EXHIBIT 10.7
AMENDED AND RESTATED LOAN AGREEMENT
AMONG
PGP II, L.P.
and
PETROGLYPH GAS PARTNERS, L.P.,
as Borrowers,
PETROGLYPH ENERGY, INC.,
as a Guarantor
and
THE CHASE MANHATTAN BANK
as Lender
Dated as of
September 15, 1997
TABLE OF CONTENTS
SECTION 1. CERTAIN DEFINITIONS AND TERMS............................. 5
SECTION 2. REVOLVING CREDIT FACILITY AND TERM LOAN FACILITY.......... 17
2.1 Revolving Credit Commitment............................... 17
2.2 Borrowing Procedure; Disbursement......................... 17
2.3 Tranche A Conversion and Tranche B Termination............ 20
2.4 Notes..................................................... 20
2.5 Manner of Payments........................................ 20
2.6 Interest.................................................. 20
2.7 Computation of Interest................................... 20
2.8 Default Rate.............................................. 21
2.9 Principal Payments........................................ 21
2.10 Mandatory Payment of Loans................................ 21
2.11 Voluntary Designation of Borrowing Base; Mandatory
Cancellation of Revolving Credit Facility............... 22
2.12 Voluntary Principal Prepayments........................... 22
2.13 Order of Application...................................... 22
2.14 Use of Proceeds........................................... 23
2.15 Capital Adequacy.......................................... 23
2.16 Commitment Fee............................................ 23
2.17 Clawback Fee.............................................. 24
2.18 Joint and Several Liability; Rights of Contribution....... 24
2.19 Closing Fee............................................... 25
SECTION 3. CONDITIONS PRECEDENT...................................... 25
3.1 Initial Loans............................................. 25
3.2 Each Loan................................................. 25
3.3 Waiver of Conditions...................................... 25
SECTION 4. REPRESENTATIONS AND WARRANTIES............................ 26
4.1 Organization and Powers................................... 26
4.2 Validity and Binding Nature............................... 26
4.3 Compliance with Laws and Documents........................ 26
4.4 Prior Names............................................... 26
4.5 Relationship with Lender.................................. 26
4.6 Financial Statements and Reserve Reports.................. 26
4.7 Labor Matters............................................. 27
4.8 Litigation................................................ 27
4.9 Taxes and Claims.......................................... 27
4.10 Government Regulation..................................... 27
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4.11 Employee Benefit Plans.................................... 27
4.12 Purpose of Loan........................................... 27
4.13 Properties; Liens; Debt................................... 27
4.14 Material Agreements....................................... 27
4.15 No Consents............................................... 28
4.16 Environmental Laws; Hazardous Materials................... 28
4.17 Intentionally deleted..................................... 29
4.18 Capitalization and Control................................ 29
4.19 General................................................... 29
4.20 Mortgaged Properties Same as Properties Engineered........ 29
4.21 Operation of Business.................................... 29
4.22 Operator of Working Interest.............................. 29
4.23 Exchange Agreement........................................ 29
SECTION 5. COVENANTS................................................. 30
5.1 Affirmative Covenants..................................... 30
5.2 Negative Covenants........................................ 33
5.3 Reporting Requirements.................................... 36
SECTION 6. EVENTS OF DEFAULT......................................... 37
6.1 Payment of Obligation..................................... 37
6.2 Certain Covenants......................................... 37
6.3 Other Covenants........................................... 38
6.4 Loan Documents and Security Documents..................... 38
6.5 Bankruptcy................................................ 38
6.6 Attachment................................................ 38
6.7 Payment of Judgments...................................... 38
6.8 Default Under Other Debt.................................. 38
6.9 Material Adverse Effect................................... 38
6.10 Impairment of Collateral or Ability to Pay................ 39
6.11 Misrepresentation......................................... 39
6.12 Change of Control......................................... 39
SECTION 7. RIGHTS AND REMEDIES....................................... 39
7.1 Remedies.................................................. 39
7.2 Performance by Lender..................................... 39
7.3 Delegation of Duties and Rights........................... 39
7.4 Expenditures by Lender.................................... 40
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SECTION 8. MISCELLANEOUS................................................... 40
8.1 Notices................................................... 40
8.2 Amendments, Etc........................................... 40
8.3 No Waiver; Remedies Cumulative............................ 40
8.4 Successors and Assigns.................................... 40
8.5 Number and Gender of Words; References.................... 40
8.6 Headings.................................................. 41
8.7 Exhibits and Schedules.................................... 41
8.8 Form and Number of Documents.............................. 41
8.9 Conflicts................................................. 41
8.10 Waivers by Parent and the Borrowers....................... 41
8.11 Changes in the Accounting Standard........................ 41
8.12 Exceptions to Covenants................................... 42
8.13 Survival.................................................. 42
8.14 GOVERNING LAW............................................. 42
8.15 VENUE; SERVICE OF PROCESS................................. 42
8.16 WAIVER OF JURY TRIAL PUNITIVE DAMAGES, ETC................ 43
8.17 Maximum Interest Rate..................................... 44
8.18 Severability.............................................. 44
8.19 Lender Not in Control..................................... 44
8.20 Entirety and Amendments................................... 44
8.21 Multiple Counterparts..................................... 44
8.22 Petroleum Terms........................................... 45
8.23 Amendment and Restatement of Original Loan Agreement...... 45
iii
Schedules
3.1 - Closing Documents and Conditions
4.4 - Prior Names
4.8 - Litigation
4.11 - Employee Benefit Plans
4.13 - Permitted Liens
4.15 - Consents
4.16 - Environmental Laws
4.18 - Ownership
5.2(a) - Permitted Debt
8.1 - Notices
Exhibits
A Advance Request
B Financial Report Certificate
C Oil and Gas Leases
D Assignment and Amendment of Oil and Gas Mortgages
E PGP II Oil and Gas Mortgages
F PGP Oil and Gas Mortgages
G Parent Guaranty
H Spanish Peaks Pledge Agreement
I Form of Note A
J Form of Note B
K Well Certificate
L Legal Opinion of Counsel
M Legal Opinion of Local Counsel
N Solvency Certificate
O Warrant Agreement
P Warrant Certificate
Q Registration Rights Agreement
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AMENDED AND RESTATED LOAN AGREEMENT
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THIS AMENDED AND RESTATED LOAN AGREEMENT is entered into as of September
15, 1997, by and among PGP II, L.P., a Delaware limited partnership ("PGP II"),
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PETROGLYPH GAS PARTNERS, L.P., a Delaware limited partnership ("PGP"),
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PETROGLYPH ENERGY, INC., a Delaware corporation ("Parent") and THE CHASE
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MANHATTAN BANK, a New York state banking corporation ("Lender").
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W I T N E S S E T H:
WHEREAS, PGP II and Texas Commerce Bank National Association ("TCB")
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entered into that certain Loan Agreement, dated May 25, 1995, as amended by that
certain Letter Amendment dated August 29, 1995, by and between TCB and PGP II,
as further amended by that certain Letter Amendment dated September 18, 1995, by
and between TCB and PGP II, as further amended by that certain Letter Amendment
dated March 15, 1996, by and between TCB and PGP II, and as further amended by
that certain Fourth Amendment to Loan Agreement dated as of July 1, 1996, by and
between TCB and PGP II (as amended, the "Original Loan Agreement"); and
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WHEREAS, TCB, Lender and PGP II entered into that certain Assignment dated
of even date herewith, whereby TCB assigned to Lender all of TCB's rights and
obligations under the Original Loan Agreement; and
WHEREAS, Parent, Petroglyph Energy, Inc., a Kansas corporation ("PEI-
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Kansas") and certain other Persons are parties to the Exchange Agreement (as
herein defined) pursuant to which certain partnership interests in PGP and PGP
II and certain capital stock of PEI-Kansas will be exchanged for shares of
common stock of Parent and PGP, PGP II and PEI-Kansas will become direct or
indirect wholly owned Subsidiaries (as herein defined) of Parent; and
WHEREAS, PGP II, PGP, Parent and Lender desire to amend and restate the
Original Loan Agreement as hereinafter set forth in order to, among other
things, include PGP as a borrower thereunder, include Parent as a guarantor
thereunder, increase the existing revolving credit facility to $20,000,000.00
and provide an additional revolving credit facility from Lender to PGP and PGP
II in the amount of $2,500,000.00.
NOW, THEREFORE, in consideration of the premises herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties, intending to be legally bound, agree as follows:
SECTION 1. CERTAIN DEFINITIONS AND TERMS. used herein, the following terms
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shall have the meanings herein indicated:
Advance Request has the meaning set forth in SECTION 2.2 and shall be
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substantially in the form of EXHIBIT A.
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5
Affiliate means any Person who (a) would be an "affiliate" of either
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Borrower within the meaning of the regulations promulgated pursuant to the
Securities Act of 1933, as such regulations and Act are amended and in effect on
the date in question, if such Person were subject to such Act and regulations,
or (b) owns any legal or beneficial interest in such Person (except holders of
publicly traded shares of Parent), is a director or officer of any Credit Party,
or is a relative of any of the Persons described in this clause (b).
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Agreement means this Amended and Restated Loan Agreement, including the
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Schedules and Exhibits hereto, as the same may be in effect from time to time
after giving effect to any amendments, supplements, increases, extensions, and
renewals hereof.
Antelope Creek Gathering Assets means the natural gas gathering system
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owned by PGP on the date hereof located in the Uinta Basin of Utah, including,
without limitation, (a) all easements, rights of way, licenses, permits, fee
interests, leases, and other rights in and to, or the rights to use, real
property for the purposes of construction, maintenance or operation of such
gathering systems (b) all pipe, pipelines, compressors, meters, valves,
separators, interconnects, and other machinery, equipment, fixtures or fixed
assets of any nature comprising a part of or used in connection with the
ownership or operation of such gathering system, and (c) all contracts
(including, without limitation, gathering agreements, processing agreements and
similar agreements) licences, permits entered into or held by PGP in connection
with the ownership or operation of such gathering system. The Antelope Creek
Gathering Assets are more particularly described in the PGP Oil and Gas
Mortgage.
Apex Borrowing Base means, on any date of determination, the highest
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Borrowing Base which has been in effect under this Agreement at any time from
and after the Closing Date to such date without giving effect to any increase in
the Borrowing Base which is effective on such date.
Borrowers means PGP II and PGP, and Borrower means either of such Person.
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Borrowing Base means, as of the date of determination thereof, an amount
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equal to the difference of (a) an amount determined in accordance with the terms
and conditions of SECTION 2.2(a), minus (b) the sum of (i) the aggregate amount
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of all proceeds from the sale of any Proven Reserves in accordance with the
terms and conditions of SECTION 5.2(j)(ii), plus (ii) $300,000. During the
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period from the Closing Date to the first Determination Date, the Borrowing Base
shall be $7,500,000.00. The Borrowing Base shall periodically be redetermined
in accordance with the terms and conditions set forth in SECTION 2.2 and 2.11.
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Borrowing Base Deficiency means, on any day, the excess, if any, of the
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outstanding principal balance of the Tranche A Revolving Credit Loans or the
Term Loan on such day over the Borrowing Base in effect on such day.
Business Day means any day excluding Saturday and Sunday and excluding any
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other day on which Lender is required or authorized to close.
6
Change of Control means the occurrence of any of the following:
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(a) before the Exchange (i) PGP shall own less than ninety-nine percent
(99%) of PGP II, as the sole limited partner, (ii) NGP shall own less than
fifty-one percent (51%) of the limited partnership interests of PGP, (iii) PEI-
Kansas shall own less than one percent (1%) of each Borrower, as the sole
general partner of such Borrower, (iv) the Management Group shall own, on a
combined basis, less than fifty-one percent (51%) of the issued and outstanding
capital stock of PEI-Kansas of every class, or (v) NGP shall own less than
fifty-one percent (51%) of the outstanding capital stock, if any, of every class
with ordinary voting rights of Parent;
(b) after consummation of the Exchange but prior to the completion of an
initial public offering of Parent's common stock which results in Net Proceeds
to Parent of at least $15,000,000, the Management Group and NGP shall own, on a
combined basis, less than fifty-one percent (51%) of the issued and outstanding
capital stock of Parent of every class with ordinary voting rights; or
(c) after the consummation of the Exchange, any group (other than the
Management Group and NGP) becomes the beneficial owner, directly or indirectly,
of voting stock of Parent which has aggregate voting power that at the time in
question both (i) exceeds the aggregate voting power of all stock of Parent then
owned by the Management Group and NGP on a combined basis, and (ii) exceeds
thirty percent (30%) of the total voting power of all then outstanding voting
stock of Parent. As used in this definition, "person" has the meaning applied
to such term in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Act"), "group" of persons has the meaning applied to such
term in Rule 13d-5 under the Act, and "beneficial owners" has the meaning
applied to such term in Rule 13d-3 under the Act, in each case as the Act and
the aforementioned Rules thereunder are in effect.
Closing Date means the date hereof.
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Code means the Internal Revenue Code of 1986, as amended, and all
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regulations promulgated and rulings issued thereunder.
Collateral shall mean all present and future tangible or intangible
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property and rights of any kind in which the Lender is granted a Lien pursuant
to the Security Documents (whether or not perfected).
Credit Parties means, collectively, Borrowers, Parent, PEI-Kansas, POC and
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each of their Subsidiaries, and Credit Party means any one of the foregoing.
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Consolidated Subsidiary or Consolidated Subsidiaries means, for any Person,
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any Subsidiary or other entity the accounts of which would be consolidated with
those of such Person in its consolidated Financial Statements prepared in
accordance with GAAP.
Current Financials means (a) the consolidated and consolidating balance
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sheet of Parent and its Consolidated Subsidiaries as of June 30, 1997 and the
related consolidated and consolidating statements of income (loss) and cash
flow, copies of which have been provided by Borrowers to Lender.
7
Current Maturities of Long Term Debt means as of any applicable date of
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determination, that portion of Long Term Debt that should be classified as
current in accordance with GAAP.
Dated Assets has the meaning set forth in SECTION 2.18.
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Dated Liabilities has the meaning set forth in SECTION 2.18.
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Debt of any Person includes, without duplication, (i) all obligations,
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contingent or otherwise, which in accordance with GAAP should be classified upon
such Person's balance sheet as liabilities, (ii) all obligations of such Person
for borrowed money, (iii) all obligations of such Person evidenced by bonds,
debentures, notes and other similar instruments, (iv) all obligations of such
Person upon which interest charges are customarily paid, (v) all obligations
created or arising under any conditional sale or other title retention agreement
with respect to property acquired by such Person (even though the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property), (vi) all obligations of
such Person issued or assumed as the deferred purchase price of property or
services (other than accounts payable to suppliers incurred in the ordinary
course of business and paid, in each case, within forty-five (45) days of the
date when each such account is payable), (vii) all obligations under leases
which shall have been or should be, in accordance with GAAP, recorded as
capitalized leases in respect of which such Person is liable as lessee, (viii)
all indebtedness, liabilities and obligations of such Person in connection with
any Hydrocarbon Hedge, (ix) all reimbursement obligations, contingent or
otherwise, in respect of letters of credit, surety and appeal bonds and
performance bonds or similar instruments assuring any other Person of the
performance of any act or acts or the payment of any obligation, and (x) all
Debt of the types referred to in clauses (i) through (ix) above directly or
indirectly guaranteed by such Person.
Default means any event which with the passage of time or the giving of
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notice or both will be an Event of Default.
Default Rate means a rate of interest per annum equal to the lesser of (i)
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the Maximum Rate, or (ii) three percent (3.0%) in excess of the Floating Base
Rate (as defined in the Note).
Determination Date has the meaning set forth in SECTION 2.2(A).
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Environmental Laws means any and all laws, statutes, ordinances, rules,
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regulations, orders, or determinations of any Governmental Authority pertaining
to health or the environment in effect from time to time in any and all
jurisdictions in which either Borrower is conducting or at any time has
conducted business, or where any property of either Borrower is located, or
where any hazardous substances generated by or disposed of by either Borrower
are located, including, without limitation, 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
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Occupational Safety and Health Act of 1970, as amended, the Resource
Conversation and Recovery Act of 1976 ("RCRA"), as amended, the Safe Drinking
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Water Act, as amended, the Toxic Substances Control Act, as amended, the
Superfund Amendments and Reauthorization Act of 1986, as amended, the National
Environmental Policy Act, and other environmental, conservation or protection
laws. The terms "hazardous substance," "release" and
8
"threatened release" have the meanings specified in CERCLA, and the terms "solid
waste" and "disposal" (or "disposed") have the meanings specified in RCRA;
provided, however, that in the event either CERCLA or RCRA is amended so as to
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broaden the meaning of any term defined thereby, such broader meaning shall
apply subsequent to the effective date of such amendment with respect to all
provisions of this Agreement, and provided further that, to the extent the laws
of the state in which any property of either Borrower is located establish a
meaning for "hazardous substance," "release," "solid waste" or "disposal" which
is broader than that specified in either CERCLA or RCRA, such broader meaning
shall apply.
ERISA means the Employee Retirement Income Security Act of 1974, as
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amended, and the regulations promulgated and rulings issued thereunder.
ERISA Affiliate means any Person who is a member of either Borrower's
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controlled group, or under common control with either Borrower, within the
meaning of Section 414 of the Code and the regulations promulgated and rulings
issued thereunder.
ERISA Event shall mean, with respect to a Borrower and an ERISA Affiliate
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(a) a "reportable event" as defined in section 4043 of ERISA (other than a
reportable event not subject to the provisions for 30-day notice to the PBGC
under regulations issued under section 4043 of ERISA), (b) the withdrawal of a
Borrower or an ERISA Affiliate from a Plan subject to Title IV of ERISA during a
plan year in which it was a "substantial employer" as defined in section
4001(a)(2) of ERISA, (c) the filing of a notice of intent to terminate under
section 4041(c) of ERISA, (d) the institution of proceeding to terminate a Plan
by the PBGC, (e) the failure to make required contributions which could result
in the imposition of a lien under section 412 of the Code or section 302 of
ERISA, or (f) any other event or condition which might reasonably be expected to
constitute grounds under section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan or the imposition of any
liability under Title IV of ERISA other than PBGC premiums due but not
delinquent under section 4007 of ERISA.
Event of Default shall have the meaning set forth in SECTION 6.
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Exchange means the acquisition by Parent pursuant to the Exchange Agreement
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of all of the outstanding limited partnership interests of PGP and PGP II and
all of the stock of PEI-Kansas in exchange for common stock of Parent.
Exchange Agreement means that certain Exchange Agreement dated August 22,
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1997 among Parent, PEI-Kansas, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇, S.
▇▇▇▇▇▇▇ ▇▇▇▇▇, Natural Gas Partners, L.P., Natural Gas Partners II, L.P.,
Natural Gas Partners III, L.P., ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ Income Trust, ▇▇▇▇ ▇.
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and B. ▇▇▇▇▇ ▇▇▇▇▇▇▇.
Existing Burdens means royalty interests, overriding royalty interests, net
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profits interests, production payments or other payments out of or with respect
to the production of Hydrocarbons, and which are (a) in existence on the Closing
Date and have been taken into account in the ownership interests of each
Borrower in and to the Mortgaged Property as set forth in Exhibit A to the Oil
and Gas Mortgage executed by each Borrower, (b) reserved by the grantor in an
assignment of an Oil and Gas Lease to a Borrower after the Closing Date, or
reserved by a lessor in any Oil and
9
Gas Lease entered into with a Borrower after the Closing Date, (c) assigned or
transferred by a Borrower in the ordinary course of business after the Closing
Date, with respect to Mineral Interests that are not Mortgaged Property, or (d)
permitted by the Lender in writing after the Closing Date.
