the sale in
a newspaper of general circulation in the county in which the
sale is to be held;
(l) The Lender Group may credit bid and purchase
at any public sale;
(m) The Lender Group shall have all other rights
and remedies available to it at law or in equity pursuant to any
other Loan Documents; and
(n) Any deficiency that exists after disposition
of the Personal Property Collateral as provided above will be
paid immediately by Borrower. Any excess will be returned,
without interest and subject to the rights of third Persons, by
Agent to Borrower.
9.2 Remedies Cumulative. The rights and remedies of
the Lender Group under this Agreement, the other Loan Documents,
and all other agreements shall be cumulative. The Lender Group
shall have all other rights and remedies not inconsistent
herewith as provided under the Code, by law, or in equity. No
exercise by the Lender Group of one right or remedy shall be
deemed an election, and no waiver by the Lender Group of any
Event of Default shall be deemed a continuing waiver. No delay
by the Lender Group shall constitute a waiver, election, or
acquiescence by it. Nothing in this Agreement in any way limits,
impairs or reduces any rights of the Lender Group under the Oil
and Gas Property Mortgages or the Real Property Mortgages or any
of the other Loan Documents.
10. TAXES AND EXPENSES.
If Borrower fails to pay any monies (whether taxes,
assessments, insurance premiums, or, in the case of leased
properties or assets, rents or other amounts payable under such
leases) due to third Persons, or fails to make any deposits or
furnish any required proof of payment or deposit, all as required
under the terms of this Agreement, then, to the extent that Agent
determines that such failure by Borrower could result in a
Material Adverse Change, in its discretion and without prior
notice to Borrower, Agent may do any or all of the following:
(a) make payment of the same or any part thereof; (b) set up such
reserves in Borrower's Loan Account as Agent deems necessary to
protect the Lender Group from the exposure created by such
failure; or (c) obtain and maintain insurance policies of the
type described in Section 6.10, and take any action with respect
to such policies as Agent deems prudent. Any such amounts paid
by Agent shall constitute Lender Group Expenses. Any such
payments made by Agent shall not constitute an agreement by the
Lender Group to make similar payments in the future or a waiver
by the Lender Group of any Event of Default under this Agreement.
Agent need not inquire as to, or contest the validity of, any
such expense, tax, or Lien and the receipt of the usual official
notice for the payment thereof shall be conclusive evidence that
the same was validly due and owing.
11. WAIVERS; INDEMNIFICATION.
11.1 Demand; Protest; etc. Borrower waives demand,
protest, notice of protest, notice of default or dishonor, notice
of payment and nonpayment, nonpayment at maturity, release,
compromise, settlement, extension, or renewal of accounts,
documents, instruments, chattel paper, and guarantees at any time
held by the Lender Group on which Borrower may in any way be
liable.
11.2 The Lender Group's Liability for Collateral.
Borrower hereby agrees that: (a) so long as the Lender Group
complies with its obligations, if any, under Section 9207 of the
Code, the Lender Group shall not in any way or manner be liable
or responsible for: (i) the safekeeping of the Collateral; (ii)
any loss or damage thereto occurring or arising in any manner or
fashion from any cause; (iii) any diminution in the value
thereof; or (iv) any act or default of any carrier, warehouseman,
bailee, forwarding agency, or other Person; and (b) all risk of
loss, damage, or destruction of the Collateral shall be borne by
Borrower.
11.3 Indemnification. Borrower shall pay, indemnify,
defend, and hold the Agent-Related Persons, the Lender-Related
Persons with respect to each Lender, each Participant, and each
of their respective officers, directors, employees, counsel,
agents, and attorneys-in-fact (each, an "Indemnified Person")
harmless (to the fullest extent permitted by law) from and
against any and all claims, demands, suits, actions,
investigations, proceedings, and damages, and all reasonable
attorneys fees and disbursements and other costs and expenses
actually incurred in connection therewith (as and when they are
incurred and irrespective of whether suit is brought), at any
time asserted against, imposed upon, or incurred by any of them
in connection with or as a result of or related to the execution,
delivery, enforcement, performance, and administration of this
Agreement and any other Loan Documents or the transactions
contemplated herein, and with respect to any investigation,
litigation, or proceeding related to this Agreement, any other
Loan Document, or the use of the proceeds of the credit provided
hereunder (irrespective of whether any Indemnified Person is a
party thereto), or any act, omission, event or circumstance in
any manner related thereto (all the foregoing, collectively, the
"Indemnified Liabilities"). Borrower shall have no obligation to
any Indemnified Person under this Section 11.3 with respect to
any Indemnified Liability that a court of competent jurisdiction
finally determines to have resulted from the gross negligence or
willful misconduct of such Indemnified Person. This provision
shall survive the termination of this Agreement and the repayment
of the other Obligations.
12. NOTICES.
Unless otherwise provided in this Agreement, all
notices or demands by any party relating to this Agreement or any
other Loan Document shall be in writing and (except for financial
statements and other informational documents which may be sent by
first-class mail, postage prepaid) shall be personally delivered
or sent by registered or certified mail (postage prepaid, return
receipt requested), overnight courier, or telefacsimile to the
relevant party at its address set forth below:
If to Borrower: Southwest Royalties, Inc.
000 Xxxxx
Xxx Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxx,
Xxxxx 00000
Attn: President
Fax No. 000.000.0000
with copies to: Baker, Donelson, Bearman &
Xxxxxxxx, P.C.
1800 Republic Centre
000 Xxxxxxxx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
Attn: X. Xxxxxx Durham, Esq.
Fax No. 000.000.0000
If to Agent or
the Lender Group
in care of Agent: FOOTHILL
CAPITAL CORPORATION
0000 Xxxxxxxx Xxxxxx, Xxxxx 0000
Xxxx
Xxxxx Xxxxxx, Xxxxxxxxxx 00000
Attn: Business Finance Division
Manager
Fax No. 000.000.0000
with copies to:
Xxxxxx Xxxxx LLP
0000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attn: Xxxxx X. Xxxxxxxx, Esq.
Fax No. 000.000.0000
The parties hereto may change the address at which they
are to receive notices hereunder, by notice in writing in the
foregoing manner given to all other parties. All notices or
demands sent in accordance with this Section 12, other than
notices by the Lender Group in connection with Sections 9504 or
9505 of the Code, shall be deemed received on the earlier of the
date of actual receipt or 3 days after the deposit thereof in the
mail. Borrower acknowledges and agrees that notices sent by the
Lender Group in connection with Sections 9504 or 9505 of the Code
shall be deemed sent when deposited in the mail or personally
delivered, or, where permitted by law, transmitted telefacsimile
or other similar method set forth above.
13. CHOICE OF LAW AND VENUE; SERVICE OF PROCESS; JURY TRIAL
WAIVER.
THE VALIDITY OF THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS (UNLESS EXPRESSLY PROVIDED TO THE CONTRARY IN ANOTHER
LOAN DOCUMENT IN RESPECT OF SUCH OTHER LOAN DOCUMENT), THE
CONSTRUCTION, INTERPRETATION, AND ENFORCEMENT HEREOF AND THEREOF,
AND THE RIGHTS OF THE PARTIES HERETO AND THERETO WITH RESPECT TO
ALL MATTERS ARISING HEREUNDER OR THEREUNDER OR RELATED HERETO OR
THERETO SHALL BE DETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS
ARISING IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND
FEDERAL COURTS LOCATED IN THE COUNTY OF LOS ANGELES, STATE OF
CALIFORNIA, PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT
AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT
AGENT'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE AGENT
ELECTS TO BRING SUCH ACTION OR WHERE SUCH COLLATERAL OR OTHER
PROPERTY MAY BE FOUND. BORROWER AND THE LENDER GROUP WAIVE, TO
THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY
HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TO OBJECT
TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE
WITH THIS SECTION 13. BORROWER HEREBY IRREVOCABLY DESIGNATES CT
CORPORATION SYSTEM WITH OFFICES AT 000 XXXX XXXXXXX XXXXXX, XXX
XXXXXXX, XXXXXXXXXX, 00000 AS THE DESIGNEE, APPOINTEE AND AGENT
OF BORROWER TO RECEIVE, FOR AND ON BEHALF OF BORROWER, SERVICE OF
PROCESS IN SUCH RESPECTIVE JURISDICTIONS IN ANY LEGAL ACTION OR
PROCEEDING WITH RESPECT TO THE LOAN DOCUMENTS. IT IS UNDERSTOOD
THAT SUCH PROCESS SERVED ON SUCH AGENT WILL BE PROMPTLY FORWARDED
BY OVERNIGHT COURIER TO BORROWER AT ITS ADDRESS SET FORTH IN THE
PREAMBLE TO THIS AGREEMENT, BUT THE FAILURE OF BORROWER TO
RECEIVE SUCH COPY SHALL NOT AFFECT IN ANY WAY THE SERVICE OF SUCH
PROCESS. IN THE EVENT THAT CT CORPORATION SYSTEM RESIGNS OR
CEASES TO SERVE AS THE BORROWER'S AGENT FOR SERVICE OF PROCESS
HEREUNDER, BORROWER AGREES FORTHWITH (i) TO DESIGNATE ANOTHER
AGENT FOR SERVICE OF PROCESS IN LOS ANGELES, CALIFORNIA; AND
(ii) TO GIVE PROMPT WRITTEN NOTICE TO THE LENDER GROUP OF THE
NAME AND ADDRESS OF SUCH AGENT. BORROWER FURTHER IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES
THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE REPAID, TO
BORROWER AT ITS SAID ADDRESS, SUCH SERVICE TO BECOME EFFECTIVE
THIRTY (30) DAYS AFTER SUCH MAILING. BORROWER AND THE LENDER
GROUP HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY
CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE
LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN,
INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS,
AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. BORROWER AND THE
LENDER GROUP REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND
EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF
LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A WRITTEN
CONSENT TO A TRIAL BY THE COURT.
