EXHIBIT 10.1
CREDIT AND SECURITY AGREEMENT DATED AS OF MAY 21, 2007
BETWEEN PETROHUNTER ENERGY CORPORATION AND PETROHUNTER
OPERATING COMPANY AND GLOBAL PROJECT FINANCE AG
CREDIT AND SECURITY AGREEMENT
Dated as of May 21, 2007
PETROHUNTER ENERGY CORPORATION, a Maryland corporation, and its
wholly-owned subsidiary, PETROHUNTER OPERATING COMPANY, a Maryland corporation
(collectively, the "Borrower"), and GLOBAL PROJECT FINANCE AG (the "Lender"),
hereby agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 DEFINITIONS. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular; and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP.
"ACCOUNTS" means any "account," as such term is defined in the
Uniform Commercial Code, and, in any event, shall include, without limitation,
"supporting obligations" as defined in the Uniform Commercial Code.
"AFFILIATE" or "AFFILIATES" means any Person controlled by,
controlling or under common control with the Borrower, including (without
limitation) any Subsidiary of the Borrower. For purposes of this definition,
"control," when used with respect to any specified Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise.
"AGREEMENT" means this Credit and Security Agreement, as
amended, supplemented or restated from time to time.
"AS-EXTRACTED COLLATERAL" means any "as-extracted collateral,"
as such term is defined in the Uniform Commercial Code.
"AVAILABILITY PERIOD" means the period commencing upon the
Funding Date and ending eighteen (18) months after the date of this Agreement.
"BANKING DAY" means a day other than a Saturday, Sunday or
other day on which banks are generally not open for business in Denver,
Colorado.
"BASE RATE" means the Prime Rate of interest as published in
the WALL STREET JOURNAL.
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"CHATTEL PAPER" means any "chattel paper," as such term is
defined in the Uniform Commercial Code.
"COLLATERAL" means all of the Borrower's Instruments (together
with all payments thereon or thereunder), Accounts, Inventory, General
Intangibles (including payment intangibles (as defined in the Uniform Commercial
Code) and Software), Equipment, Documents, Contracts, Goods, Investment
Property, As-extracted Collateral, Trademarks, Patents and Copyrights, and all
other tangible and intangible property of Borrower, including, without
limitation, all Proceeds, tort claims, products, accessions, rents, profits,
income, benefits, substitutions, additions and replacements of and to any of the
property of Borrower described above (including, without limitation, any
proceeds of insurance thereon, insurance claims and all rights, claims and
benefits against any Person relating thereto), other rights to payments not
otherwise included in the foregoing, and all books, correspondence, files,
records, invoices and other papers, including without limitation all tapes,
cards, computer runs, computer programs, computer files and other papers,
documents and records in the possession or under the control of Borrower or any
computer bureau or service company from time to time acting for Borrower, all of
the foregoing as related to the Properties, and excluding any other assets owned
by Borrower.
"COMMITMENT" means the Lender's best-efforts commitment to make
Advances to or for the Borrower's account pursuant to Article II.
"CONTRACTS" means all contracts, undertakings, or other
agreements (other than rights evidenced by Chattel Paper, Documents or
Instruments) in or under which the Borrower may now or hereafter have any right,
title or interest, including, without limitation, with respect to an Account,
any agreement relating to the terms of payment or the terms of performance
thereof.
"COPYRIGHTS" means any copyrights, rights and interests in
copyrights, works protectable by copyrights, copyright registrations and
copyright applications, including, without limitation, the copyright
registrations and applications listed on SCHEDULE 1.1 attached hereto, and all
renewals of any of the foregoing, all income, royalties, damages and payments
now and hereafter due and/or payable under or with respect to any of the
foregoing, including, without limitation, damages and payments for past, present
and future infringements of any of the foregoing and the right to xxx for past,
present and future infringements of any of the foregoing.
"CREDIT FACILITY" means the discretionary credit facility being
made available to the Borrower by the Lender pursuant to Article II.
"DEBT" of any Person means all items of indebtedness or
liability which in accordance with GAAP would be included in determining total
liabilities as shown on the liabilities side of a balance sheet of that Person
as of the date as of which Debt is to be determined. For purposes of determining
a Person's aggregate Debt at any time, "Debt" shall also include the aggregate
payments required to be made by such Person at any time under any lease that is
considered a capitalized lease under GAAP.