Final Termination Date means September 15, 2002.
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Financial Report Certificate means a certificate substantially in the form
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of EXHIBIT B and containing such other certifications, statements, calculations,
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explanations, and conclusions as Lender may request concerning compliance with
the Loan Documents.
Financial Statements means balance sheets, profit and loss statements,
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statements of cash flows prepared in comparative form with respect to the
corresponding period of the preceding fiscal year and prepared in accordance
with GAAP.
Floating Base Rate has the meaning given to such term in the Notes.
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GAAP means generally accepted accounting principles, applied on a
----
consistent basis, set forth in Opinions of the Accounting Principles Board of
the American Institute of Certified Public Accountants and/or in statements of
the Financial Accounting Standards Board and/or their successors which are
applicable in the circumstances as of the date in question; and the requirement
that such principles be applied on a consistent basis means that the accounting
principles observed in a current period are comparable in all material respects
to those applied in a preceding period.
Gas means natural gas, coal seam gas, gas well gas and casinghead gas, and
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the residue therefrom.
Governmental Authority means any nation or government, any state, county,
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or city and any political subdivision of any of the foregoing and any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
Hazardous Material means any hazardous substance, solid waste, and any
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other hazardous, toxic or dangerous waste, substance or material defined as such
in or for purposes of any Environmental Law or any other similar Law.
Hydrocarbon Hedge means a swap, collar, floor, cap, option or other
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contract (including sales contracts with known prices) which is intended to
reduce or eliminate the risk of fluctuations in the price of Hydrocarbons.
Hydrocarbons means oil, Gas, drop gasoline, natural gasoline, condensate,
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distillate and all other liquid and gaseous hydrocarbons produced or to be
produced in conjunction therewith from a wellbore and all products, by-products
and other substances derived therefrom or from the processing thereof, and all
other minerals and substances produced in conjunction with such substances,
including, but not limited to, sulfur, geothermal steam, water, carbon dioxide,
helium and any and all minerals, ores or substances of value and the products
and proceeds therefrom.
10
Initial Reserve Report means the reserve report of the Mineral Interests
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owned by the Borrowers prepared as of June 30, 1997 by ▇▇▇ ▇▇▇▇▇▇▇ and
Associates, Inc.
Law means all applicable statutes, laws, ordinances, regulations, orders,
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writs, injunctions or decrees of any Governmental Authority.
Lender has the meaning set forth in the preamble to this Agreement.
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Lien means any mortgage, pledge, security interest, encumbrance, lien,
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charge or deposit arrangement or other arrangement having the practical effect
of the foregoing and shall include the interest of a vendor or lessor under any
conditional sale agreement, capitalized lease or other title retention
agreement.
Litigation means any proceeding, claim, lawsuit or investigation conducted
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or threatened by or before any Governmental Authority.
Loan Documents means (a) this Agreement, (b) the Warrant Agreement, (c) the
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Warrant Certificate, (d) the Registration Rights Agreement, (e) the Security
Documents, (f) Note A, (g) Note B, (h) the Parent Guaranty, (i) any and all
other notes, mortgages, deeds of trust, security agreements, pledge agreements,
financing statements, guaranties and other agreements, documents and instruments
ever delivered pursuant to or in connection with this Agreement or the Original
Loan Agreement, and (j) all future renewals, extensions, or restatements of, or
amendments, modifications or supplements to, all or any part of the foregoing.
Loans means the Revolving Credit Loans and the Term Loan.
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Long Term Debt means, as of any applicable date of determination, all Debt
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of any Credit Party (other than the outstanding principal balance of all
Revolving Credit Loans) which should be classified as "funded indebtedness" or
"long-term indebtedness" on Financial Statements of the Credit Parties prepared
as of such date in accordance with GAAP.
Management Group means ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, S. ▇▇▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇▇ ▇.
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▇▇▇▇▇▇▇▇▇▇▇.
Material Adverse Effect means any set of circumstances or events which
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would reasonably be expected to (a) have any material adverse effect upon the
validity or enforceability of any Loan Document, (b) be material and adverse to
the financial condition or business operations of any Credit Party, as
represented to Lender in the Current Financials, or to the prospects of any
Credit Party, (c) materially impair any Credit Party's ability to fulfill its
obligations under the terms and conditions of the Loan Documents, or (d) cause a
Default or an Event of Default.
Material Contract means, as to any Person, any supply, purchase, service,
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employment, tax, indemnity, operating, pooling order, unitization,
communitization, partnership, joint venture or other agreement or order 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
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business, operations or Properties of such Person, as the same shall be amended,
modified and supplemented and in effect from time to time.
Maximum Borrowing Base means, as of the date of determination, an amount
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determined by Lender in accordance with the terms of SECTION 2.2(d) minus the
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aggregate amount of all proceeds from the sale of Proven Reserves in accordance
with the terms and conditions of SECTION 5.2(j)(ii).
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Maximum Rate means the maximum rate or amount of interest which Lender is
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allowed to contract for, charge, take, reserve or receive under applicable law.
Mineral Interests means all present and future rights, remedies, powers,
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privileges, estates, titles and interests in and to (a) all Oil and Gas Leases
and all mineral interests, royalty and overriding royalty interests, production
payment and net profits interests (and similar interests in oil or gas in place,
or as produced, or the proceeds or value thereof), mineral fee interests and
rights therein, including without limitation, any reversionary or carried
interests relating thereto, (b) all rights, titles and interests created by or
arising under the terms of all present and future unitization, communitization,
and pooling arrangements (and all properties covered and units created thereby)
whether arising by contract or operation of law which now or hereafter include
all or any part of the foregoing, (c) all rights, remedies, powers and
privileges with respect to all of the foregoing, and (d) all lands now or
hereafter subject to any of the foregoing.
Mortgaged Properties means all present and future Mineral Interests of any
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nature whatsoever, whether as record or beneficial owner, that either Borrower
may now have or hereafter acquire in and to those Oil and Gas Leases and other
assets listed on EXHIBIT C attached hereto, and all other properties in which
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either Borrower has previously granted to, or hereafter grants or purports to
grant to the Lender, a mortgage or lien, including all real and personal
property mortgaged to the Lender pursuant to and described in each Oil and Gas
Mortgage, and further including, the Antelope Creek Gathering Assets; provided,
that "Mortgaged Properties" shall not include any Oil and Gas Leases and other
assets which have been expressly released from the Oil and Gas Mortgages
pursuant to a written instrument executed by Lender.
Multiemployer Plan means a multiemployer plan as defined in Sections 3(37)
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or 4001(a) (3) of ERISA or Section 414 of the Code.
Net Proceeds means, in respect of any issuance by any Credit Party of debt
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or equity securities, the gross proceeds from the issuance and sale of such debt
or equity securities less underwriters discounts and commissions, commitment and
closing fees, legal fees and expenses, and other out of pocket costs and
expenses actually incurred and paid in cash by a Credit Party in connection with
the closing and funding of such issue.
NGP means collectively, Natural Gas Partners, L.P., Natural Gas Partners
---
II, L.P. and Natural Gas Partners III, L.P.
Note A has the meaning set forth in SECTION 2.4.
------ -----------
12
Note B has the meaning set forth in SECTION 2.4.
------ -----------
Notes has the meaning set forth in SECTION 2.4.
----- -----------
Obligation has the following meaning (i) the obligation of each Borrower
----------
for the due and punctual payment of principal of and interest on the Note when
due, whether at maturity, by acceleration, by notice of voluntary prepayment or
otherwise, (ii) all other obligations and all out-of-pocket expenses and
indemnities now or hereafter existing of any Credit Party to the Lender under
this Agreement or any other Loan Document, and (iii) all out-of-pocket costs and
expenses, now or hereafter existing, that may be incurred by the Lender in
connection with the administration and enforcement of the Loan Documents or the
realization on the security provided for by the Loan Documents.
Oil and Gas Leases means oil, gas, casinghead gas or other mineral (or any
------------------
combination thereof) leases, and subleases and assignments thereof and/or of
operating rights and all instruments executed in amendment, correction,
modification, confirmation, renewal, extension, ratification and/or sublease
thereof or thereunder under and pursuant to which either Borrower has or obtains
the right to enter upon lands and explore for, drill, develop and exploit such
lands for the production of Hydrocarbons.
Oil and Gas Mortgage means, collectively, (i) (A) the Mortgage, Assignment
--------------------
of Proceeds of Production, Security Agreement and Financing Statement dated May
25, 1995, executed and delivered by PGP II originally in favor of Texas Commerce
Bank National Association and which has been assigned to the Lender, as amended
by an Assignment and Amendment to Oil and Gas Mortgage in the form of EXHIBIT D
---------
hereto dated on or about the date hereof, to be executed by PGP II to the Lender
as the same may be further amended, modified, supplemented and in effect from
time to time, and (B) the Mortgage, Assignment of Proceeds of Production,
Security Agreement and Financing Statement substantially in the form of EXHIBIT
-------
E hereto dated on or about the date hereof, to be executed by PGP II to the
-
Lender as the same may be amended, modified, supplemented and in effect from
time to time (the mortgages described in clauses (A) and (B) proceeding are
referred to herein collectively as the PGP II Oil and Gas Mortgage"), and (ii)
---------------------------
the Trust Deed, Assignment of Proceeds of Production, Security Agreement and
Financing Statement substantially in the form of EXHIBIT F hereto, dated on or
---------
about the date hereof, to be executed and delivered by PGP to the Lender, as the
same may be amended, modified, supplemented and in effect from time to time (the
"PGP Oil and Gas Mortgage").
------------------------
Original Closing Date means May 25, 1995.
---------------------
Original Loan Agreement has the meaning set forth in the recitals to this
-----------------------
Agreement.
Parent means Petroglyph Energy, Inc., a Delaware corporation, which after
------
giving effect to the Exchange, will own, directly or indirectly, (through one or
more Subsidiaries) all of the issued and outstanding partnership interests of
each Borrower.
13
Parent Guaranty means that certain Guaranty of Parent to be executed by
---------------
Parent and dated as or about the date hereof, in the form of EXHIBIT G hereto,
---------
by which Parent shall guarantee the Obligation.
Partnership Rollup means any of the following in a single transaction or
------------------
series of substantially simultaneous transactions, (a) a merger of the Borrowers
with and into Parent with the Parent being the surviving corporation, (b) the
acquisition by Parent of all of the outstanding partnership interests of the
Borrowers, or (c) the acquisition by Parent of substantially all of the assets
of each Borrower.
PEI-Kansas means Petroglyph Energy, Inc., a Kansas corporation, and the
----------
general partner of Borrowers.
Permitted Liens shall mean the Liens permitted by Lender to be listed on
---------------
SCHEDULE 4.13.
-------------
Permitted Purchase Money Debt means Debt (i) in an aggregate amount
-----------------------------
outstanding at any time not to exceed $300,000, (ii) incurred to finance the
purchase of machinery, equipment, vehicles or other capital assets (but
expressly excluding Mineral Interests), (iii) in a principal amount not
exceeding one hundred percent (100%) of the purchase price of the assets
purchased with the proceeds of such Debt, and (iv) incurred substantially
simultaneously with the purchase of such asset.
Permitted Purchase Money Liens means Liens encumbering machinery,
------------------------------
equipment, vehicles or other capital assets (but expressly excluding Mineral
Interests) securing Permitted Purchase Money Debt, the proceeds of which are
used to finance the purchase of such assets; provided, that, such Liens shall
not attach to or encumber any other assets, and such Liens shall be granted
substantially simultaneously with the purchase of such assets.
Person means any individual, sole proprietorship, partnership, joint
------
venture, trust, unincorporated organization, association, corporation, limited
liability company, institution, entity, party, or Governmental Authority.
PGP has the meaning set forth in the preamble of this Agreement.
---
PGP II has the meaning set forth in the preamble of this Agreement.
------
Plan means any employee benefit plan within the meaning of Section 3(3) of
----
ERISA and any other program, policy and agreement providing bonus or other
incentive compensation, deferred compensation, change-in-control, leave of
absence, relocation, salary continuation, severance, sickness or other
disability, stock purchase, stock option or award, vacation, or holiday
benefits, which covers any employee or former employee of the Borrowers or any
ERISA Affiliate or any beneficiary or dependent of such employee or former
employee, whether or not written, and whether covering one person or more than
one person, and which are sponsored or maintained by a Borrower or any ERISA
Affiliate or to which the Borrower or any ERISA Affiliate contributes or is
obligated to contribute. Without limiting the generality of the foregoing, the
term "Plan" includes any employee welfare benefit plan within the meaning of
14
Section 3(1) of ERISA and any employee pension benefit plan within the meaning
of Section 3(2) of ERISA.
POC means Petroglyph Operating Company, Inc., a Kansas corporation.
---
Proven 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. The prices used may include
consideration of changes in existing prices provided by contractual arrangements
(reasonably decreased where market conditions dictate).
Registration Rights Agreement means that certain Registration Rights
-----------------------------
Agreement of even date herewith between Parent and Lender.
Reserve Report means a report, in form and substance satisfactory to
--------------
Lender, prepared by Borrowers evaluating the oil and gas reserves attributable
to the Mineral Interests of Borrowers which shall, among other things, (a)
identify the ▇▇▇▇▇ covered thereby, (b) specify the Borrowers' opinions with
respect to the total volume of Proven Reserves (using the terms of categories
"proved developed producing reserves," "proved developed nonproducing reserves"
and "proved undeveloped reserves") which the Borrowers have the right to produce
(or cause to be produced) for their own account, (c) set forth the Borrowers'
opinions with respect to the projected future cash proceeds from the Proven
Reserves, discounted for present value and status of production at a rate
acceptable to the Lender, (d) set forth the Borrowers' opinions with respect to
the projected future rate of production of the Proven Reserves, (e) contain such
other information as requested by the Lender with respect to the projected rate
of production, gross revenues, operating expenses, taxes, capital costs, net
revenues and present value of future net revenues attributable to such reserves
and production therefrom, (f) contain a statement of the price and escalation
parameters, procedures and assumptions upon which such determinations were
based, and (g) specify which Borrower is the legal and record title holder with
respect to such Proven Reserves. Until superceded, the Initial Reserve Report
shall constitute the Reserve Report.
Revolving Credit Loans means Tranche A Revolving Loans and Tranche B
----------------------
Revolving Loans.
Rights means rights, remedies, powers, privileges and benefits.
------
Security Documents shall mean the Oil and Gas Mortgage, the Spanish Peaks
------------------
Pledge Agreement and all other mortgages, deeds of trust, assignments, security
agreements, financing statements, guarantees and other documents, certificates
and instruments from time to time securing or guaranteeing the Obligations
(including without limitation those delivered in connection with the Original
Loan Agreement), in each case as the same may be amended, modified, restated,
supplemented, increased, renewed, extended, substituted for or replaced from
time to time.
▇▇▇▇ Farmout means that certain Joint Participation and Development
------------
Agreement dated the 31st day of August, 1997, by and between PGP and ▇▇▇▇
Resources Corp.
15
Spanish Peaks means Spanish Peaks Gathering, L.L.C., a Colorado limited
-------------
liability company, 80% of the outstanding membership interests of which are held
by PGP II and whose principal asset consists of the Spanish Peaks Gathering
Assets.
Spanish Peaks Gathering Assets means the natural gas gathering system owned
------------------------------
by Spanish Peaks on the date hereof located in the Raton Basin of Colorado,
including, without limitation (a) all easements, rights of way, licenses,
permits, fee interests, leases and other rights in and to, or the rights to use,
real property for the purposes of construction, maintenance or operation of such
gathering system, (b) all pipe, pipelines, compressors, meters, valves,
separators, interconnects, and other machinery, equipment, fixtures or fixed
assets of any nature comprising a part of or used in connection with the
ownership or operation of such gathering system, and (c) all contracts
(including, without limitation, gathering agreements, processing agreements and
similar agreements) licenses, permits entered into or held by Spanish Peaks in
connection with the ownership or operation of such gathering system.
Spanish Peaks Pledge Agreement means a Pledge Agreement in the form of
------------------------------
EXHIBIT H hereto dated on or about the date hereof, to be executed by PGP II
---------
in favor of Lender pursuant to which PGP II shall pledge its ownership interest
in Spanish Peaks to secure the Obligation.
Subordinated Debt means all present and future indebtedness, obligations
-----------------
and liabilities and all renewals, extensions and modifications thereof, now or
hereafter owed to any Person by either Borrower, arising from, by virtue of, or
pursuant to any loan document, or otherwise, together with all interest accruing
thereon and costs, expenses and attorneys' fees incurred in the enforcement or
collection thereof, which have been subordinated to repayment of the Obligations
by a written subordination agreement, the terms and conditions of which are
acceptable to Lender and its legal counsel, in their sole discretion.
Subsidiary of a Person means every firm, corporation, association,
----------
partnership, joint venture, trust, or other entity of which an aggregate of
fifty percent (50%) or more of the equity interests or the issued and
outstanding stock having ordinary voting power (except directors' qualifying
shares) is, at the time the determination is being made, owned, either directly
or indirectly, or controlled by such Person or one or more of such Person's
Subsidiaries.
Tangible Net Worth means, with respect to any Person at any time, the
------------------
shareholder's equity of such Person at such time less the Intangible Assets of
such Person at such time. For purposes of this definition, Intangible Assets
-----------------
means the amount (to the extent reflected in determining such shareholder's
equity) of all unamortized debt discount and expense, unamortized deferred
charges, goodwill, patents, trademarks, service marks, trade names, copyrights,
organization expenses and other intangible items.
Taxes means all taxes, assessments, fees, levies, imposts, duties,
-----
deductions, withholdings, or other charges of any nature whatsoever from time to
time or at any time imposed by any Law or Governmental Authority.
Term Loan has the meaning set forth in SECTION 2.3.
--------- -----------
16
Total Capital means for any Person as of any date, the sum of (a) the Debt
-------------
of such Person as of such date, and (b) the shareholders equity of such Person
which would be reflected on a balance sheet of such Person as of such date
prepared in accordance with GAAP.
Total Commitment means the Tranche A Commitment and the Tranche B
----------------
Commitment.
Tranche A Commitment shall mean the commitment of the Lender to make
--------------------
Revolving Credit Loans to the Borrowers pursuant to SECTION 2.1(A) in an
--------------
aggregate principal amount at any one time outstanding not to exceed $20,000,000
or such lower amount as may be provided for pursuant to the terms of this
Agreement.
Tranche A Commitment Period means the period from and including the Closing
---------------------------
Date to but not including the Tranche A Commitment Termination Date.
Tranche A Commitment Termination Date shall mean the earlier of (i) Noon,
-------------------------------------
Eastern Time on September 15, 1999, and (ii) the date on which the Tranche A
Total Commitment is otherwise terminated in accordance with the terms of this
Agreement.
Tranche A Revolving Loans has the meaning set forth in SECTION 2.1(a).
------------------------- --------------
Tranche B Commitment means the commitment of the Lender to make Revolving
--------------------
Credit Loans to the Borrowers pursuant to SECTION 2.1(b) in an aggregate
--------------
principal amount at any one time outstanding not to exceed $2,500,000 or such
lower amount as may be provided for pursuant to the terms of this Agreement,
including but not limited to permanent reductions pursuant to SECTION 2.10.