14. DESTRUCTION OF BORROWER'S DOCUMENTS.
All documents, schedules, invoices, agings, or other
papers delivered to any one or more members of the Lender Group
may be destroyed or otherwise disposed of by such member of the
Lender Group 4 months after they are delivered to or received by
such member of the Lender Group, unless Borrower requests, in
writing, the return of said documents, schedules, or other papers
and makes arrangements, at Borrower's expense, for their return.
15. ASSIGNMENTS AND PARTICIPATIONS; SUCCESSORS.
15.1 Assignments and Participations.
(a) Any Lender may, with the written consent of
Agent, assign and delegate to one or more assignees (provided
that no written consent of Agent shall be required in connection
with any assignment and delegation by a Lender to an Eligible
Transferee) (each an "Assignee") all, or any ratable part of all,
of the Obligations, the Commitments and the other rights and
obligations of such Lender hereunder and under the other Loan
Documents, in a minimum amount of $5,000,000 (except that such
minimum amount shall not apply in connection with any assignment
and delegation by a Lender (x) to any Affiliate (other than
individuals) of, or any fund, money market account, investment
account or other account managed by, a pre-existing Lender under
this Agreement or (y) of the entire Obligations, Commitments and
other rights and obligations of such Lender hereunder and under
the other Loan Documents); provided, however, that Borrower and
Agent may continue to deal solely and directly with such Lender
in connection with the interest so assigned to an Assignee until
(i) written notice of such assignment, together with payment
instructions, addresses and related information with respect to
the Assignee, shall have been given to Borrower and Agent by such
Lender and the Assignee; (ii) such Lender and its Assignee shall
have delivered to Borrower and Agent an Assignment and Acceptance
("Assignment and Acceptance") in form and substance satisfactory
to Agent; and (iii) the assignor Lender or Assignee has paid to
Agent for Agent's sole and separate account a processing fee in
the amount of $5,000. Anything contained herein to the contrary
notwithstanding, the consent of Agent shall not be required (and
payment of any fees shall not be required) if such assignment is
in connection with any merger, consolidation, sale, transfer, or
other disposition of all or any substantial portion of the
business or loan portfolio of such Lender.
(b) From and after the date that Agent notifies
the assignor Lender that it has received an executed Assignment
and Acceptance and payment of the above-referenced processing
fee, (i) the Assignee thereunder shall be a party hereto and, to
the extent that rights and obligations hereunder have been
assigned to it pursuant to such Assignment and Acceptance, shall
have the rights and obligations of a Lender under the Loan
Documents, and (ii) the assignor Lender shall, to the extent that
rights and obligations hereunder and under the other Loan
Documents have been assigned by it pursuant to such Assignment
and Acceptance, relinquish its rights (except with respect to
Section 11.3 hereof) and be released from its obligations under
this Agreement (and in the case of an Assignment and Acceptance
covering all or the remaining portion of an assigning Lender's
rights and obligations under this Agreement and the other Loan
Documents, such Lender shall cease to be a party hereto and
thereto), and such assignment shall effect a novation between
Borrower and the Assignee.
(c) By executing and delivering an Assignment and
Acceptance, the assigning Lender thereunder and the Assignee
thereunder confirm to and agree with each other and the other
parties hereto as follows: (1) other than as provided in such
Assignment and Acceptance, such assigning Lender makes no
representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made in
or in connection with this Agreement or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of
this Agreement or any other Loan Document furnished pursuant
hereto; (2) such assigning Lender makes no representation or
warranty and assumes no responsibility with respect to the
financial condition of Borrower or the performance or observance
by Borrower of any of its obligations under this Agreement or any
other Loan Document furnished pursuant hereto; (3) such Assignee
confirms that it has received a copy of this Agreement, together
with such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter
into such Assignment and Acceptance; (4) such Assignee will,
independently and without reliance upon Agent, such assigning
Lender or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action
under this Agreement; (5) such Assignee appoints and authorizes
Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement as are delegated to Agent by the
terms hereof, together with such powers as are reasonably
incidental thereto; and (6) such Assignee agrees that it will
perform in accordance with their terms all of the obligations
which by the terms of this Agreement are required to be performed
by it as a Lender.
(d) Immediately upon each Assignee's making its
processing fee payment under the Assignment and Acceptance, this
Agreement shall be deemed to be amended to the extent, but only
to the extent, necessary to reflect the addition of the Assignee
and the resulting adjustment of the Commitments arising
therefrom. The Commitment allocated to each Assignee shall reduce
such Commitments of the assigning Lender pro tanto.
(e) Any Lender may at any time, with the written
consent of Agent, sell to one or more commercial banks, financial
institutions, or other Persons not Affiliates of such Lender (a
"Participant") participating interests in the Obligations, the
Commitment, and the other rights and interests of that Lender
(the "originating Lender") hereunder and under the other Loan
Documents (provided that no written consent of Agent shall be
required in connection with any sale of any such participating
interests by a Lender to an Eligible Transferee); provided,
however, that (i) the originating Lender's obligations under this
Agreement shall remain unchanged, (ii) the originating Lender
shall remain solely responsible for the performance of such
obligations, (iii) Borrower and Agent shall continue to deal
solely and directly with the originating Lender in connection
with the originating Lender's rights and obligations under this
Agreement and the other Loan Documents, (iv) no Lender shall
transfer or grant any participating interest under which the
Participant has the sole and exclusive right to approve any
amendment to, or any consent or waiver with respect to, this
Agreement or any other Loan Document, except to the extent such
amendment to, or consent or waiver with respect to this Agreement
or of any other Loan Document would (A) extend the final maturity
date of the Obligations hereunder in which such Participant is
participating; (B) reduce the interest rate applicable to the
Obligations hereunder in which such Participant is participating;
(C) release all or a material portion of the Collateral or
guaranties (except to the extent expressly provided herein or in
any of the Loan Documents) supporting the Obligations hereunder
in which such Participant is participating; (D) postpone the
payment of, or reduce the amount of, the interest or fees payable
to such Participant through such Lender; or (E) change the amount
or due dates of scheduled principal repayments or prepayments or
premiums; and (v) all amounts payable by Borrower hereunder shall
be determined as if such Lender had not sold such participation;
except that, if amounts outstanding under this Agreement are due
and unpaid, or shall have been declared or shall have become due
and payable upon the occurrence of an Event of Default, each
Participant shall be deemed to have the right of set-off in
respect of its participating interest in amounts owing under this
Agreement to the same extent as if the amount of its
participating interest were owing directly to it as a Lender
under this Agreement. The rights of any Participant only shall
be derivative through the originating Lender with whom such
Participant participates and no Participant shall have any direct
rights as to the other Lenders, Agent, Borrower, the Collections,
the Collateral, or otherwise in respect of the Obligations. No
Participant shall have the right to participate directly in the
making of decisions by the Lenders among themselves.
(f) In connection with any such assignment or
participation or proposed assignment or participation, a Lender
may disclose all documents and information which it now or
hereafter may have relating to Borrower or Borrower's business.
(g) Any other provision in this Agreement
notwithstanding, any Lender may at any time create a security
interest in, or pledge, all or any portion of its rights under
and interest in this Agreement in favor of any Federal Reserve
Bank in accordance with Regulation A of the Federal Reserve Bank
or U.S. Treasury Regulation 31 CFR 203.14, and such Federal
Reserve Bank may enforce such pledge or security interest in any
manner permitted under applicable law.