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"DEFAULT" means an event that, with giving of notice or passage
of time or both, would constitute an Event of Default.
"DEFAULT PERIOD" means any period of time beginning on the
first day of any month during which a Default or Event of Default has occurred
and ending on the date the Lender notifies the Borrower in writing that such
Default or Event of Default has been cured or waived.
"DOCUMENTS" means any "documents," as such term is defined in
the Uniform Commercial Code, and shall include, without limitation, all
documents of title (as defined in the Uniform Commercial Code), bills of lading
or other receipts evidencing or representing Inventory or Equipment.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"ENVIRONMENTAL LAWS" has the meaning specified in Section 5.12.
"EQUIPMENT" means any "equipment," as such term is defined in
the Uniform Commercial Code and, in any event, shall include, Motor Vehicles.
"EVENT OF DEFAULT" has the meaning specified in Section 8.1.
"FLOATING RATE" means an annual rate equal to the sum of the
Base Rate plus six and three-fourths percent (6.75%), which annual rate shall
change when and as the Base Rate changes.
"FUNDING DATE" has the meaning given in Section 2.1.
"GAAP" means generally accepted accounting principles, applied
on a basis consistent with the accounting practices applied in the financial
statements described in Section 5.5, except for any change in accounting
practices to the extent that, due to a promulgation of the Financial Accounting
Standards Board changing or implementing any new accounting standard, the
Borrower either (i) is required to implement such change, or (ii) for future
periods will be required to and for the current period may in accordance with
generally accepted accounting principles implement such change, for its
financial statements to be in conformity with generally accepted accounting
principles (any such change is herein referred to as a "Required GAAP Change"),
provided that the Borrower shall fully disclose in such financial statements any
such Required GAAP Change and the effects of the Required GAAP Change on the
Borrower's income, retained earnings or other accounts, as applicable.
"GENERAL INTANGIBLES" means any "general intangibles," as such
term is defined in the Uniform Commercial Code, and, in any event, shall
include, without limitation, all right, title and interest in or under any
Contract, models, drawings, materials and records, claims, literary rights,
goodwill, rights of performance, Copyrights, Trademarks, Patents, warranties,
rights under insurance policies and rights of indemnification.
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"GOODS" means any "goods", as such term is defined in the
Uniform Commercial Code, including, without limitation, fixtures and embedded
Software to the extent included in "goods" as defined in the Uniform Commercial
Code.
"INSTRUMENTS" means any "instrument," as such term is defined
in the Uniform Commercial Code, and shall include, without limitation,
promissory notes, drafts, bills of exchange, trade acceptances, letters of
credit, letter of credit rights (as defined in the Uniform Commercial Code), and
Chattel Paper.
"INVENTORY" means all of the Borrower's inventory, as such term
is defined in the UCC, whether now owned or hereafter acquired, whether
consisting of whole goods, spare parts or components, supplies or materials,
whether acquired, held or furnished for sale, for lease or under service
contracts or for manufacture or processing, and wherever located.
"INVESTMENT PROPERTY" means any "investment property", as such
term is defined in the Uniform Commercial Code.
"LOAN DOCUMENTS" means this Agreement, the Note and the
Security Documents.
"MATURITY DATE" means thirty (30) months from the date of this
Agreement.
"MAXIMUM LINE" means Sixty Million Dollars ($60,000,000.00).
"MOTOR VEHICLES" means motor vehicles for which ownership is
evidenced by a Certificate of Title.
"NOTE" means the Borrower's promissory note, payable to the
order of the Lender in substantially the form of EXHIBIT A hereto, as the same
may hereafter be amended, supplemented or restated from time to time, and any
note or notes issued in substitution therefor, as the same may hereafter be
amended, supplemented or restated from time to time and any note or notes issued
in substitution therefor.
"PATENTS" means any patents and patent applications, including,
without limitation, the inventions and improvements described and claimed
therein, all patentable inventions and those patents and patent applications
listed on Schedule 1.1 attached hereto, and the reissues, divisions,
continuations, renewals, extensions and continuations-in-part of any of the
foregoing, and all income, royalties, damages and payments now or hereafter due
and/or payable under or with respect to any of the foregoing, including, without
limitation, damages and payments for past, present and future infringements of
any of the foregoing and the right to xxx for past, present and future
infringements of any of the foregoing.