------------
Tranche B Commitment Period means the period from and including the Closing
---------------------------
Date to but not including the Tranche B Commitment Termination Date.
Tranche B Commitment Termination Date shall mean the earlier of (i) Noon,
-------------------------------------
Eastern Time on March 15, 1999, and (ii) the date on which the Total Commitment
is otherwise terminated in accordance with the terms of this Agreement.
Tranche B Revolving Loans has the meaning set forth in SECTION 2.1(b).
------------------------- --------------
UCC means the Uniform Commercial Code as enacted in the State of New York
---
or other applicable jurisdiction, as amended.
Warrant Agreement means that certain Warrant Agreement of even date
-----------------
herewith among Parent, PGP and Lender.
Warrant Certificate means that certain Warrant Certificate to be issued by
-------------------
Parent to evidence the Warrants.
Warrants mean those certain Warrants to be issued by Parent to Lender
--------
pursuant to the Warrant Agreement.
17
Well Certificates has the meaning set forth in paragraph (c) of SCHEDULE
----------------- ------------- --------
3.1.
---
SECTION 2. REVOLVING CREDIT FACILITY AND TERM LOAN FACILITY.
--------- ------------------------------------------------
2.1 Revolving Credit Commitment. Subject to and in reliance upon the
---------------------------
terms, conditions, representations and warranties contained in this Agreement,
Lender agrees to make revolving credit loans to each Borrower in one or more
advances, (a) under the Tranche A Commitment ("Tranche A Revolving Loans") so
-------------------------
long as the aggregate of the Tranche A Revolving Loans outstanding never exceeds
the lesser of (i) the Borrowing Base or (ii) the Tranche A Commitment, and (b)
under the Tranche B Commitment ("Tranche B Revolving Loans") so long as the
-------------------------
aggregate of the Tranche B Revolving Loans outstanding never exceeds the Tranche
B Commitment. Lender shall have no obligation to make any Revolving Credit Loan
on a non-Business Day, or on or after the Tranche A Commitment Termination Date
in the case of Tranche A Revolving Loans or the Tranche B Commitment Termination
Date in the case of Tranche B Revolving Loans; provided that Borrowers'
--------
obligations and Lender's Rights under the Loan Documents shall continue in full
force and effect until the Obligation is paid and performed in full. During the
Tranche A Commitment Period with respect to Tranche A Revolving Loans, and
during the Tranche B Commitment Period with respect to Tranche B Revolving
Loans, Borrowers may borrow, repay and reborrow such Revolving Credit Loans in
whole or part, all in accordance with terms and conditions of this Agreement.
2.2 Borrowing Procedure; Disbursement. Each Revolving Credit Loan shall
---------------------------------
be made on Borrowers' notice (the "Advance Request") to Lender requesting an
---------------
advance. Each Advance Request shall be irrevocable and binding, shall be
substantially in the form of EXHIBIT A and, in the case of a Tranche A Revolving
---------
Loan, shall be accompanied by a Reserve Report with respect to any Mineral
Interests to be acquired by either Borrower, with the proceeds of such Advance,
if applicable. Each Revolving Credit Loan shall be in an amount of not less
than $200,000.00 or a greater integral multiple of $50,000.00 and shall be
subject to the following terms and conditions:
(a) Periodic Determinations of Borrowing Base. The Maximum Borrowing
-----------------------------------------
Base shall be redetermined by the Lender as of September 30 and March 31 of each
year (each a "Determination Date") commencing March 31, 1998, until the Final
------------------
Termination Date. Upon notification by Lender to Borrowers of the amount of the
Maximum Borrowing Base, Borrowers shall notify Lender of the amount of the
Borrowing Base requested by them which shall not exceed the amount of the
Maximum Borrowing Base. The Borrowing Base selected by Borrower shall be the
Borrowing Base which shall remain in effect until the next Determination Date,
provided that the Borrowing Base may be redetermined between Determination Dates
--------
in accordance with SECTION 2.2(c) hereof, and provided further Borrowers may
-------------- -------- -------
designate a different Borrowing Base pursuant to SECTION 2.11(a). If Borrowers
---------------
fail to notify Lender of the amount of the requested Borrowing Base within ten
(10) days after they are notified of the amount of the Maximum Borrowing Base,
Borrowers will be deemed to have selected the Maximum Borrowing Base.
18
(b) Engineering Data to be Provided Prior to Scheduled Determination Dates
----------------------------------------------------------------------
(i) At least forty-five (45) days prior to March 31 and September
30 of each calendar year, commencing with March 31, 1998, Borrowers shall
deliver to the Lender, at Borrowers' expense, a Reserve Report certified by
the chief financial officer of each Borrower dated as of the date of
delivery. The Reserve Report shall be in form and substance satisfactory to
the Lender, shall be addressed to the Lender and shall (A) set forth the
historical production data of the oil and gas reserves included in the
Mortgaged Properties since the date of the most recent Reserve Report, (B)
set forth for each property prices received for production, lease operating
expenses and such other information as the Lender may deem necessary or
appropriate, in Lender's sole discretion, (C) set forth any changes since
the date of the most recent Reserve Report in each Borrower's working
interest or net revenue interest in the Mortgaged Properties, (D) be
accompanied by a certification of the Borrowers to the effect that no event
has occurred or condition exists which has had or is reasonably expected to
have a Material Adverse Effect, except those which have previously been
disclosed to the Lender in writing, and (E) contain such other information
as may be reasonably requested by the Lender. As soon as practical after
the Lender's receipt of the Reserve Report, but in no event later than
March 31 or September 30 of such year, as the case may be, the Lender shall
redetermine the Maximum Borrowing Base in accordance with SECTION 2.2(d)
--------------
and the Lender shall promptly notify Borrowers of the amount of the Maximum
Borrowing Base as so determined.
(ii) In the event that the Borrowers do not furnish to the Lender
the Reserve Report or any other information specified in clause (i) above
----------
by the date specified therein, the Lender may nonetheless redetermine the
Maximum Borrowing Base and redesignate the Maximum Borrowing Base from time
to time thereafter at its discretion until Lender receives the relevant
Reserve Report or other information, whereupon the Lender shall redetermine
the Maximum Borrowing Base as otherwise specified in this SECTION 2.2.
-----------
(iii) Each delivery of a Reserve Report by the Borrowers to the
Lender shall constitute a representation and warranty by the Borrowers to
the Lender that, unless otherwise disclosed to the Lender in writing on or
prior to the date of such delivery, (A) the Borrowers own the Mineral
Interests described in the Reserve Report free and clear of any Liens
(except Permitted Liens) and (B) Mineral Interests representing not less
than eighty percent (80%) of the value of the Proven Reserves reflected in
such Reserve Report constitute Mortgaged Property.
(c) Special Determinations of Maximum Borrowing Base. Special
------------------------------------------------
determinations of the Maximum Borrowing Base may be requested by the Borrowers
or the Lender at any time during the term hereof; provided, however, that there
-------- -------
shall be no more than an aggregate of three (3) scheduled determinations and
special determinations in any calendar year. If any special determination is
requested by the Borrowers, it shall be accompanied by such information
regarding the Borrowers' businesses (including the Mineral Interests and the
Proven Reserves and production relating thereto) as the Lender may reasonably
request, including without limitation a Reserve Report to be delivered at least
forty-five (45) days prior to the requested date of redetermination. Borrowers
shall pay the Lender an engineering fee of $5,000 with respect to the third
determination or
19
redetermination to occur in each calendar year. If any special determination is
requested by the Lender, the Borrowers shall provide the Lender with a Reserve
Report as soon as possible following the request; provided, however, (x) in no
-------- -------
event shall Borrowers be required to pay Lender the $5,000 engineering fee
referred to in this SECTION 2.2(c) as a result of Lender's request and (y) such
--------------
special determination shall not be counted as a special determination for
purposes of the first sentence of this SECTION 2.2(c). The determination
--------------
whether to increase or decrease the Maximum Borrowing Base shall then be made by
the Lender in its sole discretion in accordance with the standards set forth in
SECTION 2.2 hereof. The Lender shall promptly notify the Borrowers of the
-----------
redetermination of Maximum Borrowing Base pursuant to SECTION 2.2(d) and the
--------------
amount of the Maximum Borrowing Base as so redetermined. In the event of any
special determination of the Maximum Borrowing Base pursuant to this SECTION
-------
2.2(c), the Lender in the exercise of its discretion may suspend the next
------
regularly scheduled determination of the Maximum Borrowing Base.
(d) Standards for Redetermination. Each redetermination of the Maximum
-----------------------------
Borrowing Base by the Lender made pursuant to this SECTION 2.2 shall be made (i)
-----------
in the sole discretion of the Lender, (ii) generally in accordance with the
Lender's then current practices, customary internal standards and procedures
used by Lender for its petroleum industry customers for valuing and
redetermining the value of oil and gas properties in connection with reserve
based on oil and gas loan transactions, (iii) in conjunction with the most
recent Reserve Report or other information received by the Lender and deemed
reliable by the Lender (in its sole discretion) relating to the Proven Reserves
of the Borrowers in the Oil and Gas Leases of the Borrowers which secure the
Loans, and (iv) based upon the estimated value of the Proven Reserves owned by
the Borrowers in the Oil and Gas Leases of the Borrowers which secure the Loans
as determined by the Lender; provided, however, no Proven Reserves shall be
-------- -------
included or considered for inclusion in the Maximum Borrowing Base unless (A)
100% of such Proven Reserves are (or will become simultaneously with a Tranche
A Revolving Loan hereunder) Collateral or are subject to a negative pledge in
favor of the Lender, and (B) the Lender shall have received, at the Borrowers'
expense, evidence of title satisfactory in form and substance to the Lender that
the Lender has a perfected, first priority Lien (except for Permitted Liens) on
at least 80% of the value of the Proven Reserves attributable to the Mineral
Interests relating thereto pursuant to the Security Documents. At all times
after the Lender has given the Borrowers notification of a redetermination of
the Maximum Borrowing Base under this SECTION 2.2, the Maximum Borrowing Base
-----------
shall be equal to the redetermined amount until the Maximum Borrowing Base is
subsequently redetermined in accordance with this SECTION 2.2 subject, however,
-----------
to reduction pursuant to SECTION 5.2(j)(ii).
------------------
(e) Borrowing Base Increase Fee. On or before the date of any increase
---------------------------
of the Borrowing Base which results in an increase in the Borrowing Base beyond
the existing Apex Borrowing Base, Borrowers shall pay Lender a borrowing base
increase fee equal to one-half of one percent (.50%) on the difference between
(i) the existing Apex Borrowing Base, and (ii) the Borrowing Base on the day of
such increase of the Borrowing Base after giving effect to such increase.
(f) Engineering Fee. On or before each anniversary of the Original
---------------
Closing Date, commencing on the third anniversary of the Original Closing Date,
the Borrowers shall pay the Lender an engineering fee of $10,000. The Borrowers
and the Lender acknowledge that the
20
engineering fee is intended as reasonable compensation to the Lender for the use
of its engineers and other resources to review and analyze the engineering data
submitted by the Borrowers in connection with the determination of the Borrowing
Base and for no other purpose.
2.3 Tranche A Conversion and Tranche B Termination. Subject to and in
----------------------------------------------
reliance upon the terms, conditions, representations and warranties contained in
this Agreement, the unpaid balance of the Tranche A Revolving Loans on the
Tranche A Commitment Termination Date shall convert into a term loan (the "Term
----
Loan"). On and after the Tranche A Commitment Termination Date, the Lender
----
shall have no obligation to make a Tranche A Revolving Loan (the aggregate
amount of the same having been converted into the Term Loan), and Borrowers
shall repay the principal and interest then outstanding under the Term Loan in
accordance with the terms and conditions of Note A, which shall be fully due
and payable on the Final Termination Date. On and after the Tranche B Commitment
Termination Date, the Lender shall have no obligation to make a Tranche B
Revolving Loan, and Borrowers shall immediately repay the principal and interest
then outstanding under the Tranche B Commitment on the Tranche B Commitment
Termination Date.
2.4 Notes. Tranche A Revolving Loans and the Term Loan shall be
-----
evidenced by one promissory note executed by the Borrowers, substantially in the
form of EXHIBIT I attached hereto with appropriate insertions (the "Note A"),
--------- ------
payable to the order of Lender, representing the obligation of Borrowers to pay
the aggregate unpaid principal amount of the Tranche A Revolving Loans and the
Term Loan made by Lender, together with interest thereon as prescribed by this
Agreement. Tranche B Revolving Loans shall be evidenced by a promissory note of
Borrowers substantially in the form of EXHIBIT J attached hereto (the "Note B"),
--------- ------
payable to the order of Lender, representing the obligation of Borrowers to pay
the aggregate unpaid principal amount of the Tranche B Revolving Loans made by
Lender, together with interest thereon as prescribed by this Agreement (the Note
A and the Note B are herein collectively called the "Notes").
-----
2.5 Manner of Payments. All payments made by Borrowers to the Lender
------------------
hereunder on account of principal, interest or otherwise shall be made not later
than 2:00 P.M., Eastern Time, to Lender in New York, New York or at such other
place as Lender shall direct, in immediately available United States funds. If
any payment by Borrowers under this Agreement or either Note is to be made on a
day which is not a Business Day, such payment shall be made on the next
succeeding Business Day and such extension of time will in such case be included
in computing interest in connection with such payment.
2.6 Interest. Tranche A Revolving Loans and the Term Loan shall bear
--------
interest and shall be due and payable as provided in the Note A. Tranche B
Revolving Loans shall bear interest and shall be due and payable as provided in
the Note B.
2.7 Computation of Interest.
-----------------------
(a) Interest on each Note shall be calculated on the basis of actual days
elapsed, but computed as if each year consisted of 360 days, subject to the
provisions of SECTION 8.17 below. Any change in the interest rate on a Loan
------------
resulting from a change in the Floating Base Rate shall become effective as of
the day on which such change in the Floating Base Rate becomes effective. Lender
shall as soon as practicable notify Borrowers of the effective date and the
amount of each
21
such change. Each determination of an interest rate by Lender pursuant to any
provision of this Agreement shall be presumptively conclusive and binding on the
Borrowers in the absence of manifest error, subject, however, to the provisions
of SECTION 8.17 below.
------------
(b) Notwithstanding anything to the contrary in the Notes or herein
contained, in the event that the rate of interest under either Note should ever
exceed the Maximum Rate, thereby causing the interest accruing on any of the
indebtedness evidenced by such Note to be limited to such Maximum Rate, then any
subsequent reduction in the Floating Base Rate shall not reduce the rate of
interest charged hereunder below the Maximum Rate until the total amount of
interest accrued on such indebtedness equals the amount of interest which would
have accrued on such indebtedness if the rate of interest under such Note had
been in effect at all times in the period during which the rate charged thereon
was limited to the Maximum Rate.
2.8 Default Rate. At Lender's option and to the extent permitted by
------------
applicable Law, all past due Obligations and accrued interest thereon and
related fees shall bear interest from maturity (stated or by acceleration) at
the Default Rate until paid, regardless of whether such payment is made before
or after entry of a judgment.
2.9 Principal Payments. The unpaid balance of the Tranche A Revolving
------------------
Loans shall convert to the Term Loan on the Tranche A Commitment Termination
Date as described in SECTION 2.3. The principal amount of the Term Loan shall
-----------
be payable as provided in the Note A; provided, however, the entire unpaid
-------- -------
principal balance of the Term Loan, together with all accrued and unpaid
interest, shall be due and payable on the Final Termination Date. The principal
amount of the Tranche B Revolving Loans shall be payable as provided in the Note
B, provided, however, the entire unpaid principal balance of the Tranche B
-------- -------
Revolving Loan, together with all accrued and unpaid interest, shall be due and
payable on the Tranche B Commitment Termination Date.
2.10 Mandatory Payment of Loans. If, at any time, the unpaid principal
--------------------------
balance of Note A shall exceed the Tranche A Commitment, then, Borrowers shall
immediately repay, without premium or penalty, Tranche A Revolving Credit Loans
or the Term Loan in an amount equal to such excess, along with accrued unpaid
interest on the amount so repaid to the date of such repayment. If, at any time
the unpaid principal balance of Note B shall exceed the Tranche B Commitment,
then, Borrowers shall immediately repay, without premium or penalty, Tranche B
Revolving Loans in an amount equal to such excess, along with accrued unpaid
interest on the amount so repaid to the date of such repayment. If, at any time,
a Borrowing Base Deficiency shall occur, then, Borrowers shall (i) within ninety
(90) days after the date such Borrowing Base Deficiency first occurs, either (A)
provide additional collateral as security for the Obligation, the value of which
shall be determined by Lender in its sole discretion, or (B) prepay, without
premium or penalty, Tranche A Revolving Credit Loans or the Term Loan, or a
combination thereof, which additional collateral or prepayment shall be in an
amount equal to at least fifty percent (50%) of the amount of such Borrowing
Base Deficiency, and (ii) within one hundred eighty (180) days after the date
such Borrowing Base Deficiency first occurs either (A) provide additional
collateral as security for the Obligation, the value of which shall be
determined by Lender in its sole discretion, or (B) prepay, without premium or
penalty, Tranche A Revolving Credit Loans or the Term Loan, or a combination
thereof, which additional collateral or prepayment shall be in an amount
sufficient to eliminate such deficiency; and each such prepayment shall be made
along with accrued unpaid
22
interest on the amount so repaid to the date of such repayment. Any prepayment
of the Term Loan pursuant to the preceding sentence shall be applied to the
payments otherwise due under the Term Loan in inverse order of maturity.
Borrowers shall immediately repay Note B in the amount of the Net Proceeds from
the issuance of any Debt or equity securities issued by any Credit Party after
the Closing Date other than the issuance of debt securities evidencing Permitted
Purchase Money Debt. Notwithstanding anything to the contrary contained herein,
the Tranche B Commitment shall be permanently reduced simultaneously with the
issuance by any Credit Party of debt or equity securities by an amount equal to
the Net Proceeds from such issuance other than the issuance of debt securities
evidencing Permitted Purchase Money Debt.
2.11 Voluntary Designation of Borrowing Base; Mandatory Cancellation of
------------------------------------------------------------------
Revolving Credit Facility.
-------------------------
(a) Subject to SECTIONS 2.17 and 2.2(e), Borrowers may from time to time
------------- -----
and at any time during the Tranche A Commitment Period, upon two (2) Business
Days' prior written notice to Lender, increase or decrease the Borrowing Base,
as the case may be, by designating the Borrowing Base at an amount not in excess
of the Maximum Borrowing Base then in effect pursuant to SECTION 2.2. Any such
------------
designation shall be effective as of the date of the notice.
(b) The Total Commitment shall, at the election of Lender, terminate upon
the occurrence and continuance of an Event of Default, provided, however, that
-------- -------
the Total Commitment shall automatically terminate upon the occurrence of an
Event of Default pursuant to any of SECTIONS 6.5(i) - (vi), inclusive, or
----------------------
SECTION 6.5(ix).