15.2 Successors. This Agreement shall bind and inure
to the benefit of the respective successors and assigns of each
of the parties; provided, however, that Borrower may not assign
this Agreement or any rights or duties hereunder without the
Lenders' prior written consent and any prohibited assignment
shall be absolutely void ab initio. No consent to assignment by
the Lenders shall release Borrower from its Obligations. A
Lender may assign this Agreement and the other Loan Documents and
its rights and duties hereunder and thereunder pursuant to
Section 15.1 hereof and, except as expressly required pursuant to
Section 15.1 hereof, no consent or approval by Borrower is
required in connection with any such assignment.
16. AMENDMENTS; WAIVERS
16.1 Amendments and Waivers. No amendment or waiver of
any provision of this Agreement or any other Loan Document, and
no consent with respect to any departure by Borrower therefrom,
shall be effective unless the same shall be in writing and signed
by the Required Lenders (or by Agent at the written request of
the Required Lenders) and Borrower and then any such waiver or
consent shall be effective only in the specific instance and for
the specific purpose for which given; provided, however, that no
such waiver, amendment, or consent shall, unless in writing and
signed by all the Lenders and Borrower and acknowledged by Agent,
do any of the following:
(a) increase or extend the Commitment of any
Lender;
(b) postpone or delay any date fixed by this
Agreement or any other Loan Document for any payment of
principal, interest, fees or other amounts due to the Lenders (or
any of them) hereunder or under any other Loan Document;
(c) reduce the principal of, or the rate of
interest specified herein on any Loan, or any fees or other
amounts payable hereunder or under any other Loan Document;
(d) change the percentage of the Commitments or
Obligations, as the case may be, that is required for the Lenders
or any of them to take any action hereunder;
(f) amend this Section or any provision of the
Agreement providing for consent or other action by all Lenders;
(g) release Collateral other than as permitted by
Section 17.11;
(h) change the definition of "Required Lenders";
(i) release Borrower or Guarantor from any
Obligation for the payment of money; or
(j) amend any of the provisions of Article 17.
and, provided further, however, that no amendment, waiver or
consent shall, unless in writing and signed by Agent, affect the
rights or duties of Agent under this Agreement or any other Loan
Document; and, provided further, however, that no amendment,
waiver or consent shall, unless in writing and signed by Foothill
in its individual capacity as a Lender, affect the specific
rights or duties of Foothill in its individual capacity as a
Lender (as contrasted with rights or duties of Foothill as a
member of the Lender Group) under this Agreement or any other
Loan Document. The foregoing notwithstanding, any amendment,
modification, waiver, consent, termination, or release of or with
respect to any provision of this Agreement or any other Loan
Document that relates only to the relationship of the Lender
Group among themselves, and that does not affect the rights or
obligations of Borrower, shall not require consent by or the
agreement of Borrower.
16.2 No Waivers; Cumulative Remedies. No failure by
Agent or any Lender to exercise any right, remedy, or option
under this Agreement, any other Loan Document, or any present or
future supplement hereto or thereto, or in any other agreement
between or among Borrower and Agent or any Lender, or delay by
Agent or any Lender in exercising the same, will operate as a
waiver thereof. No waiver by Agent or any Lender will be
effective unless it is in writing, and then only to the extent
specifically stated. No waiver by Agent or the Lenders on any
occasion shall affect or diminish Agent's and each Lender's
rights thereafter to require strict performance by Borrower of
any provision of this Agreement. Agent's and each Lender's
rights under this Agreement and the other Loan Documents will be
cumulative and not exclusive of any other right or remedy which
Agent or any Lender may have.
17. AGENT; THE LENDER GROUP.
17.1 Appointment and Authorization of Agent. Each
Lender hereby designates and appoints Foothill as its agent under
this Agreement and the other Loan Documents and each Lender
hereby irrevocably authorizes Agent to take such action on its
behalf under the provisions of this Agreement and each other Loan
Document and to exercise such powers and perform such duties as
are expressly delegated to it by the terms of this Agreement or
any other Loan Document, together with such powers as are
reasonably incidental thereto. Agent agrees to act as such on
the express conditions contained in this Article 17. The
provisions of this Article 17 are solely for the benefit of Agent
and the Lenders, and Borrower shall have no rights as a third
party beneficiary of any of the provisions contained herein;
provided, however, that certain of the provisions of Section
17.10 hereof also shall be for the benefit of Borrower. Any
provision to the contrary contained elsewhere in this Agreement
or in any other Loan Document notwithstanding, Agent shall not
have any duties or responsibilities, except those expressly set
forth herein, nor shall Agent have or be deemed to have any
fiduciary relationship with any Lender, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities
shall be read into this Agreement or any other Loan Document or
otherwise exist against Agent; it being expressly understood and
agreed that the use of the word "Agent" is for convenience only,
that Foothill is merely the representative of the Lenders, and
has only the contractual duties set forth herein. Except as
expressly otherwise provided in this Agreement, Agent shall have
and may use its sole discretion with respect to exercising or
refraining from exercising any discretionary rights or taking or
refraining from taking any actions which Agent is expressly
entitled to take or assert under or pursuant to this Agreement
and the other Loan Documents. Without limiting the generality of
the foregoing, or of any other provision of the Loan Documents
that provides rights or powers to Agent, Lenders agree that Agent
shall have the right to exercise the following powers as long as
this Agreement remains in effect: (a) maintain, in accordance
with its customary business practices, ledgers and records
reflecting the status of the Advances, the Collateral, the
Collections, and related matters; (b) execute or file any and all
financing or similar statements or notices, amendments, renewals,
supplements, documents, instruments, proofs of claim, notices and
other written agreements with respect to the Loan Documents; (c)
make Advances for itself or on behalf of Lenders as provided in
the Loan Documents; (d) exclusively receive, apply, and
distribute the Collections as provided in the Loan Documents; (e)
open and maintain such bank accounts and lock boxes as Agent
deems necessary and appropriate in accordance with the Loan
Documents for the foregoing purposes with respect to the
Collateral and the Collections; (f) perform, exercise, and
enforce any and all other rights and remedies of the Lender Group
with respect to Borrower, the Obligations, the Collateral, the
Collections, or otherwise related to any of same as provided in
the Loan Documents; and (g) incur and pay such Lender Group
Expenses as Agent may deem necessary or appropriate for the
performance and fulfillment of its functions and powers pursuant
to the Loan Documents.
17.2 Delegation of Duties. Except as otherwise
provided in this section, Agent may execute any of its duties
under this Agreement or any other Loan Document by or through
agents, employees or attorneys-in-fact and shall be entitled to
advice of counsel concerning all matters pertaining to such
duties. Agent shall not be responsible for the negligence or
misconduct of any agent or attorney-in-fact that it selects as
long as such selection was made in compliance with this section
and without gross negligence or willful misconduct.
17.3 Liability of Agent. None of the Agent-Related
Persons shall (i) be liable for any action taken or omitted to be
taken by any of them under or in connection with this Agreement
or any other Loan Document or the transactions contemplated
hereby (except for its own gross negligence or willful
misconduct), or (ii) be responsible in any manner to any of the
Lenders for any recital, statement, representation or warranty
made by Borrower or any Subsidiary or Affiliate of Borrower, or
any officer or director thereof, contained in this Agreement or
in any other Loan Document, or in any certificate, report,
statement or other document referred to or provided for in, or
received by Agent under or in connection with, this Agreement or
any other Loan Document, or the validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or
any other Loan Document, or for any failure of Borrower or any
other party to any Loan Document to perform its obligations
hereunder or thereunder. No Agent-Related Person shall be under
any obligation to any Lender to ascertain or to inquire as to the
observance or performance of any of the agreements contained in,
or conditions of, this Agreement or any other Loan Document, or
to inspect the properties, books or records of Borrower or any of
Borrower's Subsidiaries or Affiliates.
17.4 Reliance by Agent. Agent shall be entitled to
rely, and shall be fully protected in relying, upon any writing,
resolution, notice, consent, certificate, affidavit, letter,
telegraph, facsimile, telex or telephone message, statement or
other document or conversation believed by it to be genuine and
correct and to have been signed, sent, or made by the proper
Person or Persons, and upon advice and statements of legal
counsel (including counsel to Borrower or counsel to any Lender),
independent accountants and other experts selected by Agent.
Agent shall be fully justified in failing or refusing to take any
action under this Agreement or any other Loan Document unless it
shall first receive such advice or concurrence of the Lenders as
it deems appropriate and until such instructions are received,
Agent shall act, or refrain from acting, as it deems advisable.
If Agent so requests, it shall first be indemnified to its
reasonable satisfaction by Lenders against any and all liability
and expense that may be incurred by it by reason of taking or
continuing to take any such action. Agent shall in all cases be
fully protected in acting, or in refraining from acting, under
this Agreement or any other Loan Document in accordance with a
request or consent of the Lenders and such request and any action
taken or failure to act pursuant thereto shall be binding upon
all of the Lenders.
17.5 Notice of Default or Event of Default. Agent
shall not be deemed to have knowledge or notice of the occurrence
of any Default or Event of Default, except with respect to
defaults in the payment of principal, interest, fees, and
expenses required to be paid to Agent for the account of the
Lenders, except with respect to Events of Default of which Agent
has actual knowledge, unless Agent shall have received written
notice from a Lender or Borrower referring to this Agreement,
describing such Default or Event of Default, and stating that
such notice is a "notice of default." Agent promptly will notify
the Lenders of its receipt of any such notice or of any Event of
Default of which Agent has actual knowledge. If any Lender
obtains actual knowledge of any Event of Default, such Lender
promptly shall notify the other Lenders and Agent of such Event
of Default. Each Lender shall be solely responsible for giving
any notices to its Participants, if any. Subject to Section
17.4, Agent shall take such action with respect to such Default
or Event of Default as may be requested by the Required Lenders
in accordance with Section 9; provided, however, that unless and
until Agent has received any such request, Agent may (but shall
not be obligated to) take such action, or refrain from taking
such action, with respect to such Default or Event of Default as
it shall deem advisable.
17.6 Credit Decision. Each Lender acknowledges that
none of the Agent-Related Persons has made any representation or
warranty to it, and that no act by Agent hereinafter taken,
including any review of the affairs of Borrower and its
Subsidiaries or Affiliates, shall be deemed to constitute any
representation or warranty by any Agent-Related Person to any
Lender. Each Lender represents to Agent that it has,
independently and without reliance upon any Agent-Related Person
and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the
business, prospects, operations, property, financial and other
condition and creditworthiness of Borrower and any other Person
(other than the Lender Group) party to a Loan Document, and all
applicable bank regulatory laws relating to the transactions
contemplated hereby, and made its own decision to enter into this
Agreement and to extend credit to Borrower. Each Lender also
represents that it will, independently and without reliance upon
any Agent-Related Person and based on such documents and
information as it shall deem appropriate at the time, continue to
make its own credit analysis, appraisals and decisions in taking
or not taking action under this Agreement and the other Loan
Documents, and to make such investigations as it deems necessary
to inform itself as to the business, prospects, operations,
property, financial and other condition and creditworthiness of
Borrower and any other Person (other than the Lender Group) party
to a Loan Document. Except for notices, reports and other
documents expressly herein required to be furnished to the
Lenders by Agent, Agent shall not have any duty or responsibility
to provide any Lender with any credit or other information
concerning the business, prospects, operations, property,
financial and other condition or creditworthiness of Borrower and
any other Person party to a Loan Document that may come into the
possession of any of the Agent-Related Persons.
17.7 Costs and Expenses; Indemnification. Agent may
incur and pay Lender Group Expenses to the extent Agent deems
reasonably necessary or appropriate for the performance and
fulfillment of its functions, powers, and obligations pursuant to
the Loan Documents, including without limiting the generality of
the foregoing, court costs, reasonable attorneys fees and
expenses, costs of collection by outside collection agencies and
auctioneer fees and costs of security guards or insurance
premiums paid to maintain the Collateral, whether or not Borrower
is obligated to reimburse Agent or Lenders for such expenses
pursuant to the Loan Agreement or otherwise. Agent is authorized
and directed to deduct and retain sufficient amounts from
Collections to reimburse Agent for such out-of-pocket costs and
expenses prior to the distribution of any amounts to Lenders. In
the event Agent is not reimbursed for such costs and expenses
from Collections, each Lender hereby agrees that it is and shall
be obligated to pay to or reimburse Agent for the amount of such
Lender's Pro Rata Share thereof. Whether or not the transactions
contemplated hereby are consummated, the Lenders shall indemnify
upon demand the Agent-Related Persons (to the extent not
reimbursed by or on behalf of Borrower and without limiting the
obligation of Borrower to do so), according to their Pro Rata
Shares, from and against any and all Indemnified Liabilities;
provided, however, that no Lender shall be liable for the payment
to the Agent-Related Persons of any portion of such Indemnified
Liabilities resulting solely from such Person's gross negligence
or willful misconduct. Without limitation of the foregoing, each
Lender shall reimburse Agent upon demand for its ratable share of
any costs or out-of-pocket expenses (including attorneys fees and
expenses) incurred by Agent in connection with the preparation,
execution, delivery, administration, modification, amendment or
enforcement (whether through negotiations, legal proceedings or
otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, any other Loan Document,
or any document contemplated by or referred to herein, to the
extent that Agent is not reimbursed for such expenses by or on
behalf of Borrower. The undertaking in this section shall
survive the payment of all Obligations hereunder and the
resignation or replacement of Agent.
17.8 Agent in Individual Capacity. Foothill and its
Affiliates may make loans to, issue letters of credit for the
account of, accept deposits from, acquire equity interests in and
generally engage in any kind of banking, trust, financial
advisory, underwriting or other business with Borrower and its
Subsidiaries and Affiliates and any other Person (other than the
Lender Group) party to any Loan Documents as though Foothill were
not Agent hereunder and without notice to or consent of the
Lenders. The Lenders acknowledge that, pursuant to such
activities, Foothill or its Affiliates may receive information
regarding Borrower or its Affiliates and any other Person (other
than the Lender Group) party to any Loan Documents that is
subject to confidentiality obligations in favor of Borrower or
such other Person and that prohibit the disclosure of such
information to the Lenders, and the Lenders acknowledge that, in
such circumstances (and in the absence of a waiver of such
confidentiality obligations, which waiver Agent will use its
reasonable best efforts to obtain), Agent shall be under no
obligation to provide such information to them. With respect to
the Foothill Loans and Agent Advances, Foothill shall have the
same rights and powers under this Agreement as any other Lender
and may exercise the same as though it were not Agent, and the
terms "Lender" and "Lenders" include Foothill in its individual
capacity.
17.9 Successor Agent. Agent may resign as Agent upon
45 days notice to the Lenders. If Agent resigns under this
Agreement, the Required Lenders shall appoint a successor Agent
for the Lenders. If no successor Agent is appointed prior to the
effective date of the resignation of Agent, Agent shall appoint,
after consulting with the Lenders, a successor Agent and such
appointed successor Agent shall be deemed acceptable to the
Lenders. If Agent has materially breached or failed to perform
any material provision of this Agreement or of applicable law,
the Required Lenders may agree in writing to remove and replace
Agent with a successor Agent from among the Lenders. In any such
event, upon the acceptance of its appointment as successor Agent
hereunder, such successor Agent shall succeed to all the rights,
powers and duties of the retiring Agent and the term "Agent"
shall mean such successor Agent and the retiring Agent's
appointment, powers and duties as Agent shall be terminated.
After any retiring Agent's resignation hereunder as Agent, the
provisions of this Section 17 shall inure to its benefit as to
any actions taken or omitted to be taken by it while it was Agent
under this Agreement. If no successor Agent has accepted
appointment as Agent by the date which is 45 days following a
retiring Agent's notice of resignation, the retiring Agent's
resignation shall nevertheless thereupon become effective and the
Lenders shall perform all of the duties of Agent hereunder until
such time, if any, as the Lenders appoint a successor Agent as
provided for above.
17.10 Withholding Tax.
(a) If any Lender is a "foreign corporation,
partnership or trust" within the meaning of the IRC and such
Lender claims exemption from, or a reduction of, U.S. withholding
tax under Sections 1441 or 1442 of the IRC, such Lender agrees
with and in favor of Agent and Borrower, to deliver to Agent and
Borrower:
(i) if such Lender claims an exemption from,
or a reduction of, withholding tax under a United States tax
treaty, properly completed IRS Forms 1001 and W-8 before the
payment of any interest in the first calendar year and before the
payment of any interest in each third succeeding calendar year
during which interest may be paid under this Agreement;
(ii) if such Lender claims that interest paid
under this Agreement is exempt from United States withholding tax
because it is effectively connected with a United States trade or
business of such Lender, two properly completed and executed
copies of IRS Form 4224 before the payment of any interest is due
in the first taxable year of such Lender and in each succeeding
taxable year of such Lender during which interest may be paid
under this Agreement, and IRS Form W-9; and
(iii) such other form or forms as may be
required under the IRC or other laws of the United States as a
condition to exemption from, or reduction of, United States
withholding tax.
Such Lender agrees promptly to notify Agent and Borrower of any
change in circumstances which would modify or render invalid any
claimed exemption or reduction.
(b) If any Lender claims exemption from, or
reduction of, withholding tax under a United States tax treaty by
providing IRS Form 1001 and such Lender sells, assigns, grants a
participation in, or otherwise transfers all or part of the
Obligations of Borrower to such Lender, such Lender agrees to
notify Agent of the percentage amount in which it is no longer
the beneficial owner of Obligations of Borrower to such Lender.