--------------
2.12 Voluntary Principal Prepayments. The Borrowers may, at any time and
-------------------------------
from time to time prepay the unpaid principal amount of the Revolving Credit
Loans in whole or in part without premium or penalty, provided, that Borrower
shall not be permitted to make any prepayment of the Tranche A Revolving Loans
at any time that Tranche B Revolving Loans are outstanding. Upon giving Lender
one (1) Business Day's notice, Borrowers shall be entitled to prepay the Term
Loan from time to time and at any time, in whole or in part, without penalty;
provided, however, (a) each such prepayment shall equal or exceed the principal
-------- -------
amount of $200,000, and (b) Borrowers shall only be entitled to make a
prepayment if all accrued interest on the amount prepaid and any and all fees
and other sums (including, without limitation, past due interest, if any)
payable to Lender hereunder shall be paid to the date of such prepayment. Prior
to the Tranche A Commitment Termination Date and the Tranche B Commitment
Termination Date, the Tranche A Revolving Loans and Tranche B Revolving Loans,
respectively, prepaid may, subject to the conditions of this Agreement, be
reborrowed hereunder, and this Agreement shall not be deemed to be terminated or
canceled prior to the expiration or termination of Lender's commitment to lend
hereunder solely because the Obligation may from time to time be paid in full.
No advance shall be made under the Tranche B Commitment unless at such time the
Tranche A Commitment is fully funded to the then maximum extent permitted by
SECTION 2.1(a). After the Tranche A Commitment Termination Date, Tranche A
--------------
Revolving Loans may not be reborrowed hereunder. After the Tranche B Commitment
Termination Date, Tranche B Revolving Loans may not be reborrowed hereunder.
Amounts prepaid under the Term Loan may not be reborrowed.
23
2.13 Order of Application. So long as no Default or Event of Default has
--------------------
occurred, all prepayments of the Term Loan shall be applied to the unpaid
installments of the Term Loan in the inverse order of maturity. At any time
during which a Default or Event of Default has occurred and is continuing, all
payments and prepayments of the Obligation, including proceeds from the exercise
of any Rights under the Loan Documents or proceeds of any of the Collateral
shall be applied to the Obligation in the order and manner as Lender deems
appropriate.
2.14 Use of Proceeds. Fundings of the Revolving Credit Loans and the Term
---------------
Loan may be used, subject to compliance with the terms and conditions herein,
solely (a) to acquire, develop, or explore the Mineral Interests which
constitute Mortgaged Properties, (b) to finance the working capital needs of
Borrowers including, without limitation, to pay interest on the Loans and fees
and expenses hereunder, and (c) as provided in SECTION 5.2(d). All Loan
--------------
proceeds shall be used by the Borrowers only for legal and proper partnership
purposes (duly authorized by their respective general partner's Board of
Directors) which are consistent with all applicable laws and statutes.
2.15 Capital Adequacy.
----------------
(a) If, after the date of this Agreement, Lender shall have reasonably
determined that the adoption of any applicable law, rule or regulation regarding
capital adequacy, or any change therein, or any change in the interpretation or
administration thereof, or compliance by Lender with any applicable request or
directive regarding capital adequacy (whether or not having the force of law) of
any such authority, central bank or comparable agency, has or would reasonably
be expected to have the effect of reducing the rate of return on Lender's
capital as a consequence of its obligations hereunder to a level below that
which Lender could have achieved but for such adoption, change or compliance
(taking into consideration Lender's policies with respect to capital adequacy)
by an amount reasonably deemed by Lender to be material to its business, then
from time to time, Borrowers shall pay to Lender such additional amount or
amounts as will compensate Lender for such reduction.
(b) A certificate of Lender setting forth such amount or amounts as shall
be necessary to compensate Lender as specified in paragraph (a) above shall be
-------------
delivered as soon as practicable to Borrowers and shall be conclusive and
binding, absent manifest error. Borrowers shall pay Lender the amount shown as
due on any certificate within fifteen (15) days after Lender delivers such
certificate. In preparing such certificate, Lender may employ such assumptions
and allocations of costs and expenses as it shall, in good faith, deem
reasonable and may use any reasonable averaging and attribution method.
2.16 Commitment Fee. During the Tranche A Commitment Period, Borrowers
--------------
shall pay to Lender a commitment fee as it accrues, at maturity and on the last
day of each September, December, March and June commencing September 30, 1997,
equal to three-eighths of one percent (.375%) per annum, on the difference
between the Borrowing Base and the average daily outstanding amount of Tranche A
Revolving Loans. During the Tranche B Commitment Period, Borrowers shall pay to
Lender a commitment fee as it accrues, at maturity and on the last day of each
September, December, March and June, commencing September 30, 1997, equal to
one-half of one percent (.50%) per annum, on the difference between the Tranche
B Commitment and the average daily outstanding amount of Tranche B Loans.
24
2.17 Clawback Fee. During the Tranche A Commitment Period and upon
------------
any increase in the Borrowing Base pursuant to SECTION 2.11(a), Borrowers shall
---------------
pay to Lender a clawback fee equal to three-eighths of one percent (.375%) per
annum of the increased amount of the Borrowing Base then requested by Borrowers
pursuant to SECTION 2.11(a) beginning on the date of the last determination of
---------------
the Borrowing Base pursuant to SECTION 2.2 and ending on the effective date of
-----------
the then requested increase pursuant to SECTION 2.11(a). Such clawback fee
---------------
shall be due and payable on or before the date of any applicable increase in the
Borrowing Base. In no event shall Borrowers be obligated to pay such clawback
fee based on any designation of the Borrowing Base pursuant to SECTION 2.2.
-----------
2.18 Joint and Several Liability; Rights of Contribution.
---------------------------------------------------
(a) Each Borrower and Parent state and acknowledge that: (i) pursuant to
this Agreement, Borrowers desire to utilize their borrowing potential on a
consolidated basis to the same extent possible if they were merged into a single
corporate entity; (ii) each of Borrower and Parent has determined that it will
benefit specifically and materially from the advances of credit contemplated by
this Agreement; (iii) it is both a condition precedent to the obligations of
Lender hereunder and a desire of each Borrower and Parent that each Borrower and
Parent execute and deliver to Lender this Agreement; and (iv) each Borrower and
Parent has requested and bargained for the structure and terms of and security
for the advances contemplated by this Agreement.
(b) Each Borrower and Parent hereby irrevocably and unconditionally: (i)
agrees that it is jointly and severally liable to Lender for the full and prompt
payment and performance of the Obligation of each Borrower under this Agreement
and each other Loan Document that may specify that particular Borrower is
responsible for a given payment or performance; (ii) agrees to fully and
promptly perform all of its obligations hereunder with respect to each advance
of credit hereunder as if such advance had been made directly to it; and (iii)
agrees as a primary obligation to indemnify Lender on demand for and against any
loss incurred by Lender as a result of any of the obligations of any Borrower or
Parent being or becoming void, voidable, unenforceable or ineffective for any
reason whatsoever, whether or not known to Lender or any Person, the amount of
such loss being the amount which Lender would otherwise have been entitled to
recover from the other Borrower or Parent (as applicable).
(c) It is the intent of each Borrower that the indebtedness, obligations
and liabilities hereunder of no one of them be subject to challenge on any basis
related to any federal or state law dealing with fraudulent conveyances or any
other law related to transfers for less than fair or reasonably equivalent
value. Accordingly, as of the date hereof, the liability of each Borrower under
this SECTION 2.18, together with all of its other liabilities to all persons as
------------
of the date hereof and as of any other date on which a transfer is deemed to
occur by virtue of this Agreement, calculated in amount sufficient to pay its
probable net liabilities on its existing indebtedness as the same become
absolute and matured ("Dated Liabilities") is and is to be, less than the amount
-----------------
of the aggregate of a fair valuation of its property as of such corresponding
date ("Dated Assets"). To this end, each Borrower under this SECTION 2.18 (i)
------------ ------------
grants to and recognizes in each other Borrower, ratably, rights of subrogation
and contribution in the amount, if any, by which the Dated Assets of such
Borrower, but for the aggregate of subrogation and contribution in its favor
recognized herein, would exceed the Dated Liabilities of such Borrower or, as
the case may be, (ii) acknowledges
25
receipt of and recognizes its right to subrogation and contribution ratably from
the other Borrower in the amount, if any, by which the Dated Liabilities of such
Borrower, but for the aggregate of subrogation and contribution in its favor
recognized herein, would exceed the Dated Assets of such Borrower under this
SECTION 2.18. In recognizing the value of the Dated Assets and the Dated
------------
Liabilities, it is understood that each Borrower will recognize, to at least the
same extent of their aggregate recognition of liabilities hereunder, their
rights to subrogation and contribution hereunder. It is a material objective of
this SECTION 2.18 that each Borrower recognizes rights to subrogation and
------------
contribution rather than be deemed to be insolvent (or in contemplation thereof)
by reason of an arbitrary interpretation of its joint and several obligations
hereunder.
2.19 Closing Fee. On the Closing Date, Borrowers shall pay to Lender a
-----------
closing fee in the amount of $25,000 in immediately available funds.
SECTION 3. CONDITIONS PRECEDENT.
--------- --------------------
3.1 Initial Loans. Lender will not be obligated to make the initial
-------------
Revolving Credit Loans or the Term Loan to be made under this Agreement unless
it has received all of the items described on SCHEDULE 3.1 in form and substance
------------
satisfactory to Lender and complied with all the conditions and terms described
on SCHEDULE 3.1 to the satisfaction of Lender.
------------
3.2 Each Loan. In addition, Lender will not be obligated to make any
---------
Revolving Credit Loan or convert the Tranche A Revolving Credit Loan into the
Term Loan unless (a) with respect to Revolving Credit Loans, the Lender shall
have received an Advance Request with respect to such proposed Revolving Credit
Loan and each statement or certification made by Borrowers in their Advance
Request shall be true and correct in all material respects on the Borrowing
Date; (b) at the time of each Revolving Credit Loan and the conversion of the
Revolving Credit Loan into the Term Loan (i) the representations and warranties
made in the Loan Documents are true and correct in all material respects, and
(ii) neither any change in the financial condition or prospect of any Credit
Party which could have or has had a Material Adverse Effect nor any Default or
Event of Default shall have occurred and shall be continuing; (c) the making of
each Revolving Credit Loan and the Term Loan is permitted by Law; (d) all
matters related to any Revolving Credit Loan and the conversion of the Revolving
Credit Loan into the Term Loan are reasonably satisfactory to Lender and its
counsel, and, if requested by Lender, each Credit Party shall have delivered to
Lender evidence substantiating any of the matters contained in this Agreement
which are necessary to enable Borrowers to qualify for any Revolving Credit Loan
or the Term Loan; and (e) Lender shall have received such other agreements,
documents, instruments, information, approvals or opinions as Lender may
reasonably request.
The delivery of an Advance Request by the Borrowers and the acceptance by
the Borrowers of the proceeds of any Loan hereunder shall each be deemed to
constitute a representation and warranty by the Borrowers and Parent as to the
matters specified in this SECTION 3.2.
-----------
3.3 Waiver of Conditions. Lender may, at its election, make any
--------------------
Revolving Credit Loan or the Term Loan without all conditions being satisfied,
but this shall not be deemed to be a waiver of the requirement that each such
condition precedent be satisfied as a prerequisite for any subsequent Revolving
Credit Loan, unless Lender specifically waives each such item in writing.
26
SECTION 4. REPRESENTATIONS AND WARRANTIES. Each Borrower and Guarantor
--------- ------------------------------
jointly and severally represents and warrants to Lender as follows:
4.1 Organization and Powers. Each Credit Party (i) is duly organized,
-----------------------
validly existing and in good standing under the laws of the state of its
organization or incorporation, (ii) has all requisite partnership power and
authority to own its property and assets and to carry on its business as now
conducted and as proposed to be conducted, (iii) is qualified to do business in
every jurisdiction where such qualification is necessary or will be so qualified
within thirty (30) days of the Closing Date, (iv) has the partnership power and
authority to execute, deliver and perform each Loan Document to which it is or
will be a party, and (v) has taken all partnership action necessary to authorize
the execution, delivery and performance of the Loan Documents to which it is or
will be a party.
4.2 Validity and Binding Nature. This Agreement has been duly executed
---------------------------
and delivered by Parent and each Borrower and each other Loan Document when
executed and delivered by each Credit Party will be, a legal, valid and binding
obligation of such Credit Party enforceable against it in accordance with its
terms (except as enforcement thereof may be limited by bankruptcy,
reorganization, insolvency, moratorium or other laws affecting the enforcement
of creditors' rights generally).
4.3 Compliance with Laws and Documents. No Credit Party is, nor will the
----------------------------------
execution, delivery and the performance of and compliance with the terms of the
Loan Documents cause any Credit Party to be, in violation of (a) any Laws, or
(b) its certificate of incorporation, bylaws, agreement of limited partnership
or other organizational documents (as amended). The execution, delivery and the
performance of and compliance with the terms of the Loan Documents are not
inconsistent with, and will not conflict with or result in any breach of, or
constitute a default under, or result in the creation or imposition of any Lien
(except pursuant to the Loan Documents) upon any of the property, assets or
revenues of any Credit Party pursuant to the terms of, any indenture, mortgage,
lease, deed of trust, agreement, contract, instrument or Law to which any Credit
Party is a party or by which any Credit Party or any Credit Party's property,
assets or revenue is bound or to which it is subject.
4.4 Prior Names. In the last five (5) years, no Credit Party has
-----------
transacted business under any other corporate, partnership or trade name, been a
party to any merger, combination, or consolidation or acquired all or
substantially all of the assets of any Person.
4.5 Relationship with Lender. No Person who may be deemed to have
------------------------
"control" of any Credit Party is an "executive officer," "director," or
"principal shareholder" of Lender or any correspondent of Lender, as such quoted
terms are defined in Section 215.2 of Regulation O of the Board of Governors of
the Federal Reserve System, as amended.
4.6 Financial Statements and Reserve Reports. The Current Financials
----------------------------------------
were prepared in accordance with GAAP and present fairly the consolidated and
consolidating financial condition and results of operations of Parent and its
Consolidated Subsidiaries as of, and for the portion of the fiscal year ending
on, the date or dates thereof. All material liabilities (direct or indirect,
fixed or contingent) of the Credit Parties as of the date or dates of the
Current Financials are reflected
27
therein or in the notes thereto. Between the date or dates of the Current
Financials and the date hereof, there has been no material adverse change in the
financial condition of any Credit Party, nor has any Credit Party incurred any
material liability (direct or indirect, fixed or contingent). All Reserve
Reports were prepared in accordance with generally accepted engineering
practices.
4.7 Labor Matters. Borrowers have no employees.
-------------
4.8 Litigation. Except for the Litigation described on SCHEDULE 4.8, the
---------- ------------
Credit Parties are not involved in, nor is any Credit Party aware of any
Litigation affecting any Credit Party, nor are there any outstanding or unpaid
judgments against any Credit Party. None of the Litigation described on
SCHEDULE 4.8 could, collectively or individually, have a Material Adverse Effect
------------
if determined adversely against any Credit Party.
4.9 Taxes and Claims. All Tax returns and reports of each Credit Party
----------------
required to be filed have been filed. All lawful claims under operating
agreements, pooling orders and unitization agreements, and for labor, material
and supplies, which, if unpaid, might become a Lien upon any of its property,
and all Taxes and claims imposed upon each Credit Party which are due and
payable have been paid.
4.10 Government Regulation. No Credit Party nor any transaction
---------------------
contemplated hereunder is subject to regulation under the Public Utility Holding
Company Act of 1935, the Federal Power Act, the Investment Company Act of 1940,
the Interstate Commerce Act (as any of the preceding acts have been amended),
any regulations promulgated by the Office of Foreign Assets Control as codified
in Chapter V of 31 C.F.R., or any other Law (other than Regulation G, T, U or X
of the Board of Governors of the Federal Reserve System) which regulates the
incurrence of Debt.
4.11 Employee Benefit Plans.
----------------------
(a) Except as set forth on SCHEDULE 4.11, no Borrower or any ERISA
-------------
Affiliate currently sponsors or contributes to, nor has any contract or other
obligation to contribute to (nor has any Borrower or any ERISA Affiliate in the
preceding sixty (60) calendar months sponsored or contributed to, or contracted
to or become otherwise obligated to contribute to) any Plan or any Multiemployer
Plan.
(b) Each Plan is in compliance with all applicable provisions of ERISA,
the Code and all other Laws, except for any failures to be in compliance
therewith which in the aggregate would not have a Material Adverse Effect. With
respect to each Plan (other than a "Multiemployer Plan"), all reports required
under ERISA or other applicable law to be filed with any governmental authority,
the failure of which to file could reasonably result in a Material Adverse
Effect, have been timely filed.
(c) No "accumulated funding deficiency" (as defined in section 412(a) of
the Code) with respect to any Plan has been incurred (without regard to any
waiver granted under section 412 of the Code), nor has any funding waiver from
the Internal Revenue Service been received or requested. Each Plan that is
intended to be "qualified" within the meaning of section
28
401(a) of the Code has received all necessary governmental approvals, including
a favorable determination as to the qualification under the Code of each such
Plan and each amendment thereto, have been timely obtained and, to the knowledge
of the Borrowers and each ERISA Affiliate, there are no existing circumstances
nor any events that have occurred that would adversely affect the qualified
status of any such Plan or the tax exempt status of its related trust.
(d) The Borrowers and each ERISA Affiliate have complied in all material
respects with all requirements of ERISA sections 601 through 608 and Code
section 4980B. Neither the Borrowers nor any ERISA Affiliate has made any
promises of retirement or other benefits to employees, except as set forth in
the Plans, and neither a Borrower nor any ERISA Affiliate maintains or has
established any Plan which is a "welfare benefit plan" within the meaning of
section 3(1) of ERISA which provides for continuing benefits or coverage for any
participant or any beneficiary of a participant after such participant's
termination of employment except as may be required by sections 601 through 608
of ERISA and section 4980B of the Code, and at the expense of the participant or
the beneficiary of the participant, or retiree medical liabilities. Neither a
Borrower nor any ERISA Affiliate maintains, has established or has ever
participated in a multiple employer welfare benefit arrangement as described in
section 3(40)(A) of ERISA.
(e) Neither the Borrowers nor any ERISA Affiliate has incurred any
material liability to the Pension Benefit Guaranty Corporation in connection
with any Plan. The assets of each Plan that is subject to Title IV of ERISA are
sufficient to provide the benefits under such Plan, the payment of which the
Pension Benefit Guaranty corporation would guarantee if such Plan were
terminated, and such assets are also sufficient to provide all other "benefit
liabilities" (as defined in ERISA section 4001(a)(16)) due under the Plan upon
termination. No ERISA Event has occurred and is continuing with respect to any
Plan.
(f) There are no pending, or to the knowledge of Borrowers and each ERISA
Affiliate, threatened claims, lawsuits or actions (other than routine claims for
benefits in the ordinary course) asserted or instituted against, and neither the
Borrowers nor any ERISA Affiliate has knowledge of any threatened litigation or
claims against, the assets of any Plan or its related trust or against any
fiduciary of a Plan with respect to the operation of such Plan. Neither the
Borrowers nor any ERISA Affiliate has engaged in any prohibited transaction,
within the meaning of section 406 of ERISA or section 4975 of the Code, in
connection with any Plan.
4.12 Purpose of Loan. The proceeds of the advances will be used for
---------------
general working capital and partnership (or corporate after the Exchange)
purposes and shall not be used (i) to purchase or carry any "Margin Stock"
(within the meaning of Regulation G or U of the Board of Governors of the
Federal Reserve System), or (ii) for any purpose in violation of Regulations G,
T, U or X of said Board of Governors.