To the extent of such percentage amount, Agent will treat such
Lender's IRS Form 1001 as no longer valid.
(c) If any Lender claiming exemption from United
States withholding tax by filing IRS Form 4224 with Agent sells,
assigns, grants a participation in, or otherwise transfers all or
part of the Obligations of Borrower to such Lender, such Lender
agrees to undertake sole responsibility for complying with the
withholding tax requirements imposed by Sections 1441 and 1442 of
the IRC.
(d) If any Lender is entitled to a reduction in
the applicable withholding tax, Agent may withhold from any
interest payment to such Lender an amount equivalent to the
applicable withholding tax after taking into account such
reduction. If the forms or other documentation required by
subsection (a) of this Section are not delivered to Agent, then
Agent may withhold from any interest payment to such Lender not
providing such forms or other documentation an amount equivalent
to the applicable withholding tax.
(e) If the IRS or any other Governmental
Authority of the United States or other jurisdiction asserts a
claim that Agent did not properly withhold tax from amounts paid
to or for the account of any Lender (because the appropriate form
was not delivered, was not properly executed, or because such
Lender failed to notify Agent of a change in circumstances which
rendered the exemption from, or reduction of, withholding tax
ineffective, or for any other reason) such Lender shall indemnify
Agent fully for all amounts paid, directly or indirectly, by
Agent as tax or otherwise, including penalties and interest, and
including any taxes imposed by any jurisdiction on the amounts
payable to Agent under this Section, together with all costs and
expenses (including attorneys fees and expenses). The obligation
of the Lenders under this subsection shall survive the payment of
all Obligations and the resignation or replacement of Agent.
17.11 Collateral Matters.
(a) The Lenders hereby irrevocably authorize
Agent, at its option and in its sole discretion, to release any
Lien on any Collateral (i) upon the termination of the
Commitments and payment and satisfaction in full by Borrower of
all Obligations; (ii) constituting property being sold or
disposed of if a release is required or desirable in connection
therewith and if Borrower certifies to Agent that the sale or
disposition is permitted under Section 7.4 of this Agreement or
the other Loan Documents (and Agent may rely conclusively on any
such certificate, without further inquiry); (iii) constituting
property in which Borrower owned no interest at the time the
security interest was granted or at any time thereafter; or (iv)
constituting property leased to Borrower under a lease that has
expired or is terminated in a transaction permitted under this
Agreement. Except as provided above, Agent will not execute and
deliver a release of any Lien on any Collateral without the prior
written authorization of (y) if the release is of all or
substantially all of the Collateral, of all of the Lenders, or
(z) otherwise, all of the Lenders. Upon request by Agent or
Borrower at any time, the Lenders will confirm in writing Agent's
authority to release any such Liens on particular types or items
of Collateral pursuant to this Section 17.11; provided, however,
that (1) Agent shall not be required to execute any document
necessary to evidence such release on terms that, in Agent's
opinion, would expose Agent to liability or create any obligation
or entail any consequence other than the release of such Lien
without recourse, representation, or warranty, and (2) such
release shall not in any manner discharge, affect, or impair the
Obligations or any Liens (other than those expressly being
released) upon (or obligations of Borrower in respect of) all
interests retained by Borrower, including, the proceeds of any
sale, all of which shall continue to constitute part of the
Collateral.
(c) Agent shall have no obligation whatsoever to
any of the Lenders to assure that the Collateral exists or is
owned by Borrower or is cared for, protected, or insured or has
been encumbered, or that the Agent's Liens have been properly or
sufficiently or lawfully created, perfected, protected, or
enforced or are entitled to any particular priority, or to
exercise at all or in any particular manner or under any duty of
care, disclosure or fidelity, or to continue exercising, any of
the rights, authorities and powers granted or available to Agent
pursuant to any of the Loan Documents, it being understood and
agreed that in respect of the Collateral, or any act, omission or
event related thereto, subject to the terms and conditions
contained herein, Agent may act in any manner it may deem
appropriate, in its sole discretion given Agent's own interest in
the Collateral in its capacity as one of the Lenders and that
Agent shall have no other duty or liability whatsoever to any
Lender as to any of the foregoing, except as otherwise provided
herein.
17.12 Restrictions on Actions by Lenders; Sharing
of Payments.
(a) Each of the Lenders agrees that it shall not,
without the express consent of Agent, and that it shall, to the
extent it is lawfully entitled to do so, upon the request of
Agent, set off against the Obligations, any amounts owing by such
Lender to Borrower or any accounts of Borrower now or hereafter
maintained with such Lender. Each of the Lenders further agrees
that it shall not, unless specifically requested to do so by
Agent, take or cause to be taken any action, including, the
commencement of any legal or equitable proceedings, to foreclose
any Lien on, or otherwise enforce any security interest in, any
of the Collateral the purpose of which is, or could be, to give
such Lender any preference or priority against the other Lenders
with respect to the Collateral.
(b) Subject to Section 17.8, if, at any time or
times any Lender shall receive (i) by payment, foreclosure,
setoff or otherwise, any proceeds of Collateral or any payments
with respect to the Obligations arising under, or relating to,
this Agreement or the other Loan Documents, except for any such
proceeds or payments received by such Lender from Agent pursuant
to the terms of this Agreement, or (ii) payments from Agent in
excess of such Lender's ratable portion of all such distributions
by Agent, such Lender promptly shall (1) turn the same over to
Agent, in kind, and with such endorsements as may be required to
negotiate the same to Agent, or in same day funds, as applicable,
for the account of all of the Lenders and for application to the
Obligations in accordance with the applicable provisions of this
Agreement, or (2) purchase, without recourse or warranty, an
undivided interest and participation in the Obligations owed to
the other Lenders so that such excess payment received shall be
applied ratably as among the Lenders in accordance with their Pro
Rata Shares; provided, however, that if all or part of such
excess payment received by the purchasing party is thereafter
recovered from it, those purchases of participations shall be
rescinded in whole or in part, as applicable, and the applicable
portion of the purchase price paid therefor shall be returned to
such purchasing party, but without interest except to the extent
that such purchasing party is required to pay interest in
connection with the recovery of the excess payment.
17.13 Agency for Perfection. Agent and each Lender
hereby appoints each other Lender as agent for the purpose of
perfecting the Agent's Liens in assets which, in accordance with
Article 9 of the UCC can be perfected only by possession. Should
any Lender obtain possession of any such Collateral, such Lender
shall notify Agent thereof, and, promptly upon Agent's request
therefor shall deliver such Collateral to Agent or in accordance
with Agent's instructions.
17.14 Payments by Agent to the Lenders. All
payments to be made by Agent to the Lenders shall be made by bank
wire transfer or internal transfer of immediately available funds
to:
If to Foothill: The Chase Manhattan Bank
New York, New York
ABA # 000-000-000
Credit: Foothill Capital
Corporation
Account No. 323-266193
Re: Southwest Royalties, Inc.
If to Foothill
Income Trust, L.P.: The Chase Manhattan Bank
New York, New York
ABA # 000-000-000
Credit: Foothill Income Trust,
L.P.
Account No. 323-008062
Re: Southwest Royalties, Inc.
or pursuant to such other wire transfer instructions as each
party may designate for itself by written notice to Agent.
Concurrently with each such payment, Agent shall identify whether
such payment (or any portion thereof) represents principal,
premium or interest on revolving advances or otherwise.
17.15 Concerning the Collateral and Related Loan
Documents. Each member of the Lender Group authorizes and
directs Agent to enter into this Agreement and the other Loan
Documents relating to the Collateral, for the benefit of the
Lender Group. Each member of the Lender Group agrees that any
action taken by Agent or all Lenders, as applicable, in
accordance with the terms of this Agreement or the other Loan
Documents relating to the Collateral and the exercise by Agent or
all Lenders, as applicable, of their respective powers set forth
therein or herein, together with such other powers that are
reasonably incidental thereto, shall be binding upon all of the
Lenders.
17.16 Field Audits and Examination Reports;
Confidentiality; Disclaimers by Lenders; Other Reports and
Information. By signing this Agreement, each Lender:
(a) is deemed to have requested that Agent
furnish such Lender, promptly after it becomes available, a copy
of each field audit or examination report (each a "Report" and
collectively, "Reports") prepared by Agent, and Agent shall so
furnish each Lender with such Reports;
(b) expressly agrees and acknowledges that
neither Foothill nor Agent (i) makes any representation or
warranty as to the accuracy of any Report, or (ii) shall be
liable for any information contained in any Report;
(c) expressly agrees and acknowledges that the
Reports are not comprehensive audits or examinations, that Agent
or other party performing any audit or examination will inspect
only specific information regarding Borrower and will rely
significantly upon Borrower's books and records, as well as on
representations of Borrower's personnel;
(d) agrees to keep all Reports and other
material, non-public information regarding Borrower and its
Subsidiaries and their operations, assets, and existing and
contemplated business plans in a confidential manner; it being
understood and agreed by Borrower that in any event such Lender
may make disclosures (a) to counsel for and other advisors,
accountants, and auditors to such Lender, (b) reasonably required
by any bona fide potential or actual Assignee, transferee, or
Participant in connection with any contemplated or actual
assignment or transfer by such Lender of an interest herein or
any participation interest in such Lender's rights hereunder, (c)
of information that has become public by disclosures made by
Persons other than such Lender, its Affiliates, assignees,
transferees, or participants, or (d) as required or requested by
any court, governmental or administrative agency, pursuant to any
subpoena or other legal process, or by any law, statute,
regulation, or court order; provided, however, that, unless
prohibited by applicable law, statute, regulation, or court
order, such Lender shall notify Borrower of any request by any
court, governmental or administrative agency, or pursuant to any
subpoena or other legal process for disclosure of any such non-
public material information concurrent with, or where
practicable, prior to the disclosure thereof; and
(e) without limiting the generality of any other
indemnification provision contained in this Agreement, agrees:
(i) to hold Agent and any such other Lender preparing a Report
harmless from any action the indemnifying Lender may take or
conclusion the indemnifying Lender may reach or draw from any
Report in connection with any loans or other credit
accommodations that the indemnifying Lender has made or may make
to Borrower, or the indemnifying Lender's participation in, or
the indemnifying Lender's purchase of, a loan or loans of
Borrower; and (ii) to pay and protect, and indemnify, defend and
hold Agent and any such other Lender preparing a Report harmless
from and against, the claims, actions, proceedings, damages,
costs, expenses and other amounts (including, attorney costs)
incurred by Agent and any such other Lender preparing a Report as
the direct or indirect result of any third parties who might
obtain all or part of any Report through the indemnifying Lender.
In addition to the foregoing: (x) Any Lender may from time to
time request of Agent in writing that Agent provide to such
Lender a copy of any report or document provided by Borrower to
Agent that has not been contemporaneously provided by Borrower to
such Lender, and, upon receipt of such request, Agent shall
provide a copy of same to such Lender promptly upon receipt
thereof from Borrower; (y) To the extent that Agent is entitled,
under any provision of the Loan Documents, to request additional
reports or information from Borrower, any Lender may, from time
to time, reasonably request Agent to exercise such right as
specified in such Lender's notice to Agent, whereupon Agent
promptly shall request of Borrower the additional reports or
information specified by such Lender, and, upon receipt thereof
from Borrower, Agent promptly shall provide a copy of same to
such Lender; and (z) Any time that Agent renders to Borrower a
statement regarding the Loan Account, Agent shall send a copy of
such statement to each Lender.
17.17 Several Obligations; No Liability.
Notwithstanding that certain of the Loan Documents now or
hereafter may have been or will be executed only by or in favor
of Agent in its capacity as such, and not by or in favor of the
Lenders, any and all obligations on the part of Agent (if any) to
make any credit available hereunder shall constitute the several
(and not joint) obligations of the respective Lenders on a
ratable basis, according to their respective Commitments, to make
an amount of such credit not to exceed, in principal amount, at
any one time outstanding, the amount of their respective
Commitments. Nothing contained herein shall confer upon any
Lender any interest in, or subject any Lender to any liability
for, or in respect of, the business, assets, profits, losses, or
liabilities of any other Lender. Each Lender shall be solely
responsible for notifying its Participants of any matters
relating to the Loan Documents to the extent any such notice may
be required, and no Lender shall have any obligation, duty, or
liability to any Participant of any other Lender. Except as
provided in Section 17.7, no member of the Lender Group shall
have any liability for the acts or any other member of the Lender
Group. No Lender shall be responsible to Borrower or any other
Person for any failure by any other Lender to fulfill its
obligations to make credit available hereunder, nor to advance
for it or on its behalf in connection with its Commitment, nor to
take any other action on its behalf hereunder or in connection
with the financing contemplated herein.
18. GENERAL PROVISIONS.
18.1 Effectiveness. This Agreement shall be binding
and deemed effective when executed by Borrower and each member of
the Lender Group whose signature is provided for on the signature
pages hereof.
18.2 Section Headings. Headings and numbers have been
set forth herein for convenience only. Unless the contrary is
compelled by the context, everything contained in each section
applies equally to this entire Agreement.
18.3 Interpretation. Neither this Agreement nor any
uncertainty or ambiguity herein shall be construed or resolved
against the Lender Group or Borrower, whether under any rule of
construction or otherwise. On the contrary, this Agreement has
been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used
so as to fairly accomplish the purposes and intentions of all
parties hereto.
18.4 Severability of Provisions. Each provision of
this Agreement shall be severable from every other provision of
this Agreement for the purpose of determining the legal
enforceability of any specific provision.
18.5 Amendments in Writing. This Agreement can only be
amended by a writing signed by Agent, the requisite Lenders, and
Borrower.
18.6 Counterparts; Telefacsimile Execution. This
Agreement may be executed in any number of counterparts and by
different parties on separate counterparts, each of which, when
executed and delivered, shall be deemed to be an original, and
all of which, when taken together, shall constitute but one and
the same Agreement. Delivery of an executed counterpart of this
Agreement by telefacsimile shall be equally as effective as
delivery of an original executed counterpart of this Agreement.
Any party delivering an executed counterpart of this Agreement by
telefacsimile also shall deliver an original executed counterpart
of this Agreement but the failure to deliver an original executed
counterpart shall not affect the validity, enforceability, and
binding effect of this Agreement. The forgoing shall apply to
each other Loan Document mutatis mutandis.
18.7 Revival and Reinstatement of Obligations. If the
incurrence or payment of the Obligations by Borrower or any
guarantor of the Obligations or the transfer by either or both of
such parties to the Lender Group of any property of either or
both of such parties should for any reason subsequently be
declared to be void or voidable under any state or federal law
relating to creditors' rights, including provisions of the
Bankruptcy Code relating to fraudulent conveyances, preferences,
and other voidable or recoverable payments of money or transfers
of property (collectively, a "Voidable Transfer"), and if the
Lender Group is required to repay or restore, in whole or in
part, any such Voidable Transfer, or elects to do so upon the
reasonable advice of its counsel, then, as to any such Voidable
Transfer, or the amount thereof that the Lender Group is required
or elects to repay or restore, and as to all reasonable costs,
expenses, and attorneys fees of the Lender Group related thereto,
the liability of Borrower or such guarantor automatically shall
be revived, reinstated, and restored and shall exist as though
such Voidable Transfer had never been made.
18.8 Integration. THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE ENTIRE UNDERSTANDING AND FINAL AGREEMENT
AMONG THE PARTIES WITH RESPECT TO THE TRANSACTIONS CONTEMPLATED
HEREBY AND THEREBY, AND THE SAME MAY NOT BE CONTRADICTED OR
QUALIFIED BY EVIDENCE OF PRIOR, ORAL OR WRITTEN AGREEMENTS
BETWEEN OR AMONG THE PARTIES OR CONTEMPORANEOUS OR SUBSEQUENT
ORAL AGREEMENTS BETWEEN OR AMONG THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN OR AMONG THE PARTIES.
18.9 Amendment and Restatement; Release. This
Agreement and the obligations of Borrower set forth herein
constitute an amendment, modification and restatement, but not an
extinguishment or novation, of obligations of the Borrower
originally owed to the Prior Lenders and/or the predecessors in
interest to Prior Lenders (the "Prior Obligations"), the Prior
Lenders having assigned all of such Prior Obligations (together
with all Liens and security documents securing the same) to Agent
and the Lender Group pursuant to the Prior Lender Assignment
Agreements. This Agreement and the other Loan Documents are not
intended as, and shall not be construed as, a release, impairment
or novation of the Prior Obligations or the other indebtedness,
liabilities and obligations of Borrower or any of the other Loan
Parties under the agreements, documents and instruments executed
in connection therewith or relating thereto or the Liens granted
therein, all of which Liens are hereby modified and affirmed.