4.13 Properties; Liens; Debt. Borrowers have fee simple legal title
-----------------------
to or valid leasehold interest in, and the Borrowers are the beneficial owner
of, all the Mineral Interests reflected in the Reserve Report. Except for
Permitted Liens shown on SCHEDULE 4.13 and the Lender's Lien, there is no Lien
-------------
on any of any Borrowers' Mineral Interests in and to the Mineral Interests
reflected in the Reserve Report. Borrowers have no Debt other than that listed
on SCHEDULE 5.2(a).
---------------
29
4.14 Material Agreements. No Credit Party is, nor will the execution,
-------------------
delivery and performance of and compliance with the terms of the Loan Documents
cause any Credit Party to be, in default (nor has any potential default
occurred) under any Material Contract or any other material agreement, document
or instrument other than such defaults or potential defaults which could not,
individually or collectively, cause a Material Adverse Effect.
4.15 No Consents. Except as set forth on SCHEDULE 4.15, no order,
----------- -------------
consent, approval, license, permit, waiver, exemption, authorization of or
validation of, or filing, recording or registration with (except as heretofore
have been obtained or made), or exemption by, any Person is required to
authorize, or is required in connection with, the execution, delivery,
performance, legality, validity, binding effect, or enforceability of the Loan
Documents.
4.16 Environmental Laws; Hazardous Materials. Except as set forth on
---------------------------------------
SCHEDULE 4.16:
-------------
(a) To the best knowledge of each Credit Party, neither any property of
any Credit Party nor the operations conducted thereon violates any Environmental
Laws or order of any court or Governmental Authority with respect to
Environmental Laws;
(b) Without limitation of clause (a) above, no property of any Credit
---------
Party and no operations currently conducted thereon or, to the best knowledge of
each Credit Party, by any prior owner or operator of such property or operation,
are in violation of or subject to any existing, pending or, to the best
knowledge of each Credit Party, threatened action, suit, investigation, inquiry
or proceeding by or before any court or Governmental Authority with respect to
Environmental Laws or to any remedial obligations under Environmental Laws;
(c) To the best knowledge of each Credit Party, all notices, permits,
licenses or similar authorizations, if any, required to be obtained or filed in
connection with the operation or use of any and all property of each Credit
Party, including, without limitation, past or present treatment, storage,
disposal or release of a Hazardous Material into the environment, have been duly
obtained or filed;
(d) To the best knowledge of each Credit Party, all Hazardous Material
generated at any and all property of any Credit Party has in the past been
transported, treated and disposed of only by carriers maintaining valid permits
under RCRA and any other Environmental Law and only at treatment, storage and
disposal facilities maintaining valid permits under RCRA and any other
Environmental Law, which carriers and facilities have been and are operating in
compliance with such permits;
(e) Each Credit Party has taken all steps necessary and reasonable to
determine and has determined that no Hazardous Material has been disposed of or
otherwise released that has had or could reasonably be expected to have a
Material Adverse Effect and, to the best knowledge of any Credit Party, that
there has been no threatened release of any Hazardous Material on or to any
property of any Credit Party except in compliance with Environmental Laws;
30
(f) To the best knowledge of each Credit Party, no Credit Party has any
contingent liability in connection with any release or, threatened release of
any Hazardous Material into the environment.
4.17 Intentionally deleted.
4.18 Capitalization and Control. Parts I and II of SCHEDULE 4.18
-------------------------- -------------
accurately set forth, before giving effect to the Exchange and after giving
effect to the Exchange, respectively, the authorized, issued and outstanding
partnership interests and capital stock of every class of each Credit Party,
including, with respect to each Credit Party, the name of each record and
beneficial owner of outstanding partnership interests and capital stock of such
Credit Party and the number of shares and percentage of partnership interests
held by each. Except as reflected on Part III of SCHEDULE 4.18 (a) no Credit
-------------
Party has issued, and there are not presently outstanding, any warrants,
options, subscription rights or other rights to acquire capital stock,
partnership interests or other equity interests in any Credit Party or
securities convertible into capital stock, partnership interests or other equity
securities of any Credit Party, (b) no Credit Party is under any obligation,
written or otherwise, to register any capital stock, partnership interests or
other equity securities under the Securities Act of 1933 or any state securities
laws, and (c) there are no shareholders agreements, voting agreements,
contractual restrictions on transfer or other similar agreements or arrangements
affecting the outstanding capital stock, partnership interests or other equity
securities of any Credit Party.
4.19 General. There are no material facts or conditions known to any
-------
Credit Party relating to the Loan Documents, any of the Collateral or the
financial condition and business of Credit Party which could, individually or
collectively, cause a Material Adverse Effect and which have not been related in
writing to Lender. All writings heretofore or hereafter exhibited or delivered
to Lender by or on behalf of any Credit Party are and will be genuine and in all
respects what they purport and appear to be. No information furnished to Lender
by or on behalf of any Credit Party contains any material misstatement of fact
or, to any Credit Party's knowledge, omits to state any fact necessary to make
the statements contained herein or therein in light of the circumstances in
which they were made not materially misleading.
4.20 Mortgaged Properties Same as Properties Engineered. The
--------------------------------------------------
Mortgaged Properties described in EXHIBIT C attached hereto are part of the
---------
Mortgaged Properties described in the Oil and Gas Mortgage and represent not
less than 80% of the value of the Proven Reserves reflected in the Initial
Reserve Report.
4.21 Operation of Business. Each Credit Party possesses all
----------------------
licenses, permits, franchises, patents, operating rights, copyrights, trademarks
and trade names, or rights thereto, reasonably necessary to conduct its business
substantially as now conducted and as presently proposed to be conducted except
for such matters which, individually, or in the aggregate, will not have a
Material Adverse Effect. No Credit Party is in violation of any valid rights of
others with respect to any of the foregoing except for such matters which,
individually, or in the aggregate, will not have a Material Adverse Effect.
31
4.22 Operator of Working Interest. With respect to each Mineral
----------------------------
Interest which is a working interest, such Mineral Interest is operated by a
Person other than either Borrower.
4.23 Exchange Agreement. Borrowers have delivered to Lender a true
------------------
and correct copy of the Exchange Agreement. The Exchange Agreement has not been
modified, amended, terminated or rescinded in any respect and is in full force
and effect on the date hereof and represents the valid and binding agreements of
the parties thereto, enforceable in accordance with its terms.
SECTION 5. COVENANTS.
--------- ---------
5.1 Affirmative Covenants. Parent and each Borrower covenant and agree
---------------------
with Lender, that so long as this Agreement shall remain in effect and the
principal of or interest on either Note or any other Obligation shall be unpaid,
it will and will cause each other Credit Party to comply with the following:
(a) Compliance with Law; Maintenance of Properties. Each Credit Party
----------------------------------------------
will do or cause to be done all things necessary (i) to preserve and keep in
full force and effect at all times its corporate or partnership (as applicable)
existence and its rights, licenses and franchises, (ii) to continue to conduct
its business substantially as now proposed to be conducted, (iii) to comply with
all applicable Laws including, without limitation, ERISA, and (iv) to preserve
all property in use or useful in the conduct of its business and keep the same
in good repair, working order and condition and from time to time make, or cause
to be made, all needful and proper repairs, renewals and replacements,
betterments and improvements thereto so its business carried on in connection
therewith may be properly and advantageously conducted at all times.
(b) Insurance. Each Credit Party shall (i) keep its properties of an
---------
insurable nature insured at all times against such risks and to the extent that
like properties are customarily insured by other companies engaged in the same
or similar businesses similarly situated, and (ii) use its best efforts to cause
the operator of each Mineral Interest in which such Credit Party owns a non-
operating working interest to do the following:
(A) 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 the following: (1)
▇▇▇▇▇▇▇'▇ compensation or similar insurance as may be required by
applicable Law, (2) commercial or comprehensive general liability and
public liability insurance against claims for personal injury, death or
property damage suffered upon, in or about any premises or occurring as a
result of the ownership, maintenance or operation of any automobile, truck
or other vehicle or as the result of the use of products manufactured,
constructed or sold, or services rendered and property damage by blowout
and cratering, completed operations and broad form contractual liability as
respects any contract in which the operator may enter into under the terms
of its joint operating agreement, (3) fire insurance with a Broad Form
Extended Coverage on all property owned or hereafter acquired on a full
repair and replacement cost basis, (4) business interruption insurance
covering risk of loss as a result of the cessation for all or any part of
one year of any substantial part of any business conducted, and (5)
operator's extra expense insurance
32
covering the costs of controlling a blowout, the expenses involved in re-
drilling or restoring the well, certain other related costs and seepage and
pollution liability (the limits of this insurance may vary according to the
depth and location of the well, all as is usual and customary in the oil
and gas exploration and production industry), all such insurance to be
maintained with financially sound and reputable insurance companies,
against such casualties, risks and contingencies, and in such types and
amounts, as are consistent with customary practices and standards of
companies engaged in similar business.
(B) Name the non-operating working interest owners, including the
Credit Party, as an additional insured on the liability policies (if
permitted by the applicable insurer).
(C) Obtain the agreement of each insurance company that its policy
may not be canceled, altered or amended without thirty (30) days prior
written notice to the operator and all non-operating working interest
owners. Borrowers shall deliver to Lender a certificate of insurance for
each policy of insurance which shall contain an endorsement showing Lender
as a loss payee and as an additional insured, as applicable. Such
endorsement shall provide for at least thirty (30) days' prior notice to
the Lender of any proposed termination or cancellation of such policy,
whether on account of default or otherwise. Each Borrower shall use its
best efforts to obtain from its operators certificates of insurance
coverage for each Mortgaged Property as and when requested by the Lender.
(c) Use of Proceeds. The proceeds of the Loans will be used by the
---------------
Borrowers solely as provided herein.
(d) Inspection. Each Credit Party will permit any representative of the
----------
Lender to visit and inspect any of its property, to examine its books and
records and to make copies and take extracts therefrom, and to discuss its
affairs, finances and accounts with its officers, all at such reasonable times
during normal business hours and as often as Lender may reasonably request.
(e) Further Assurances. Each Credit Party shall execute any and all
------------------
further documents and take all further actions which may be required under
applicable law, or which the Lender may reasonably request, to grant, preserve,
protect and perfect the first priority Lien on the Collateral created by the
Security Documents (subject only to Liens permitted by the Loan Documents).
(f) INDEMNITY. PARENT AND EACH BORROWER, JOINTLY AND SEVERALLY, SHALL
---------
INDEMNIFY THE LENDER AND ITS OFFICERS, DIRECTORS, EMPLOYEES, REPRESENTATIVES,
AGENTS, ATTORNEYS AND AFFILIATES (EACH, AN "INDEMNIFIED PARTY") FROM, HOLD EACH
-----------------
OF THEM HARMLESS AGAINST, PROMPTLY UPON DEMAND PAY OR REIMBURSE EACH OF THEM
WITH RESPECT TO, AND REFRAIN FROM CREATING OR ASSERTING AGAINST ANY OF THEM, ANY
AND ALL ACTIONS, SUITS, PROCEEDINGS (INCLUDING ANY INVESTIGATIONS, LITIGATION OR
INQUIRIES), CLAIMS, DEMANDS, CAUSES OF ACTION, COSTS, LOSSES, LIABILITIES,
DAMAGES OR EXPENSES OF ANY KIND OR NATURE WHATSOEVER INCLUDING, WITHOUT
LIMITATION, THOSE BASED UPON NEGLIGENCE (BUT EXCLUDING THOSE BASED UPON GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT) (COLLECTIVELY, THE "INDEMNITY MATTERS")
-----------------
33
WHICH MAY BE INCURRED BY OR ASSERTED AGAINST OR INVOLVE ANY OF THEM (WHETHER OR
NOT ANY OF THEM IS DESIGNATED A PARTY THERETO) AS A RESULT OF, ARISING OUT OF OR
IN ANY WAY RELATED TO (I) ANY ACTUAL OR PROPOSED USE BY THE BORROWERS OF THE
PROCEEDS OF ANY OF THE LOANS, (II) THE BREACH OF ANY REPRESENTATION OR WARRANTY
SET FORTH IN ANY LOAN DOCUMENT INCLUDING, WITHOUT LIMITATION, THOSE REGARDING
ENVIRONMENTAL LAWS, (III) THE FAILURE OF ANY CREDIT PARTY TO PERFORM ANY
OBLIGATION REQUIRED BY ENVIRONMENTAL LAWS OR BY ANY LOAN DOCUMENT IN CONNECTION
WITH ENVIRONMENTAL LAWS, OR (IV) ANY OTHER ASPECT OF THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS, INCLUDING, WITHOUT LIMITATION, THE REASONABLE FEES AND
DISBURSEMENTS OF COUNSEL (INCLUDING ALLOCATED COSTS OF INTERNAL COUNSEL), ALL
FORESEEABLE CONSEQUENTIAL DAMAGES OF ANY USE, GENERATION, MANUFACTURE,
PRODUCTION, STORAGE, RELEASE, THREATENED RELEASE, DISCHARGE, DISPOSAL, OR
PRESENCE OF A HAZARDOUS MATERIAL, THE COSTS OF ANY REQUIRED OR NECESSARY
ENVIRONMENTAL INVESTIGATION OR MONITORING ANY REPAIR, CLEANUP OR DETOXIFICATION
OF ITS REAL PROPERTY AND THE PREPARATION AND IMPLEMENTATION OF ANY CLOSURE,
REMEDIAL OR OTHER PLANS, AND ALL OTHER EXPENSES INCURRED IN CONNECTION WITH
INVESTIGATING, DEFENDING OR PREPARING TO DEFEND ANY SUCH INDEMNITY MATTER. THE
EACH BORROWER AND PARENT SHALL BE OBLIGATED TO PAY OR REIMBURSE EACH INDEMNIFIED
PARTY FOR ALL OUT-OF-POCKET COSTS AND EXPENSES (INCLUDING, WITHOUT LIMITATION,
REASONABLE ATTORNEYS' FEES AND EXPENSES) INCURRED BY SUCH INDEMNIFIED PARTY IN
CONNECTION WITH ANY INDEMNITY MATTER AT THE TIME SUCH COSTS AND EXPENSES ARE
INCURRED AND SUCH INDEMNIFIED PARTY HAS GIVEN THE BORROWERS WRITTEN NOTICE
THEREOF. BORROWERS' OBLIGATIONS UNDER THIS SECTION ARE SUBJECT TO SECTION 8.13
------------
HEREOF.
(g) Books and Records. Each Credit Party (i) shall keep, in accordance
-----------------
with GAAP, proper and complete books, records and accounts and (ii) shall permit
Lender to inspect the same and make and take away copies thereof.
(h) Taxes. Each Credit Party shall promptly pay when due any and all
-----
Taxes due, except Taxes for which the criteria for Permitted Liens have been
satisfied.
(i) Payment of Obligations. Each Credit Party shall promptly pay all of
----------------------
its Debt as it becomes due except to the extent that any such Debt is being
contested in good faith and by appropriate and lawful proceedings diligently
conducted and for which reserves or other provisions (if any) required by GAAP
shall have been made; provided, that no Credit Party shall, directly or
indirectly, make any prepayment of principal of or interest on any Subordinate
Debt at any time that the Obligation is outstanding or Lender has any commitment
to make Loans hereunder.
(j) Expenses of Lender. Any provision to the contrary notwithstanding,
------------------
and whether or not the transactions contemplated by this Agreement shall be
consummated, Parent and Borrowers
34
shall pay on demand all reasonable out-of-pocket expenses (including, without
limitation, the fees and expenses of counsel for Lender) in connection with the
negotiation, preparation, execution, filing, recording, refiling, rerecording,
modification, release, supplement and waiver of the Loan Documents and the
making, servicing and collection of the Obligation including, without
limitation, the Obligation under SECTION 7.4.
-----------
(k) Environmental Laws. Each Credit Party shall conduct its business so
------------------
as to comply in all respects with all Environmental Laws except where the
failure to so comply will not have a Material Adverse Effect.
(l) Supplemented Schedules. Borrowers and Parent shall supplement in
----------------------
writing and deliver to Lender revisions of the Schedules annexed to this
Agreement to the extent necessary to disclose new or changed facts or
circumstances after the Closing Date so as to cause the representations and
warranties set forth herein to remain accurate and not misleading; provided that
--------
subsequent disclosures shall not constitute a cure or waiver of any Default or
Event of Default resulting from the matters disclosed.
(m) ERISA Reporting Requirements. A Borrower or ERISA Affiliate, as
----------------------------
applicable, shall furnish or cause to be furnished to Lender:
(i) Promptly and in any event (A) within 30 days after a Borrower
or any ERISA Affiliate knows or has reason to know that any ERISA Event
described in clause (a) of the definition of ERISA Event with respect to
any Plan has occurred and (B) within 10 days after the Borrower or any
ERISA Affiliate knows or has reason to know that any other ERISA Event with
respect to any Plan has occurred, a written notice describing such event
and describing what action is being taken or is proposed to be taken with
respect thereto, together with a copy of any notice or event that is given
to the PBGC;
(ii) Promptly and in any event within 10 Business Days after
receipt thereof by a Borrower or any ERISA Affiliate from the PBGC, copies
of each notice received by the Borrower or any ERISA Affiliate of the
PBGC's intention to terminate any Plan or to have a trustee appointed to
administer any Plan;
(iii) Promptly and in any event within 30 days after receipt
thereof, a copy of any notice, determination letter, ruling or opinion the
Borrowers or any ERISA Affiliate receives from the PBGC, the United States
Department of Labor or the Internal Revenue Service with respect to any
Plan;
(iv) Promptly, and in any event within 10 Business Days after
receipt thereof, a copy of any correspondence a Borrower or any ERISA
Affiliate receives from the Plan Sponsor (as defined by section 4001(a)(10)
of ERISA) of any Plan concerning potential withdrawal liability pursuant to
section 4219 or 4202 of ERISA, and a statement from the chief financial
officer of the Borrower or such ERISA Affiliate setting forth details as to
the events giving rise to such potential withdrawal liability and the
action which the Borrower or such ERISA Affiliate is taking or proposes to
take with respect thereto;
35
(v) Notification promptly and in any event within 30 days of any
material increases in the benefits of any existing Plan which is not a
Multiemployer Plan, or the establishment of any new Plan, or the
commencement of contributions to any Plan to which a Borrower or any ERISA
Affiliate was not previously contributing;
(vi) Notification within 10 Business Days after a Borrower or any
ERISA Affiliate knows or has reason to know that the Borrower or any such
ERISA Affiliate has or intends to file a notice of intent to terminate any
Plan under a distress termination within the meaning of section 4041(c) of
ERISA and a copy of such notice; and
(vii) Promptly after receipt of written notice of commencement
thereof, notice of all (A) claims made by participants or beneficiaries
with respect to any Plan and (B) actions, suits and proceedings before any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, affecting a Borrower or any ERISA
Affiliate with respect to any Plan, except those which, in the aggregate,
if adversely determined could not have a Material Adverse Effect.