BORROWER AND EACH OTHER LOAN PARTY HEREBY VOLUNTARILY AND
KNOWINGLY RELEASE AND FOREVER DISCHARGE AGENT AND EACH OF THE
LENDERS, ITS PREDECESSORS, AGENTS, EMPLOYEES, ATTORNEYS,
SUCCESSORS AND ASSIGNS, FROM ALL POSSIBLE CLAIMS, DEMANDS,
ACTIONS, CAUSES OF ACTION, DAMAGES, COSTS, EXPENSES, AND
LIABILITIES WHATSOEVER, KNOWN OR UNKNOWN, ANTICIPATED OR
UNANTICIPATED, SUSPECTED OR UNSUSPECTED, FIXED, CONTINGENT, OR
CONDITIONAL, AT LAW OR IN EQUITY, ORIGINATING IN WHOLE OR IN PART
ON OR BEFORE THE DATE THIS AGREEMENT IS EXECUTED, WHICH BORROWER
AND SUCH OTHER LOAN PARTIES, INDIVIDUALLY OR COLLECTIVELY, MAY
NOW OR HEREAFTER HAVE AGAINST AGENT, ANY OF THE LENDERS, ITS
PREDECESSORS, AGENTS, EMPLOYEES, ATTORNEYS, SUCCESSORS AND
ASSIGNS, IF ANY, AND IRRESPECTIVE OF WHETHER ANY SUCH CLAIMS
ARISE OUT OF CONTRACT, TORT, VIOLATION OF LAW OR REGULATIONS, OR
OTHERWISE, AND ARISING FROM ANY ADVANCES, LETTERS OF CREDIT OR
OTHER INDEBTEDNESS, INCLUDING, WITHOUT LIMITATION, ANY
CONTRACTING FOR, CHARGING, TAKING, RESERVING, COLLECTING OR
RECEIVING INTEREST IN EXCESS OF THE HIGHEST LAWFUL RATE
APPLICABLE, THE EXERCISE OF ANY RIGHTS AND REMEDIES UNDER THE
AGREEMENT OR OTHER TRANSACTION DOCUMENTS, AND NEGOTIATION FOR AND
EXECUTION OF THIS AGREEMENT.
18.10. Borrower's Waiver of Rights Under Texas
Deceptive Trade Practices Act. BORROWER HEREBY WAIVES ITS RIGHTS
UNDER THE DECEPTIVE TRADE PRACTICES-CONSUMER PROTECTION ACT,
SECTION 17.41 ET SEQ. TEXAS BUSINESS & COMMERCE CODE, A LAW THAT
GIVES CONSUMERS SPECIAL RIGHTS AND PROTECTIONS. AFTER
CONSULTATION WITH AN ATTORNEY OF BORROWER'S OWN SELECTION,
BORROWER VOLUNTARILY CONSENTS TO THIS WAIVER. BORROWER EXPRESSLY
WARRANTS AND REPRESENTS THAT BORROWER (A) IS NOT IN A
SIGNIFICANTLY DISPARATE BARGAINING POSITION RELATIVE TO AGENT
AND/OR ANY LENDER, AND (B) HAS BEEN REPRESENTED BY LEGAL COUNSEL
IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS.
[Remainder of Page Intentionally Blank; Signature Pages Follow.]
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed.
BORROWER:
SOUTHWEST ROYALTIES, INC.
a Delaware corporation
By /s/ Xxxx X. Xxxxxx
Title: Vice President
AGENT:
FOOTHILL CAPITAL
CORPORATION,
a California corporation,
as Agent for the Lenders
By:/s/ Xxxxx X. Xxxx
Title: Vice President
LENDER:
FOOTHILL CAPITAL
CORPORATION,
a California corporation,
as a Lender
By: /s/ Xxxxx X. Xxxx
Title: Vice President
FOOTHILL INCOME TRUST,
L.P.,
a Delaware limited
partnership
By: FIT GP, LLC, a
Delaware limited liability
company, its general
partner
By: /s/ Xxxxxx X.
Xxxxxx
Title: Managing
Member
SCHEDULE C-1
TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT BY AND AMONG
SOUTHWEST ROYALTIES, INC., THE LENDERS SIGNATORY THERETO, AND
FOOTHILL CAPITAL CORPORATION, AS AGENT FOR THE LENDERS
COMMITMENTS
Name of Lender Commitment
Foothill Capital $30,000,000
Corporation
Foothill Income Trust, L.P. $20,000,000
SCHEDULE 6.12
TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT BY AND AMONG
SOUTHWEST ROYALTIES, INC., THE LENDERS SIGNATORY THERETO, AND
FOOTHILL CAPITAL CORPORATION, AS AGENT FOR THE LENDERS
LOCATIONS OF INVENTORY AND EQUIPMENT
State Counties
Alabama All
Delaware All
Kansas All
Louisiana All
Montana All
New Mexico All
North Dakota All
Oklahoma All
Texas All
Wyoming All
EXHIBIT B-1
TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT BY AND AMONG
SOUTHWEST ROYALTIES, INC., THE LENDERS SIGNATORY THERETO, AND
FOOTHILL CAPITAL CORPORATION, AS AGENT FOR THE LENDERS
MORTGAGES, OPINIONS, CERTIFICATES AND CERTAIN OTHER REQUIRED
ITEMS AND INFORMATION
1. Agent has received each of the following documents, in form
and substance satisfactory to Agent, duly executed (and
acknowledged, as the case may be) by the Borrowing Base
Entity that is the owner thereof and all other necessary
parties and all formalities contemplated thereunder have
been completed, and each such document shall be in full
force and effect and shall have been recorded in each office
required by Agent:
(a) Oil and Gas Property Mortgages, dated as of the Closing
Date, covering the Applicable Oil and Gas Property on
which the Proved Reserves are located (the "Applicable
Oil and Gas Property");
(b) Copies of the governmental permits, approvals and
orders for each well and each unit pertaining to the
Applicable Oil and Gas Property;
(c) Transfer Order Letters for each well on the Applicable
Oil and Gas Property;
(d) Assignments in form and substance acceptable to Agent
of each Material Contract pertaining to the Applicable
Oil and Gas Property which either (i) affects any
Borrowing Base Entity's title to such Oil and Gas
Property or otherwise affects the value, use or
operation of such Oil and Gas Property in any material
respect or (ii) creates or evidences a material
obligation or liability on the part of Borrower or any
or its Subsidiaries, together with copies of each such
Material Contract.
2. Agent has received a certificate of insurance, together with
the endorsements thereto with respect to the Applicable Oil
and Gas Property and the insurable risks associated
therewith as described in Section 6.10, with Agent for the
benefit of the Lender Group being named thereon as loss
payee and additional insured, all in form and substance of
which shall be satisfactory to Agent and its counsel.
3. Agent has received copies of all Material Contracts relating
to the Applicable Oil and Gas Property, and such contracts
shall be in form and substance satisfactory to Agent.
4. Agent has received an opinion of Borrower's counsel covering
the Oil and Gas Property Mortgages covering the Applicable
Oil and Gas Property and matters pertaining thereto,
including the due execution, delivery and enforceability
thereof, and creation of lien thereunder, in form and
substance satisfactory to Agent in its sole discretion.
5. Agent has received (i) appraisals of the Applicable Oil and
Gas Property in the form of Reserve Reports prepared by
Borrower and audited by Xxxxx Xxxxx Company, Xxxxxxx Xxxx &
Xxxxxxxx or another firm of independent petroleum engineers
selected by Borrower and acceptable to Agent (including, but
not limited to, appraisals, verifications and liquidation
analyses of the Proved Reserves thereof categorized by
"Proved Developed Producing Reserves," "Proved Developed Non-
Producing Reserves," "Proved Undeveloped Reserves," and
other), in each case satisfactory to Agent, and (ii) title
opinions for the Applicable Oil and Gas Property issued to
Agent for the benefit of the Lender Group by a legal counsel
to Borrower that is experienced in the examination of title
to the Applicable Oil and Gas Property and is satisfactory
to Agent, each of which title opinions shall be in form and
substance satisfactory to Agent and:
(A) have been updated within 15 days after the date of the
filing of the Applicable Oil and Gas Property Mortgage
to confirm the priority of the Lien created by the
Applicable Oil and Gas Property Mortgage, and
(B) opine as to such matters incident to the Applicable Oil
and Gas Property as Agent may reasonably request
including the following with respect to the Mineral
Interests in the Applicable Oil and Gas Property:
(I) The Borrowing Base Entity that is the grantor
under the Applicable Oil and Gas Property Mortgage
covering the Applicable Oil and Gas Properties
(the "Applicable Borrowing Base Entity") has
Defensible Title to such Oil and Gas Properties to
the extent of the Mineral Interests as specified
therein, free and clear of all Liens and defects
except Permitted Liens.
(II) The Applicable Borrowing Base Entity is entitled
to receive, after giving effect to all royalties,
overriding royalties and other burdens payable out
of production, a decimal share of all Hydrocarbons
produced and sold from such Oil and Gas
Properties, before and after payout, not less than
set forth in the opinion.
(III) The operating interest in such Oil and
Gas Properties of the Applicable Borrowing Base
Entity, is not obligated to bear a decimal share
of all costs and expenses from the operation
thereof in excess of that set forth therein.
(IV) The Liens created by the Oil and Gas Property
Mortgage are valid and enforceable first priority
mortgage Liens which are first in right and prior
in time and superior to all other Liens against
such Mineral Interests and other Oil and Gas
Properties other than Permitted Liens.