5.2 Negative Covenants. Parent and each Borrower covenants and agrees
------------------
with Lender, so long as this Agreement shall remain in effect and the principal
of or interest on the Note, or any other Obligation, shall be unpaid, that it
will, and will cause each other Credit Party to, comply with the following:
(a) Debt. No Credit Party will, directly or indirectly, create, incur or
----
suffer to exist any direct, indirect, fixed or contingent liability for any
Debt, other than (i) the Obligation, (ii) the Debt described on SCHEDULE 5.2(a),
---------------
if any, (iii) obligations to pay Taxes, (iv) accounts payable in the ordinary
course of business, (v) Permitted Purchase Money Debt, (vi) salaries and wages,
(vii) accrued expenses, deferred credits and loss contingencies which are
properly classified as liabilities or indebtedness under GAAP, (viii)
Subordinated Debt, and (ix) Hydrocarbon ▇▇▇▇▇▇ permitted pursuant to SECTION
-------
5.2(s).
------
(b) Liens. No Credit Party will, directly or indirectly, (i) create,
-----
incur or suffer or permit to be created or incurred or to exist any Lien upon
any of its assets except (a) the Liens in favor of Lender, and (b) Permitted
Liens, or (ii) enter into or permit to exist any arrangement or agreement,
other than the Loan Documents, which directly or indirectly prohibits any Credit
Party from creating or incurring any Lien on any of its assets. Lender hereby
agrees with Parent and each Borrower that, provided no Default or Event of
Default has occurred which is continuing, upon the incurrence by any Credit
Party of Permitted Purchase Money Debt, if requested by the lender of such
Permitted Purchase Money Debt, Lender will subordinate the Liens created and
evidenced by the Security Documents to the Permitted Purchase Money Liens
securing such Permitted Purchase Money Debt with respect to the asset acquired
with the proceeds of such Debt.
(c) Acquisitions and Dissolutions. Borrowers will not, directly or
-----------------------------
indirectly (i) acquire all or any substantial portion of the assets or stock of,
or interest in, any Person, except in connection with the acquisition of Mineral
Interests in the ordinary course of business, or (ii) liquidate, wind up, or
dissolve itself (or suffer any liquidation or dissolution). Notwithstanding the
foregoing, Lender will not unreasonably withhold its consent to the completion
of the Partnership
36
Rollup if, simultaneously with the closing of such Rollup, Parent executes and
delivers to lender, at Parent's expense, such amendments, modifications and
supplements to this Agreement and the other Loan Documents which Lender shall
reasonably require (a) to evidence the assumption and agreement of Parent to pay
and perform, as primary obligor, all of the obligations of each Borrower under
each Loan Document, and (b) to evidence, perfect and reaffirm the Liens created
by the Security Documents.
(d) Loans, Advances and Investments. Except as permitted by SECTION
------------------------------- -------
5.2(c), no Credit Party will directly or indirectly, make any loan, advance or
extension of credit, or capital contribution to, make any investments in, or
purchase or commit to purchase any stock or other securities or evidences of
contractual obligations of, or interests in, any Person, other than (i)
investments in obligations of the United States of America and agencies thereof
and obligations guaranteed by the United States of America maturing within one
year from the date of acquisition, (ii) certificates of deposit issued by
commercial banks organized under the Laws of the United States of America or any
state thereof and having a combined capital, surplus and undivided profits of
not less than $250,000,000, or completely insured by the Federal Deposit
Insurance Corporation, (iii) current trade and customer accounts receivable
which are for goods furnished or services rendered in the ordinary course of
business and are payable in accordance with customary trade terms, (iv) from and
after completion of the Exchange loans, advances and investments by either or
both Borrowers in or to Parent, (v) loans by either Borrower to POC up to
$500,000 in the aggregate outstanding from time to time, (vi) loans, advances
and investments by each Borrower in or to the other, (vii) from and after
completion of the Exchange, loans, advances and investments by Parent in each
Borrower (provided, that Parent may make investments in the equity capital of
each Borrower prior to the Exchange), (viii) loans by either Borrower to Spanish
Peaks up to $500,000 in the aggregate outstanding from time to time, or (ix)
investments in debt securities of a domestic issuer if such securities are rated
BBB+ or higher by Standard & Poor's Rating Service, or of a comparable quality
of any other rating agency acceptable to Lender.
(e) Employee Benefit Plans. The Borrowers shall not, and shall not
----------------------
permit any ERISA Affiliate to, directly or indirectly, (a) terminate any Plan,
(b) permit to exist any ERISA Event, or any other event or condition with
respect to a Plan, (c) make a complete or partial withdrawal (within the meaning
of section 4201 of ERISA) from any Multiemployer Plan, (d) enter into any new
Plan or modify any existing Plan so as to increase its obligations thereunder
except in the ordinary course of business consistent with past practice, or (e)
permit the present value of all benefit liabilities, as defined in Title IV of
ERISA, under each Plan (using the actuarial assumptions utilized by the PBGC
upon termination of a plan) to (in the opinion of the Lender) exceed the fair
market value of Plan assets allocable to such benefits all determined as of the
most recent valuation date for each such Plan; provided that any action
described in clauses (a) through (e) above individually, and/or in the
aggregate, could reasonably be expected to result in a Material Adverse Effect.
(f) Distributions. No Credit Party will, directly or indirectly, (i)
-------------
retire, redeem, purchase or otherwise acquire for value any capital stock or
other equity interest of such Credit Party, or (ii) declare, make or pay any
dividend or distribution on or with respect to any such capital stock or
interest; provided, however, that so long as there has not occurred, and after
-------- -------
giving effect thereto there does not exist, a Default or Event of Default, at
any time prior to the Exchange,
37
(a) either Borrower may declare or pay distributions in respect of the
Borrowers' partners' income tax liability attributable to the net income of the
Borrowers to the extent and in the amounts contemplated by such Borrower's
Agreement of Limited Partnership, (b) after completion of the Exchange, either
Borrower may make Distributions to Parent, and (c) PGP II may make Distributions
to PGP.
(g) Capital Expenditures; Exploration Expenses. No Credit Party will,
------------------------------------------
directly or indirectly, make (i) capital expenditures other than such
expenditures which are for or related to assets or leaseholds used or useful in
the normal business operations of Borrowers, or (ii) incur aggregate exploration
expenses in excess of $250,000 during any six (6) month period commencing upon
the applicable Determination Date; provided, that, the Credit Parties shall not
be required to comply with clause (ii) of this SECTION 5.2(g) after completion
--------------
of an initial public offering of Parent's common stock which results in Net
Proceeds to Parent of at least $15,000,000.
(h) Issuance of Equity Interests. No Credit Party will, directly or
----------------------------
indirectly, issue, sell or otherwise dispose of (i) any equity interest in it or
any equity interest held by it in any other Credit Party, (ii) any securities
convertible into or exchangeable for any such interest, or (iii) any carrying
Rights, warrants, options, or other rights to subscribe for or purchase any such
interest; provided, that, nothing in this SECTION 5.2(h) shall be deemed to
--------------
prohibit (A) the Exchange, (B) any Credit Party from issuing additional equity
securities to the Persons which hold its equity securities on the date hereof or
will hold such equity securities after giving effect to the Exchange, or (C)
Parent from issuing shares of its common stock or preferred stock in any
transaction which does not result in a Change of Control.
(i) Transactions with Affiliates. No Credit Party will, directly or
----------------------------
indirectly, enter into any transaction (including, but not limited to, the sale
or exchange of property or the rendering of service) with any of its Affiliates,
other than (i) in the ordinary course of business of such Credit Party and upon
fair and reasonable terms no less favorable to such Credit Party than such
Credit Party could obtain or could become entitled to in an arm's-length
transaction with a Person which was not an Affiliate, and (ii) as provided in
SECTION 5.2(d).
--------------
(j) Sale of Assets. Without the prior written consent of Lender, no
--------------
Credit Party will, directly or indirectly, sell, lease or otherwise dispose of
all or any substantial part of its assets, other than (i) sales of inventory
(including Hydrocarbon production) in the ordinary course of business, (ii)
sales by Borrowers of Proven Reserves which do not exceed $500,000 in the
aggregate during any six (6) month period commencing upon any Determination
Date, provided that upon prior written consent of Lender, Borrowers may sell
--------
Proven Reserves with an aggregate sales price in excess of $500,000 during such
period, and provided further that (x) to the extent the aggregate amount of
-------- -------
proceeds from such sales do not exceed $500,000 during any applicable period of
determination, the Borrowing Base shall be reduced by the amount of such
proceeds and (y) to the extent the aggregate amount of proceeds from such sales
exceed $500,000 during any applicable period of determination, the Borrowing
Base shall be reduced by the lesser of (A) the amount of such proceeds or (B)
such amount as such Proven Reserves comprise of the Borrowing Base determined by
Lender in its sole discretion, and (iii) PGP may transfer interests in and to
certain of its Uinta Basin properties only to the extent of depths lying below
the Green River formation pursuant to the ▇▇▇▇ Farmout and at the time of such
transfer, Lender will release such properties
38
from the Lien of the PGP Oil and Gas Mortgage. Notwithstanding the foregoing,
Lender agrees that it will not unreasonably withhold its consent to the transfer
by PGP of the Antelope Creek Gathering Assets to a Person in exchange for an
equity interest in such Person provided that (i) prior to making such transfer
PGP and such Person enter into a gathering agreement on customary and reasonable
terms pursuant to which such Person agrees to gather gas produced from PGP's
properties serviced by the Antelope Creek Gathering Assets, (ii) PGP grants to
Lender a first and prior security interest in and to its equity interest in such
Person pursuant to a Pledge Agreement in form and substance acceptable to
Lender, and (iii) no Event of Default has occurred which is continuing.
Simultaneously with granting its consent pursuant to the preceding paragraph,
Lender will, at Borrowers' expense, release the Antelope Creek Gathering Assets
from the Liens created by the PGP Oil and Gas Mortgage.
(k) Hazardous Materials. No Credit Party shall permit the manufacture,
-------------------
storage, transmission, presence, release, discharge or disposal of any Hazardous
Materials over, upon or under any of the real property except as permitted by
Law.
(l) Change in Ownership of Borrowers. No Credit Party shall permit a
--------------------------------
Change of Control.
(m) Fixed Charge Coverage Ratio. The Credit Parties will not permit
---------------------------
Parent's ratio determined on a consolidated basis for any period of four
consecutive fiscal quarters of (i) net income, plus (to the extent deducted
therefrom in arriving at net income) depreciation, depletion and amortization,
interest expense, income taxes actually paid (or distributions to the partners
of Borrowers for the payment of taxes pursuant to SECTION 5.2(f)), to (ii) the
--------------
sum of (x) Current Maturities of Long Term Debt, and (y) interest expense paid,
to be less than 1.25 to 1.0.
(n) Minimum Tangible Net Worth. Prior to the Exchange, the Credit
--------------------------
Parties will not permit the Borrowers' Tangible Net Worth, determined on a
consolidated basis, at any time to be less than $10,000,000. After giving effect
to the Exchange, the Credit Parties will not permit Parent's Tangible Net Worth,
determined on a consolidated basis, at any time to be less than the sum of (i)
$10,000,000, and (ii) seventy percent (70%) of the Net Proceeds from the
issuance of equity securities of Parent after the Closing Date.
(o) Current Ratio. The Credit Parties will not permit Parent's ratio,
-------------
determined on a consolidated basis, at any time of (i) current assets to (ii)
current liabilities to be less than 1.0 to 1.0. For purposes hereof, current
assets shall include, (A) until the Tranche A Commitment Termination Date, an
amount equal to the Borrowing Base less the then aggregate unpaid balance of the
Tranche A Revolving Loans, and (B) until the Tranche B Commitment Termination
Date, an amount equal to the Tranche B Commitment less the then aggregate unpaid
balance of the Tranche B Revolving Loans.
(p) Compliance with Laws and Documents. No Credit Party will, directly
----------------------------------
or indirectly, violate the provisions of any Laws, its agreement of limited
partnership or any material agreements if such violation alone, or when
aggregated with all other such violations, could cause a Material Adverse
Effect.
39
(q) New Businesses. No Credit Party will, directly or indirectly, engage
--------------
in any business other than the ownership of equity interests in the other Credit
Parties owned by it on the date hereof or which will be owned by it immediately
after giving effect to the Exchange and the exploration, development, production
and sale of its Mineral Interests and related businesses in which it is
presently engaged.
(r) Fiscal Year and Accounting Methods. No Credit Party will change its
----------------------------------
fiscal year (which currently is December 31) or method of accounting (other than
immaterial changes in methods).
(s) Hydrocarbon ▇▇▇▇▇▇. No Credit Party will enter into any Hydrocarbon
------------------
Hedge without the prior written consent of the Lender other than Hydrocarbon
▇▇▇▇▇▇ which in the aggregate do not exceed sixty percent (60%) of anticipated
production from developed and producing Proven Reserves during the term of such
Hydrocarbon Hedge transactions.
5.3 Reporting Requirements. Each Credit Party shall cause the following
----------------------
to be furnished to Lender:
(a) As soon as available, but no later than ninety (90) days after the
last day of each fiscal year of the Credit Parties, audited consolidated
Financial Statements and unaudited consolidating Financial Statements showing
the financial condition and results of operations of Parent and its Consolidated
Subsidiaries as of, and for the year ended on, such last day, accompanied by (i)
the opinion, without material qualification, of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ or another firm
of independent certified public accountants reasonably acceptable to Lender,
based on an audit using generally accepted auditing standards, that such
Financial Statements were prepared in accordance with GAAP and present fairly
the financial condition and result of operations of Parent and its Consolidated
Subsidiaries, and (ii) a Financial Report Certificate with respect to such
Financial Statements.
(b) As soon as available, but no later than forty-five (45) days after
the last day of each fiscal quarter (A) consolidated and consolidating Financial
Statements showing the financial condition and results of operations of the
Credit Parties as of, and for the period from the beginning of the current
fiscal year, to such last day, and (B) a Financial Report Certificate with
respect to such Financial Statements.
(c) [Intentionally deleted].
(d) The Reserve Reports described in SECTION 2.2 at the times prescribed
-----------
therein.
(e) As soon as available, but not later than ninety (90) days after the
last day of each six (6) month period commencing upon the applicable
Determination Date, an exploration expenditure summary showing the exploration
expenses incurred by each Borrower for such six (6) month period.
(f) Notice, promptly after any Credit Party knows or has good faith
reason to believe, of (i) the existence and status of any Litigation with
respect to any Credit Party which could have
40
a Material Adverse Effect, (ii) any change in any material fact or circumstance
represented or warranted in any Loan Document, or (iii) the occurrence of a
Default or Event of Default, specifying the nature thereof and what action any
Credit Party has taken, is taking, or proposed to take with respect thereto.
(g) Promptly upon request therefor by Lender, such information (not
otherwise required to be furnished under the Loan Documents) respecting the
business affairs, assets and liabilities of any Credit Party or any Person
guaranteeing or providing Collateral to secure all or any part of the
Obligation and such opinions, certifications and documents, in addition to those
mentioned in this Agreement, as Lender may reasonably request.
SECTION 6. EVENTS OF DEFAULT. The term "Event of Default" means the occurrence
--------- ----------------- ----------------
of any one or more of the following events:
6.1 Payment of Obligation. The failure or refusal of either Borrower to
---------------------
pay any portion of the Obligation as the same becomes due in accordance with the
terms of the Loan Documents.
6.2 Certain Covenants. The failure or refusal of either Borrower to
-----------------
punctually and properly perform, observe and comply with any covenant, agreement
or condition contained in SECTIONS 5.1(e), (g), (k) and (l) and such failure or
---------------- --- --- ---
refusal continues for a period of fifteen (15) days after Parent or either
Borrower has, or, with the exercise of reasonable investigation, should have,
notice thereof.
6.3 Other Covenants. The failure or refusal of Parent or either Borrower
---------------
to punctually and properly perform, observe and comply with any covenant,
agreement or condition contained in this Agreement (other than the Sections
listed in SECTION 6.2 above).
-----------
6.4 Loan Documents and Security Documents. An Event of Default shall
-------------------------------------
occur and be continuing under any Security Document or other Loan Document;
6.5 Bankruptcy. (i) Any Credit Party shall commence a voluntary case
----------
concerning itself under Title 11 of the United States Code entitled "Bankruptcy"
as now or hereafter in effect, or any successor thereto, (ii) an involuntary
case is commenced against any Credit Party and the petition is not controverted
within thirty (30) days, or is not dismissed within sixty (60) days, after
commencement of the case, (iii) a custodian is appointed for, or takes charge
of, all or any substantial part of the property of any Credit Party, (iv) any
Credit Party commences any other proceeding under any reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction whether now or hereafter in
effect relating to any Credit Party or there is commenced against any Credit
Party any such proceeding which remains undismissed for a period of sixty (60)
days, (v) any Credit Party is adjudicated insolvent or bankrupt, (vi) any Credit
Party makes a general assignment for the benefit of creditors, (vii) any Credit
Party shall fail to pay, or shall state that it is unable to pay, or shall be
unable to pay, its debts generally as they become due, (viii) any Credit Party
shall call a meeting of its creditors with a view to arranging a composition or
adjustment of its debts, or (ix) any Credit Party shall by any act or failure to
act indicate its consent to, approval of or acquiescence in any of the
foregoing;
41
6.6 Attachment. The failure to have discharged within a period of thirty
----------
(30) days after the commencement thereof any attachment, sequestration or
similar proceeding against any assets of any Credit Party, which assets have a
value, individually or collectively, in excess of $250,000.
6.7 Payment of Judgments. Any Credit Party shall fail to pay any money
--------------------
judgment in excess of $250,000 against it or its assets at least ten days prior
to the date on which any Credit Party's assets may be sold lawfully to satisfy
such judgment.
6.8 Default Under Other Debt. Any Credit Party shall default in the due
------------------------
and punctual payment of the principal of or the interest on any Debt in excess
of $250,000 in the aggregate principal amount, secured or unsecured, or in the
due performance or observance of any covenant or condition of any indenture or
other agreement executed in connection therewith, and such default shall have
continued beyond any period of grace provided with respect thereto.
6.9 Material Adverse Effect. The occurrence of any event or events which
-----------------------
shall have or cause a Material Adverse Effect.
6.10 Impairment of Collateral or Ability to Pay. The discovery by Lender
------------------------------------------
of reliable and accurate information that the prospect of payment or performance
of the Obligation is reasonably likely to be materially impaired, or that the
value of the Collateral has or will be materially decreased and the situation
giving rise thereto is not corrected to the reasonable satisfaction of Lender
within twenty (20) days after notice thereof from Lender to Parent or either
Borrower.
6.11 Misrepresentation. Any statement, representation, or warranty in
-----------------
the Loan Documents or in any writing ever delivered by any Credit Party or on
behalf of any Credit Party to Lender pursuant to the Loan Documents is false,
misleading or erroneous in any material respect when made or deemed to be
repeated.
6.12 Change of Control. A Change of Control shall occur.
-----------------
SECTION 7. RIGHTS AND REMEDIES.