6. Borrower has delivered to Agent evidence satisfactory to
Agent confirming that each of the producing xxxxx located on
the Applicable Oil and Gas Property is (i) covered by the
title opinions required under the Agreement and
(ii) described in the legal description contained in an Oil
and Gas Property Mortgage which has been duly executed and
delivered to Agent.
7. If reasonably requested by Agent, Agent has received a phase-
I environmental report with respect to the Applicable Oil
and Gas Property, and the environmental consultants, the
scope of the reports or surveys, and the results thereof
shall be reasonably acceptable to Agent in its sole
discretion.
8. Agent has received all financing statements and fixture
filings required by Agent, duly executed by each Borrowing
Base Entity that is the owner of the Applicable Oil and Gas
Property and all other necessary parties and all formalities
contemplated thereunder have been completed, and Agent shall
have received searches of all recording offices requested by
Agent reflecting the filing of all such financing statements
and fixture filings, together with searches of such other
offices as Agent may require, each dated as of a date
acceptable to Agent.
9. Borrower has delivered to Agent additional information
concerning the Applicable Oil and Gas Property of the type
contemplated (without regard to value) by Schedules 5.1(a),
5.1(b), 5.1(c) and 5.2(b), with such information being
presented in substantially the same format as in such
Schedules.
10. All other documents and legal matters in connection with the
Applicable Oil and Gas Properties and the purchase or
ownership thereof have been delivered, executed, or recorded
and are in form and substance satisfactory to Agent and its
counsel.
EXHIBIT C-1
TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT BY AND AMONG
SOUTHWEST ROYALTIES, INC., THE LENDERS SIGNATORY THERETO, AND
FOOTHILL CAPITAL CORPORATION, AS AGENT FOR THE LENDERS
FORM OF COMPLIANCE CERTIFICATE
[COMPANY LETTERHEAD]
Foothill Capital Corporation, as agent
0000 Xxxxxxxx Xxxxxx, Xxxxx 0000 Xxxx
Xxxxx Xxxxxx, Xxxxxxxxxx 00000
RE: Compliance Certificate
In accordance with our Amended and Restated Loan and Security
Agreement ("Agreement") dated as of August 17, 2000, I hereby
certify:
All financial reports, statements or computer prepared
information of any kind or nature delivered or caused to be
delivered to Foothill have been prepared in accordance with
GAAP consistently applied and fairly present the financial
condition of Borrower, except as follows:
Borrower is in timely compliance with all representations,
warranties, and covenants as defined within the Agreement,
except as follows:
On the date of delivery of such certificate to Foothill
there does not exist any condition or event which
constitutes an Event of Default, as defined within the
Agreement, except as follows:
As of the date hereof, the amount of the Revolving Facility
Usage, as defined in the Agreement, does not exceed the
Availability, as defined in the Agreement.
PLEASE ATTACH A SCHEDULE OF FINANCIAL COVENANTS (AND CALCULATIONS
THEREOF), INCLUDING YEAR TO DATE CAPITAL EXPENDITURES, TO THIS
COMPLIANCE CERTIFICATE.
SOUTHWEST ROYALTIES, INC.,
a Delaware corporation
By:
Name:
Title:
EXHIBIT T-1
TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT BY AND AMONG
SOUTHWEST ROYALTIES, INC., THE LENDERS SIGNATORY THERETO, AND
FOOTHILL CAPITAL CORPORATION, AS AGENT FOR THE LENDERS
Letter in Lieu of Division or Transfer Orders
__________ ___, 20__
VIA CERTIFIED MAIL
RETURN RECEIPT REQUESTED
TO:
Re: Letter in Lieu of Transfer Order
Ladies and Gentlemen:
[Pursuant to the Mortgage, a copy of which is enclosed with
this letter,] Southwest Royalties, Inc. (hereinafter collectively
referred to as the "Company") has granted to Foothill Capital
Corporation, a California corporation, as agent (in such capacity
together with its successors in such capacity, "Agent") for one
or more lenders (such lenders, together with their respective
successors and assigns, the "Lenders"), a lien on and security
interest in the [property interests described on Schedule I
attached hereto] [oil and gas properties of the Company] (the
"Properties"), including without limitation a collateral
assignment and transfer of all of the present and future
production and proceeds of production from the Properties.
We understand that, pursuant to division orders, transfer
orders, letters-in-lieu thereof or other agreements, you are
currently disbursing proceeds of the production from the
Properties to the Company or its designees.
The Company and Agent on behalf of the Lenders hereby give
you written notice of the matters set forth above and the
collateral assignment and transfer to Agent for the benefit of
the Lenders of all accounts from the sale of [Hydrocarbons (as
defined in the Mortgage)], [oil, gas and other hydrocarbons] from
the Properties and products and proceeds thereof. Furthermore,
you are hereby authorized and directed to commence paying,
immediately upon your receipt of this letter, 100% of all
proceeds of production distributed by you and attributable to the
interest of the Company in the Properties, less royalty,
overriding royalty and applicable severance and ad valorem taxes,
directly to Agent for the benefit of the Lenders at the following
address:
The Chase Manhattan Bank, N.A.
0 Xxx Xxxx Xxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
ABA #000-000-000
Account Number 323-266193
Credit: Foothill Capital Corporation
Re: Southwest Royalties, Inc.
You are hereby further authorized and directed to continue to pay
royalty, overriding royalty and applicable severance and ad
valorem taxes to the appropriate parties. You are hereby further
authorized and directed to change your records in accordance with
this letter effective immediately upon your receipt of this
letter.
If you require the execution of a division or transfer
order, please forward the division or transfer order to Agent at
its address listed below.
In order that we have a record evidencing your acceptance of
this letter, we request that you sign two copies of this letter
in the space provided below and return them to Agent at 0000
Xxxxxxxx Xxxxxx, Xxxxx 0000 Xxxx, Xxxxx Xxxxxx, Xxxxxxxxxx
00000, Attn: Business Finance Division Manager (Fax No.
000.000.0000) and to Company at 000 Xxxxx Xxx Xxxxxx Xxxxxx,
Xxxxx 000, Xxxxxxx, Xxxxx 00000, Attn: President (Fax No.
000.000.0000) in the enclosed, self-addressed envelope. If you
have further requirements concerning this transfer, please notify
Agent at the address specified above. None of the terms or
provisions of this letter may be changed without the prior
written consent of Agent and Company.
Sincerely,
SOUTHWEST ROYALTIES, INC.
By: ___________________________
Name:
Title:
FOOTHILL CAPITAL CORPORATION,
as Agent
By: ______________________________
Name:
Title:
ACCEPTED AND AGREED this ____ day of ___________, ______, and our
records have been changed
effective with _____________________, 20__ production.
___________________________________________
By: ____________________________________
Name: ____________________________________
Title: ____________________________________
SCHEDULE I
Attachment to Letter in Lieu of Transfer Order
DIVISI OPERATO WELL FIEL LOCATIO COUNT STAT INTERESOPERATO NET
ON R WELL NAME D N Y E T OWNER R REVENUE
ORDER # INTERES
# T
EXHIBIT 6.2
TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT BY AND AMONG
SOUTHWEST ROYALTIES, INC., THE LENDERS SIGNATORY THERETO, AND
FOOTHILL CAPITAL CORPORATION, AS AGENT FOR THE LENDERS
FORM OF BORROWING BASE CERTIFICATE
Southwest Royalties, Inc. - Form of Borrowing Base Certificate as of ___,
2000
Advances to Borrower at any one time shall not exceed an
amount equal to the lesser of:
I. "Maximum $50,000,0
Amount": 00
(or)
II. The "Borrowing Base" less the aggregate
amount of the "Reserves
Against
Availability"
:
(or)
III. the "Unsecured Note $________
Indebtedness Limitation" ___
II. The "Borrowing Base" less the aggregate
amount of the "Reserves
Against
Availability"
:
The "Borrowing Base"
is:
Proved Developed Producing Reserves
as of __/__/__:
Less Ineligible Proved Developed
Producing Reserves:
Eligible Proved Developed
Producing Reserves:
Advance Rate 45%
Availability prior to "Reserves
Against Availability"
"Reserves Against
Availability" include:
LSA
Def.
(a) Accounts Payable Greater than 90 Days
from Invoice: -
(b) Past Due Taxes or Other Governmental
Charges: -
(c) Certain Other Liens
(d) 180 Day P&A Escrows
(e) Estimated Net
P&A -
(f) 180 Day Rents Reserve
(g) Amounts owed by Borrower subject to
Certain Other Liens: -
(h) Reserves for Gas/Oil
Imbalances -
Sub-total of
Reserves
Availability after "Reserves Against
Availability"
Other Reserves under Section 2.1