--------- -------------------
7.1 Remedies. Upon and after the occurrence of an Event of Default,
--------
Lender may, at its election, do any one or more of the following without notice
of any kind, including, without limitation, notice of acceleration or of
intention to accelerate, presentment and demand or protest, all of which are
hereby expressly waived by Parent and Borrowers: (a) declare the entire unpaid
balance of the Obligation, or any part thereof, immediately due and payable,
whereupon it shall be due and payable (provided that, upon the occurrence of an
-------- ----
Event of Default under SECTIONS 6.5(i) - (vi) inclusive, the entire Obligation
----------------------
shall automatically become due and payable without notice or other action of any
kind whatsoever); (b) terminate its commitment to lend hereunder; (c) reduce any
claim to judgment; (d) exercise the Rights of offset or banker's lien against
the interest of Parent or either Borrower in and to every account and other
property of Parent and each Borrower which are in the possession of Lender to
the extent of the full amount of the Obligation; (e) foreclose any or all Liens
held by Lender or otherwise realize upon any and all of the Rights Lender may
have in and to the Collateral, or any part thereof; and (f) exercise any and all
other legal
42
or equitable Rights afforded by the Loan Documents, the Laws of the State of New
York or any other jurisdiction as Lender shall deem appropriate.
7.2 Performance by Lender. If any covenant, duty or agreement of any
---------------------
Credit Party is not performed in accordance with the terms of the Loan
Documents, Lender may, at its option, perform or attempt to perform, such
covenant, duty or agreement on behalf of such Credit Party. In such event, any
amount expended by Lender in such performance or attempted performance shall be
payable by each Borrower to Lender on demand, shall become part of the
Obligation and shall bear interest at the Default Rate from the date of such
expenditure by Lender until paid. Notwithstanding the foregoing, it is expressly
understood that Lender does not assume and shall never have, except by express
written consent of Lender, any liability or responsibility for the performance
of any covenant, duty or agreement of any Credit Party.
7.3 Delegation of Duties and Rights. Lender may perform any of its
-------------------------------
duties or exercise any of its Rights under the Loan Documents by or through its
officers, directors, employees, attorneys, agents or other representatives.
7.4 Expenditures by Lender. All court costs, reasonable attorneys' fees,
----------------------
other costs of collection and other sums spent by Lender pursuant to the
exercise of any Right (including, without limitation, any effort to collect or
enforce the Notes) provided herein shall be payable to Lender on demand, shall
become part of the Obligation and shall bear interest at the Default Rate from
the date spent until the date repaid.
SECTION 8. MISCELLANEOUS.
--------- -------------
8.1 Notices. All notices, requests and other communications to any party
-------
hereunder shall be in writing and shall be given to such party at its address or
fax number set forth on SCHEDULE 8.1 hereto or such other address or fax number
------------
as such party may hereafter specify by notice to the other parties hereto. Each
such notice, request or other communication shall be effective (i) if given by
fax, when transmitted to the fax number specified in this Section and a
confirmation of receipt (which may be telephonic) is given by the recipient,
(ii) if given by certified mail, return receipt requested, on the fourth day
after such communication is deposited in the mails with first class postage
prepaid, addressed as aforesaid or (iii) if given by any other means (including,
without limitation, by air courier), when delivered at the address specified in
this Section.
8.2 Amendments, Etc. No amendment or waiver of any provision of this
----------------
Agreement or the Note, nor consent to any departure by Parent or either
Borrower, shall in any event be effective unless the same shall be in writing
and signed by the Lender, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
8.3 No Waiver; Remedies Cumulative. No failure or delay on the part of
------------------------------
the Lender in exercising any right or remedy hereunder and no course of dealing
between or among the Parent, the Borrowers and the Lender shall operate as a
waiver thereof, nor shall any single or partial exercise of any right or remedy
hereunder preclude any other or further exercise thereof or the
43
exercise of any other right or remedy hereunder. The rights and remedies herein
expressly provided are cumulative and not exclusive of any rights or remedies
which the Lender would otherwise have.
8.4 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of Parent, the Borrowers and the Lender and their
respective successors and permitted assigns. Neither the Parent, the Borrowers
nor Lender may assign or transfer any of its rights or obligations hereunder
without the prior written consent of the non-assigning party, such consent not
to be unreasonably withheld and any purported assignment in violation of the
foregoing shall be null and void.
8.5 Number and Gender of Words; References. Whenever in any Loan
--------------------------------------
Document the singular number is used, the same shall include the plural where
appropriate, and vice versa; and words of any gender in any Loan Document shall
----------
include each other gender where appropriate. The words "herein," "hereof," and
"hereunder," and other words of similar import refer to the relevant Loan
Document as a whole and not to any particular part or subdivision thereof. As
used in any Loan Document, the words "Section", "subsection", "paragraph",
"clause", "Schedule" and "Exhibit" refer to Sections, subsections, paragraphs
and clauses of, and Schedules and Exhibits to, such Loan Documents unless
otherwise specified.
8.6 Headings. The headings, captions, and arrangements used in any of
--------
the Loan Documents are, unless specified otherwise, for convenience only and
shall not be deemed to limit, amplify, or modify the terms of the Loan
Documents, nor affect the meaning thereof.
8.7 Exhibits and Schedules. If any Exhibit or Schedule, which is to be
----------------------
executed and delivered, contains blanks, the same shall be completed correctly
and in accordance with the terms and provisions contained and as contemplated
herein prior to, at the time of, or after the execution and delivery thereof.
Each of the Exhibits and Schedules are incorporated herein by this reference.
8.8 Form and Number of Documents. Each agreement, document, instrument,
----------------------------
or other writing to be furnished to Lender under any provision of this Agreement
must be in form and substance and in such number of counterparts as may be
satisfactory to Lender and its counsel.
8.9 Conflicts. Except as otherwise provided in this Agreement and except
---------
as otherwise provided in the other Loan Documents by specific reference to the
applicable provisions of this Agreement, if any provision contained in this
Agreement is in conflict with or is inconsistent with any provision in the other
Loan Documents, the provision contained in this Agreement shall govern and
control.
8.10 Waivers by Parent and the Borrowers. Except as otherwise provided
-----------------------------------
for in this Agreement, Parent and each Borrower waives (i) presentment, demand
and protest and notice of presentment, notice of intent to accelerate the
maturity of the Obligations and notice of such acceleration, protest, default,
non-payment, maturity, release, compromise, settlement, extension, or renewal;
(ii) all rights to notice of a hearing prior to the Lender's taking possession
or control of, or the Lender's replevy, attachment or levy upon, the Collateral
or any bond or security which might be required by any court prior to allowing
the Lender to exercise any of Lender's remedies; and (iii) the benefit of all
valuation, appraisement and exemption laws. Parent and each Borrower
44
acknowledges that it has been advised by counsel with respect to this Agreement
and the transactions evidenced by this Agreement.
8.11 Changes in the Accounting Standard. All accounting and financial
-----------------------------------
terms used in any of the Loan Documents and the compliance with each covenant
contained in the Loan Documents which relates to financial matters shall be
determined in accordance with GAAP, except to the extent that a deviation
therefrom is expressly stated in such Loan Documents. Should a change in GAAP
require a change in any method of accounting, then such change shall not result
in an Event of Default if, at the time of such change, such Event of Default had
not occurred and was not then continuing, based upon the former methods of
accounting used by or on behalf of such Credit Party; provided that, after any
-------- ----
such change in accounting methods, the Financial Statements required to be
delivered to Lender pursuant to the terms hereof shall be prepared in compliance
with such new method or methods of accounting but accompanied by such
information, in form and detail satisfactory to Lender, that will allow Lender
to readily determine the effect of such changes in accounting methods on such
Financial Statements, and, for the purpose of determining whether an Event of
Default has occurred, Lender shall look solely to such Financial Statements as
adjusted to reflect compliance with such former method or methods of accounting.
The parties hereto acknowledge and agree that the Current Financials were
prepared, and until the Exchange occurs, all Financial Statements hereafter
delivered will be prepared, on a pro forma basis as if the Exchange had occurred
as of the date and for the period covered by such Financial Statements, and
compliance with the covenants set forth in SECTIONS 5.2(m), 5.2(n) and 5.2(o)
--------------- ------ ------
will be computed on a pro forma consolidated basis as if the Exchange had
occurred as of the dates and for the periods for which compliance with such
covenants is being calculated. The parties further agree that notwithstanding
anything contained herein to the contrary, unless requested by Lender after the
date hereof, no consolidating Financial Statement of PEI-Kansas shall be
required to be delivered to Lender hereunder.
8.12 Exceptions to Covenants. Neither Parent nor any Borrower shall
-----------------------
take any action or fail to take any action which is permitted as an exception to
any of the covenants contained in any of the Loan Documents if such action or
omission would result in the breach of any other covenant contained in any of
the Loan Documents.
8.13 Survival. All covenants, agreements, undertakings, representations,
--------
and warranties made in any of the Loan Documents shall survive all closings
under the Loan Documents and, except as otherwise indicated, shall not be
affected by any investigation made by any party. The Borrowers' and Parent's
obligations under SECTIONS 5.1(f) and 5.1(j) hereof (a) shall remain operative
--------------- -------
and in full force and effect regardless of the termination of this Agreement,
the repayment of the Note, or the existence of any investigation made on behalf
of the Lender regarding the representations and warranties made by the Borrowers
and Parent in connection with the Loan Documents. If and to the extent that the
obligations of the Borrowers and Parent under SECTIONS 5.1(f) and 5.1(j) are
--------------- ------
unenforceable for any reason, the Borrowers and Parent hereby agree to make the
maximum contribution to the payment and satisfaction of such obligations that is
permissible under applicable law.
8.14 GOVERNING LAW. PURSUANT TO NEW YORK GENERAL OBLIGATIONS LAW
-------------
SECTION 5-1401, THIS AGREEMENT AND ALL OTHER LOAN
45
DOCUMENTS AND COLLATERAL DOCUMENTS SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, OTHER THAN CONFLICT OF LAWS RULES
THEREOF, EXCEPT TO THE EXTENT THAT THE LAWS OF ANY STATE IN WHICH ANY PROPERTY
INTENDED AS SECURITY FOR THE OBLIGATION IS LOCATED NECESSARILY GOVERN (A) THE
PERFECTION AND PRIORITY OF THE LIENS IN FAVOR OF LENDER WITH RESPECT TO SUCH
PROPERTY, AND (B) THE EXERCISE OF ANY REMEDIES (INCLUDING FORECLOSURE) WITH
RESPECT TO SUCH PROPERTY.
8.15 VENUE; SERVICE OF PROCESS. EACH BORROWER AND PARENT, FOR ITSELF,
-------------------------
ITS SUCCESSORS AND ASSIGNS, HEREBY (A) IRREVOCABLY SUBMITS TO THE NONEXCLUSIVE
JURISDICTION OF THE STATE AND FEDERAL COURTS OF THE STATE OF TEXAS AND AGREES
AND CONSENTS THAT SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY LEGAL PROCEEDING
ARISING OUT OF OR IN CONNECTION WITH THE LOAN DOCUMENTS AND THE OBLIGATION BY
SERVICE OF PROCESS AS PROVIDED BY TEXAS LAW, (B) IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF VENUE OF ANY LITIGATION ARISING OUT OF OR IN CONNECTION
WITH THE LOAN DOCUMENTS AND THE OBLIGATION BROUGHT IN THE COURTS OF DALLAS
COUNTY, TEXAS, OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT
OF TEXAS, (C) IRREVOCABLY WAIVES ANY CLAIMS THAT ANY LITIGATION BROUGHT IN ANY
SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM, (D) AGREES TO DESIGNATE
AND MAINTAIN AN AGENT FOR SERVICE OF PROCESS IN DALLAS COUNTY, TEXAS, IN
CONNECTION WITH ANY SUCH LITIGATION AND TO DELIVER TO LENDER EVIDENCE THEREOF,
(E) IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE
AFOREMENTIONED COURTS IN ANY SUCH LITIGATION BY THE MAILING OF COPIES THEREOF BY
CERTIFIED MAIL, RETURN RECEIPT REQUESTED, POSTAGE PREPAID, TO SUCH BORROWER AT
ITS ADDRESS SET FORTH HEREIN, AND (F) IRREVOCABLY AGREES THAT ANY LEGAL
PROCEEDING AGAINST LENDER ARISING OUT OF OR IN CONNECTION WITH THE LOAN
DOCUMENTS OR THE OBLIGATION SHALL BE BROUGHT IN THE COURTS OF DALLAS COUNTY,
TEXAS, OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF
TEXAS. NOTHING HEREIN SHALL AFFECT THE RIGHT OF LENDER TO COMMENCE LEGAL
PROCEEDINGS OR OTHERWISE PROCEED AGAINST EITHER BORROWER IN ANY JURISDICTION OR
TO SERVE PROCESS IN ANY MANNER PERMITTED BY APPLICABLE LAW.
8.16 WAIVER OF JURY TRIAL PUNITIVE DAMAGES, ETC. PARENT, BORROWERS AND
------------------------------------------
LENDER HEREBY (a) KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLY WAIVE,
TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION BASED HEREIN, OR DIRECTLY OR INDIRECTLY AT ANY
TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH THE LOAN DOCUMENTS OR ANY
TRANSACTION CONTEMPLATED THEREBY
46
OR ASSOCIATED THEREWITH, BEFORE OR AFTER MATURITY; (b) IRREVOCABLY WAIVE, TO THE
MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER
IN ANY SUCH LITIGATION ANY "SPECIAL DAMAGES," AS DEFINED BELOW; (c) CERTIFY THAT
NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT,
IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (d)
ACKNOWLEDGE THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE OTHER
LOAN DOCUMENTS AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG
OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION.
AS USED IN THIS SECTION, "SPECIAL DAMAGES" INCLUDES ALL SPECIAL, CONSEQUENTIAL,
EXEMPLARY, OR PUNITIVE DAMAGES (REGARDLESS OF HOW NAMED), BUT DOES NOT INCLUDE
ANY PAYMENT OR FUNDS WHICH ANY PARTY HERETO HAS EXPRESSLY PROMISED TO PAY OR
DELIVER TO ANY OTHER PARTY HERETO.
8.17 Maximum Interest Rate. Any provision herein, or in any document
---------------------
securing this Agreement, or any other document executed or delivered in
connection herewith, including the Loan Documents, or in any other agreement or
commitment, whether written or oral, expressed or implied, to the contrary
notwithstanding, neither Lender nor any successor or assignee shall in any event
be entitled to receive or collect, nor shall or may amounts received hereunder
be credited, so that Lender or any successor or assignee shall be paid, as
interest, a sum greater than the maximum amount permitted by applicable law to
be charged to the Borrowers. If any construction of this Agreement or any
document securing this Agreement, or any and all other papers, agreements or
commitments, indicate a different right given to Lender or any successor or
assignee to ask for, demand or receive any larger sum as interest, such is a
mistake in calculation or wording which this clause shall override and control,
it being the intention of the parties that this Agreement, and all other
instruments securing the payment of this Agreement or executed or delivered in
connection herewith shall in all things comply with applicable law and proper
adjustments shall automatically be made accordingly. In any event that Lender
or any successor or assignee ever receives, collects or applies or a
governmental entity deems as interest, any sum in excess of the Maximum Rate, if
any such excess amount shall be applied to the reduction of the unpaid principal
balance of the Obligation, and if the Obligation is paid in full, any remaining
excess shall be paid to Borrowers. In determining whether or not the interest
paid or payable, under any specific contingency, exceeds the Maximum Rate, if
any, Borrowers and Lender or any successor or assignee shall, to the maximum
extent permitted under applicable law: (i) characterize any nonprincipal payment
as an expense or fee rather than as interest, (ii) exclude voluntary prepayments
and the effects thereof, (iii) "spread" the total amount of interest throughout
the entire term of this Agreement; provided that if this Agreement is paid and
performed in full prior to the end of the full contemplated term hereof, and if
the interest received for the actual period of existence thereof exceeds the
Maximum Rate, if any, Lender or any successor or assignee shall refund to
Borrowers the amount of such excess, or credit the amount of such excess against
the aggregate unpaid principal balance of all advances made by the Lender or any
successor or assignee under the Obligation at the time in question.
47
8.18 Severability. If any provision of this Agreement is held to be
------------
illegal, invalid, or unenforceable, such provision shall be fully severable, and
the remaining provisions of this Agreement shall remain in full force and effect
and shall not be affected thereby.
8.19 Lender Not in Control. None of the covenants or other provisions
---------------------
contained in this Agreement shall, or shall be deemed to, give Lender the Right
or power to exercise control over the affairs or management of either Borrower,
the power of Lender being limited to the Right to exercise the remedies provided
in SECTION 7.
---------
8.20 Entirety and Amendments. THIS AGREEMENT AND THE OTHER LOAN
-----------------------
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
BY THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
This Agreement and the other Loan Documents embody the entire agreement among
Parent, Borrowers and Lender and supersede all prior proposals, agreements and
understandings relating to the subject matter hereof. Each Borrower and Parent
certifies that it is relying on no representation, warranty, covenant or
agreement except for those set forth herein and the other Loan Documents of even
date herewith.
8.21 Multiple Counterparts. This Agreement may be executed in a number
---------------------
of identical counterparts, each of which shall be deemed an original for all
purposes and all of which constitute, collectively, one Agreement; but, in
making proof of this Agreement, it shall not be necessary to produce or account
for more than one such counterpart.
8.22 Petroleum Terms. All petroleum terms used herein and in the other
---------------
Loan Documents including without limitation the terms "working interest," "net
revenue interest," "proved reserves," "proved developed reserves," "proved
developed producing reserves," "proved developed nonproducing reserves" and
"proved undeveloped reserves" have the meanings given such terms from time to
time and at the time in question by the Society of Petroleum Engineers of the
American Institute of Mining Engineers.
8.23 Amendment and Restatement of Original Loan Agreement. This
-----------------------------------------------------
Agreement and the Notes are given in amendment, restatement, renewal and
extension (but not in novation, extinguishment or satisfaction) of the Original
Loan Agreement and the promissory notes executed in connection therewith. All
liens and security interests securing payment of the obligations under the
Original Loan Agreement and such promissory notes are hereby collectively
renewed, extended, rearranged, ratified and brought forward as security for the
payment and performance of the Obligation. With respect to matters relating to
the period prior to the date hereof, all of the provisions of the Original Loan
Agreement and the promissory notes, security agreements and other documents,
instruments or agreements executed in connection therewith are hereby ratified
and confirmed and shall remain in force and effect.
48
EXECUTED as of the day and year first mentioned.
PGP II, L.P.
By: Petroglyph Energy, Inc., its general
partner
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
----------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇,
President
PETROGLYPH GAS PARTNERS, L.P.
By: Petroglyph Energy, Inc., its general partner
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
----------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇,
President
PETROGLYPH ENERGY, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
----------------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
President
THE CHASE MANHATTAN BANK
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------------------
Title: Managing Director
-------------------------------------------
49
SCHEDULE 3.1
CLOSING DOCUMENTS AND CONDITIONS
--------------------------------
(a) Loan Agreement. This Agreement shall have been duly executed and
--------------
delivered to Lender by Parent and Borrowers.
(b) Notes. Lender shall have received the Notes dated the Closing Date,
-----
conforming to the requirements of the Agreement and executed by Borrowers.
(c) Parent Guaranty. Lender shall have received the Parent Guaranty,
---------------
conforming to the requirements of the Agreement and executed by Parent.
(d) Well Certificates. Borrowers shall have delivered to the Lender
-----------------
certificates for each producing well and each unit containing producing ▇▇▇▇▇
located on the oil and gas properties described in the PGP Oil and Gas Mortgage
(together with those PGP II Oil and Gas Mortgages delivered to Lender by PGP II
as of the Original Closing Date, and as updated as of the Closing Date, the
"Well Certificates"), which Well Certificates shall be in the form of EXHIBIT K
------------------ ---------
attached hereto or otherwise in form and substance acceptable to Lenders
containing the information as provided for therein, which shall be satisfactory
to the Lender.
(e) Spanish Peaks Pledge Agreement. Lender shall have received the Spanish
------------------------------
Peaks Pledge Agreement, conforming to the requirements of the Agreement and
executed by PGP II.
(f) Gas Contracts. Lender shall have received copies of all gas sales
-------------
and/or gathering and/or transportation, and/or processing contracts covering the
Mortgaged Property in form and substance satisfactory to the Lender.
(g) Oil and Gas Mortgages. The PGP Oil and Gas Mortgage substantially in
---------------------
the form and upon the terms of EXHIBIT F attached hereto, dated the Closing
---------
Date, shall have been executed and delivered by PGP to Lender and create a first
lien on Proven Reserves constituting at least eighty percent (80%) of discounted
present value of all Proven Reserves held by PGP and reflected in the Reserve
Report, as determined by Lender in its sole discretion. An Amendment to the
existing PGP II Oil and Gas Mortgage substantially in the form and upon the
terms of EXHIBIT E attached hereto, and a new PGP II Oil and Gas Mortgage
---------
covering PGP II's properties in the Raton Basin of Colorado in the form and upon
the terms of EXHIBIT E hereto, each dated the Closing Date, shall have been
---------
executed and delivered by PGP II to Lender.
(h) Financing Statements. All Uniform Commercial Code financing statements
--------------------
required or, in Lender's opinion, advisable to be filed in order to create, in
favor of the Lender, a first priority perfected Lien on the Collateral with
respect to which a Lien can be perfected by means of filing a Uniform Commercial
Code financing statement, shall have been properly executed and delivered to
Lender, and all necessary filing, subscription and inscription fees and all
recording and other similar fees, and all taxes and other expenses related to
such filings and recordings have been paid in full by or on behalf of Borrowers.
1
(i) UCC Searches. Lender shall have received the results of Uniform
------------
Commercial Code searches showing all filings on file against Borrowers (their
predecessors) in the office of the Secretary of State of each of Texas, Kansas,
Colorado, Utah and each county in such state and such other offices as Lender
may require, each such search dated a date reasonably close to the Closing Date.
(j) Releases and/or Assignments. Lender shall have received fully executed
---------------------------
releases and/or assignments of all existing Liens on the Collateral (other than
Liens shown on SCHEDULE 4.13).
-------------
(k) Legal Opinion. Lender shall have received the opinion dated the
-------------
Closing Date and addressed to Lender, of legal counsel to the Credit Parties,
such opinion to be substantially in the form of EXHIBIT L to this Agreement,
---------
subject to modifications as Lender in its sole discretion may permit.
(l) Opinion of Local Counsel. Lender shall have received favorable
------------------------
opinions dated the Closing Date and addressed to Lender, of local counsel to the
Borrowers in Utah and Colorado. Such opinion to be substantially in the form of
EXHIBIT M to this Agreement, subject to modifications as Lender in its sole
---------
discretion may permit; and
(m) Solvency Certificates. Lender shall have received a solvency
---------------------
certificate in the form of EXHIBIT N to this Agreement executed by an executive
----------
officer of the general partner of PGP and PGPII.
(n) Representations and Warranties, Defaults and Judgments. Lender shall
------------------------------------------------------
have received a certificate from the chief executive officer of Parent and PEI
Kansas dated the Closing Date to the effect that: (i) the representations and
warranties made by Borrowers and Parent in the Agreement and the other Loan
Documents to which any Credit Party is a party or which are contained in any
certificate, document or financial or other statement of any Credit Party
furnished at any time under or in connection with the Agreement or the other
Loan Documents shall be correct on and as of the date requested for the making
of such loan as if made on and as of such date, (ii) no Default or Event of
Default shall have occurred and be continuing on such date or after giving
effect to the advance to be made on such date, and (iii) no outstanding or
unpaid judgment and no actions, suits or proceedings before any court or before
any governmental or administrative body or agency which might prevent or
preclude the consummation of the transactions contemplated by the Agreement or
the other Loan Documents to which either Borrower is a party are pending or to
the best of either Borrower's knowledge, threatened against such entity.
(o) Corporate and Partnership Matters. Lender shall have received
---------------------------------
resolutions, certificates of governmental authorities, certificates of the
secretary of the Credit Parties (or their general partners), and such other
documents, instruments and agreements as Lender shall request relating to or
evidencing (a) the organization and existence of each Credit Party, (b) the
status of payment of franchise taxes by each Credit Party, (c) the proper
qualification of each Credit Party to conduct business as a foreign corporation
or a foreign limited partnership in each jurisdiction in which its operations or
properties require the same, (d) the proper authorization and execution of each
of the Loan Documents, and (e) the capital and organizational structure of the
Credit Parties.
2
(p) Copies of Material Contracts. Lender shall have received a copy of
----------------------------
each Material Contract pertaining to the Proven Reserves owned by Borrowers
which either (i) affects Borrowers' title to the Proven Reserves or otherwise
affects the value, use or operation of the Proven Reserves in any material
respect or (ii) creates or evidences a material obligation or liability on the
part of Borrowers.
(q) Title Opinions. Borrowers shall have caused to be delivered to the
--------------
Lender current favorable title opinions with respect to the Mortgaged Property
owned by Borrowers covering at least 80% of the value of Borrowers' Proven
Reserves in the Mineral Interests. Each title opinion (i) shall be addressed to
Lender and issued by counsel to Borrowers that is experienced in the examination
of title to oil and gas properties, (ii) shall confirm the priority of the Lien
created by the Oil and Gas Mortgage and (iii) shall opine as to such matters
incident to such properties as the Lender may reasonably request including the
following with respect to the Mineral Interests in the particular Oil and Gas
Leases being reviewed:
(A) Borrowers have good and marketable title to such oil and gas
properties to the extent of their Mineral Interests as specified therein,
free and clear of all Liens other than Permitted Liens.
(B) Subject to the Material Contracts described on Exhibit "A" to the
Mortgage, each Borrower 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 that set
forth in the opinion.
(C) Subject to the Material Contracts described on Exhibit "A" to the
Mortgage, each Borrower's operating interest in such 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.
(D) Subject to the Material Contracts described on Exhibit "A" to the
Mortgage, the Liens created by the Oil and Gas Mortgage are first in right
and prior in time and superior to all other Liens against such Mineral
Interests in such oil and gas properties.
(t) Same Interests. The Mineral Interests in the Mortgaged Properties
--------------
shall not be less than the Mineral Interests for such properties furnished by
the Borrowers to the Lender in connection with its credit evaluation for this
credit facility.
(u) Location of Producing ▇▇▇▇▇. The Borrowers shall have delivered to the
---------------------------
Lender evidence satisfactory to the Lender confirming that each of the producing
▇▇▇▇▇ contained in the units described in each Well Certificate delivered by the
Borrowers is located on an Oil and Gas Lease or Oil and Gas Leases (i) covered
by the title opinions and (ii) described in the exhibit to an Oil and Gas
Mortgage.
(v) Insurance. Lender shall have received from Borrowers evidence
---------
satisfactory to Lender as to the satisfaction of the requirements relating to
insurance set forth in SECTION 5.1(b) of the Agreement.
-------------
3
(w) Equity Interests of Borrowers. No Person other than the Persons
-----------------------------
listed on Part I of SCHEDULE 4.18 to the Agreement shall hold any shares of the
-------------
equity of any Credit Party, or rights thereto.
(x) Other Agreements. All of the other Loan Documents shall be in full
----------------
force and effect.
(y) Regulatory Approvals; Consents. Lender shall have received evidence
------------------------------
satisfactory to Lender that all requisite regulatory approvals and consents of
any other Person with respect to the transactions contemplated by the Agreement
and the other Loan Documents have been obtained in order to consummate the
transactions contemplated hereby.
(z) Absence of Changes. Lender shall have received evidence satisfactory
------------------
to Lender including, without limitation, a certificate executed by the chief
financial officer of Borrowers, to such effect, that no material adverse change
has occurred in the business, assets, operations, prospects or financial or
other condition of the Credit Parties since the date of the most recent Current
Financials.
(aa) Current Financials. Lender shall have received copies of the Current
------------------
Financials, each certified by an appropriate executive officer of Parent and a
letter from each Borrower and Parent addressed to their independent certified
public accountants, authorizing such accountants to disclose to Lender any and
all financial statements and other supporting financial documents and schedules,
including copies of any management letter with respect to the business,
financial condition and other affairs of Borrowers.
(ab) Fees and Expenses. Subject to SECTION 5.1(j), Borrowers shall have
----------------- --------------
paid to Lender (i) all fees to be received by Lender pursuant to this Agreement
or any other agreement accrued through the Closing Date, and (ii) an amount
equal to the estimated costs and out-of-pocket expenses of Lender's counsel
incurred in connection with the preparation, execution, and delivery of the Loan
Documents and the consummation of the transactions contemplated thereby.
(ac) Warrant. The Warrant Agreement, Warrant Certificate and Registration
-------
Rights Agreement substantially in the form and upon the terms of EXHIBITS O, P
-------------
AND Q, respectively attached hereto, dated the Closing Date, shall have been
-----
executed and delivered by Parent and PGP (as applicable) to Lender.
(ad) Other Documents. Such other agreements, documents, instruments,
---------------
opinions, certificates, and evidences as Lender may request.
4
SCHEDULE 4.4
PRIOR NAMES
-----------
Corporate or Trade Names
------------------------
PEI - Kansas: ▇▇▇▇▇▇ Energy, Inc.
POC: ▇▇▇▇▇▇ Operating Company, Inc.
Merger, Combination or Consolidation
------------------------------------
None.
Assets Acquired
---------------
None.
1
SCHEDULE 4.8
LITIGATION
----------
None.
1
SCHEDULE 4.11
EMPLOYEE BENEFIT PLANS
----------------------
See Attached.
2
SCHEDULE 4.13
PERMITTED LIENS
---------------
1. Pledges or deposits made to secure payment of worker's compensation,
or to participate in any fund in connection with worker's compensation,
unemployment insurance, pensions, or other social security programs, provided
that such Liens may not attach or relate to any Mineral Interest;
2. Encumbrances consisting of zoning restrictions, easements, or other
restrictions on the use of real property, none of which impair the use of such
property by the Person in question in the operation of its business, and none of
which is violated by existing or proposed structures or land use;
3. The following to the extent no Lien has been filed in any jurisdiction
or agreed to: Liens for Taxes not yet due and payable; mechanics' materialmen
warehousemen, carriers, operators, or other like liens incident to the
exploration, development, operation and maintenance of the Oil and Gas Leases,
for services or materials for which payment is not yet due and payable; and
landlord's Liens for rental not yet due and payable and which, to the extent the
same encumbers any of the Collateral, is subordinate to Liens in favor of
Lender;
4. Existing Burdens;
5. Permitted Purchase Money Liens;
6. In respect of the Mineral Interests:
(i) minor defects in title which do not affect the
marketability thereof or restrict the full use and other benefits of
ownership by the Borrowers or the ability of the Borrowers to receive
a share of production or proceeds from, allocated to, or attributable
to such Mineral Interests equal to the net revenue interest of the
Borrowers therein as represented herein or in the other Borrowing
Documents, and which are customarily waived by reasonable and prudent
operators; and
(ii) Liens under operating agreements, pooling orders,
communitization and unitization agreements, subject to the provisions
of SECTION 4.9; and
-----------
7. Agreements shown on Exhibit A to Oil and Gas Mortgage.
1
SCHEDULE 4.15
CONSENTS
--------
None.
2
SCHEDULE 4.16
ENVIRONMENTAL LAWS
------------------
Violations
----------
None.
Notices
-------
None.
1
SCHEDULE 4.18
OWNERSHIP
---------
See Attached.
1
SCHEDULE 4.18
OWNERSHIP
---------
Part I (Before Exchange)
1. Ownership of PGP
----------------
PEI-Kansas 4.65% general partnership interest
Natural Gas Partners, L.P. )
Natural Gas Partners II, L.P. )
Natural Gas Partners III, L.P. )
▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ) 95.35% limited partnership interest
▇▇▇▇▇ Income Trust )
▇▇▇▇ ▇. ▇▇▇▇▇▇ )
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ )
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, III )
2. Ownership of PGP II
-------------------
PEI-Kansas 1% general partnership interest
PGP 99% limited partnership interest
3. Ownership of PEI-Kansas
-----------------------
S. ▇▇▇▇▇▇▇ ▇▇▇▇▇ 15.0%
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 42.5%
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇ 42.5%
4. Ownership of POC
----------------
PGP 100%
5. Ownership of Spanish Peaks Gathering L.L.C.
-------------------------------------------
PGP II 80%
Infinity Oil & Gas, Inc. 20%
6. Ownership of Parent
-------------------
(No outstanding shares)
Part II (After Exchange)
1. Ownership of PGP
----------------
PEI-Kansas between 4.65 & 14.65% general partnership interest
Parent between 85.35 & 95.35% limited partnership interest
2. Ownership of PGP II
-------------------
PEI-Kansas 1% general partnership interest
PGP 99% limited partnership interest
3. Ownership of PEI-Kansas
-----------------------
Parent 100%
4. Ownership of POC
----------------
PGP 100%
5. Ownership of Spanish Peaks Gathering, L.L.C.
--------------------------------------------
PGP II 80%
Infinity Oil & Gas, Inc. 20%
6. Ownership of Parent
-------------------
Percentage of
Shares Owned
--------------------
Number of Prior to After
Name and Address of Beneficial Owner Shares Owned Offering Offering
------------------------------------ ------------ -------- --------
Natural Gas Partners, L.P. ......................... 1,124,276 39.68% 21.76%
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Natural Gas Partners II, L.P. ...................... 641,160 22.63% 12.41%
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Natural Gas Partners III, L.P. ..................... 719,581 25.40% 13.93%
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇(1) ............................... 1,141,474 40.29% 22.09%
c/o Natural Gas Partners, L.P.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
---------------
(1) Includes (i) 17,198 shares held by ▇▇. ▇▇▇▇▇▇▇ and (ii) 1,124,276 shares
held by Natural Gas Partners, L.P., over which ▇▇. ▇▇▇▇▇▇▇ exercises voting
and investment power. ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ is the sole general partner of
G.F.W. Energy, L.P., which is the sole general partner of Natural Gas
Partners, L.P.
2
Percentage of
Shares Owned
------------------------
Number of Prior to After
Director and Executive Officers Shares Owned Offering Offering
------------------------------- ------------ -------- --------
▇▇▇▇▇ ▇. ▇▇▇▇▇ (1)(2)........................ 1,412,336 49.85% 27.34%
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ (1)(3)...................... 1,373,640 48.48% 26.59%
▇. ▇. ▇▇▇▇▇▇▇▇............................... -- -- --
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇............................ 109,925 3.86% 2.12%
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇........................ 109,925 3.86% 2.12%
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇......................... 38,575 1.36% *
▇▇▇ ▇. ▇▇▇▇▇................................. -- -- --
All executive officers and directors
as a group (7 persons)..................... 1,682,400 59.38% 32.56%
-----------------------
* Represents less than 1% of outstanding Common Stock.
(1) ▇▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ are each managing members of the
general partner of Natural Gas Partners II, L.P. and Natural Gas Partners
III, L.P. As such, ▇▇. ▇▇▇▇▇ and ▇▇. ▇▇▇▇▇ may be deemed to share voting
and investment power with respect to the 1,360,741 shares beneficially
owned by Natural Gas Partners II, L.P. and Natural Gas Partners III, L.P.
and these shares are included in the total number of shares reported for
each. Each of ▇▇. ▇▇▇▇▇ and ▇▇. ▇▇▇▇▇ disclaims beneficial ownership of
such shares.
(2) Includes 51,595 shares held in trust for ▇▇. ▇▇▇▇▇.
(3) Includes 12,899 shares owned by ▇▇. ▇▇▇▇▇.
Part III
Schedule 4.18 (continued)
1. Warrant Agreement
2. Registration Rights Agreement
3. Exchange Agreement
4. Amended and Restated Limited Partnership Agreement of PGP dated as of
April 15, 1993 Amended and Restated as of September 28, 1995
5. Limited Partnership Agreement of PGP II dated as of May 1, 1995
6. Stock Purchase and Redemption Agreement among ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇▇▇▇, and S. ▇▇▇▇▇▇▇ ▇▇▇▇▇, stockholders of PEI-Kansas,
effective October 1, 1994
7. Registration Rights Agreement between Parent and Natural Gas Partners,
L.P., Natural Gas Partners II, L.P., Natural Gas Partners III, L.P.,
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, the
▇▇▇▇▇ Income Trust, ▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇,
and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, III.
8. 1997 Incentive Stock Option Plan of Parent pursuant to which an
aggregate 375,000 shares of common stock have been authorized and
reserved for issuance to eligible participants. Options on a total of
260,000 shares have been granted at an exercise price equal to the price
to the public set forth in the Parent's Prospectus filed with the SEC on
August 22, 1997.
9. Thirty-day over-allotment option to purchase up to 350,000 shares of
common stock of Parent to the underwriters as described on the Parent
Prospectus filed with the SEC on August 22, 1997.
3
SCHEDULE 5.2(a)
PERMITTED DEBT
--------------
None.
1
SCHEDULE 8.1
NOTICES
-------
BORROWERS AND
PARENT: PGP II, L.P.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
PETROGLYPH GAS PARTNERS, L.P.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
PETROGLYPH ENERGY, INC.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Telephone No. (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
LENDER: THE CHASE MANHATTAN BANK
One Chase Manhattan Place
▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇ ▇▇▇▇
COPY TO: GARDERE & ▇▇▇▇▇, L.L.P.
3000 Thanksgiving Tower
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
1
COPY TO: TEXAS COMMERCE BANK NATIONAL ASSOCIATION
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Telephone No.: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
2
EXHIBIT A
---------
ADVANCE REQUEST
[See attached.]
1
EXHIBIT B
---------
FINANCIAL REPORT CERTIFICATE
[See attached.]
1
EXHIBIT C
---------
MORTGAGED PROPERTIES
[See attached.]
1
EXHIBIT D
---------
ASSIGNMENT AND AMENDMENT OF OIL AND GAS MORTGAGES
[See attached.]
1
EXHIBIT E
---------
PGP II COLORADO OIL AND GAS MORTGAGE
[See attached.]
1
EXHIBIT F
---------
PGP OIL AND GAS MORTGAGE
1
EXHIBIT G
---------
PARENT GUARANTY
[See attached.]
1
EXHIBIT H
---------
SPANISH PEAKS PLEDGE AGREEMENT
[See attached.]
1
EXHIBIT I
---------
FORM OF NOTE A
[See attached.]
1
EXHIBIT J
---------
FORM OF NOTE B
[See attached.]
1
EXHIBIT K
---------
WELL CERTIFICATES
[See attached.]
1
EXHIBIT L
---------
LEGAL OPINION OF COUNSEL
[See attached.]
2
EXHIBIT M
---------
LEGAL OPINION OF LOCAL COUNSEL
[See attached.]
3
EXHIBIT N
---------
SOLVENCY CERTIFICATE
[See attached]
4
EXHIBIT O
---------
WARRANT AGREEMENT
[See attached]
5
EXHIBIT P
---------
WARRANT CERTIFICATE
[See attached]
6
EXHIBIT Q
---------
REGISTRATION RIGHTS AGREEMENT
[See attached]
7