"PERMITTED LIEN" has the meaning given in Section 7.1.
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"PERSON" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"PETROHUNTER STOCK" means the common stock of PetroHunter
Energy Corporation, a Maryland corporation.
"PLAN" means an employee benefit plan or other plan maintained
for the Borrower's employees and covered by Title IV of ERISA.
"PROCEEDS" means "proceeds," as such term is defined in the
Uniform Commercial Code and, in any event, includes, without limitation, (a) any
and all proceeds of any insurance, indemnity, warranty or guaranty payable with
respect to any of the Collateral, (b) any and all payments (in any form
whatsoever) made or due and payable from time to time in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of all or any
part of the Collateral by any governmental body, authority, bureau or agency (or
any person acting under color of governmental authority), and (c) any and all
other amounts from time to time paid or payable under, in respect of or in
connection with any of the Collateral.
"PROPERTIES" means the Borrower's oil and gas mineral interests
owned as set forth on Schedule 1.1.
"REPORTABLE EVENT" shall have the meaning assigned to that term
in Title IV of ERISA.
"SECURITY DOCUMENTS" means this Agreement and any other
document delivered to the Lender from time to time to secure the repayment of
the Note, as the same may hereafter be amended, supplemented or restated from
time to time.
"SECURITY INTEREST" has the meaning given in Section 3.1.
"SOFTWARE" means all "software" as such term is defined in the
Uniform Commercial Code, now owned or hereafter acquired by the Borrower, other
than software embedded in any category of Goods, including, without limitation,
all computer programs and all supporting information provided in connection with
a transaction related to any program.
"SUBSIDIARY" means any corporation or entity of which more than
50% of the equity is at the time directly or indirectly owned by the Borrower,
by the Borrower and one or more other Subsidiaries, or by one or more other
Subsidiaries.
"TERMINATION DATE" means the earliest of (i) the end of the
Availability Period, (ii) the date the Borrower terminates the Credit Facility,
or (iii) the date the Lender demands payment of the Note.
"TRADEMARKS" means any trademarks, trade names, corporate
names, company names, business names, fictitious business names, trade styles,
service marks, logos, other business identifiers, prints and labels on which any
of the foregoing have appeared or
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appear, all registrations and recordings thereof, and all applications in
connection therewith, including, without limitation, the trademarks and
applications listed in SCHEDULE 1.1 attached hereto and renewals thereof, and
all income, royalties, damages and payments now or hereafter due and/or payable
under or with respect to any of the foregoing, including, without limitation,
damages and payments for past, present and future infringements of any of the
foregoing and the right to xxx for past, present and future infringements of any
of the foregoing.
"UCC" means the Uniform Commercial Code as in effect from time
to time in the state designated in Section 9.13 as the state whose laws shall
govern this Agreement, or in any other state whose laws are held to govern this
Agreement or any portion hereof.
Section 1.2 CROSS REFERENCES. All references in this Agreement to
Articles, Sections and subsections, shall be to Articles, Sections and
subsections of this Agreement unless otherwise explicitly specified.
ARTICLE II
AMOUNT AND TERMS OF THE CREDIT FACILITY
Section 2.1 ADVANCES. The Lender shall use its best efforts to make
advances in such amounts and at such dates as may be agreed upon by the Lender
and the Borrower from the date all of the conditions set forth in Section 4.1
are satisfied (the "FUNDING DATE") to the Termination Date, on the terms and
subject to the conditions herein set forth (the "ADVANCES"). The Advances shall
not exceed the amount of the Maximum Line. The Borrower's obligation to pay the
Advances shall be evidenced by the Note and shall be secured by the Collateral
as provided in Article III. The Borrower agrees to comply with the following
procedures in requesting Advances under this Section 2.1:
(a) The Borrower shall make each request for an Advance to the
Lender in writing, specifying the date of the requested Advance and the amount
thereof. Each request shall be by (i) any officer of either of the entities
constituting the Borrower; or (ii) any person designated as the Borrower's agent
by any officer of either of the entities constituting the Borrower in a writing
delivered to the Lender; or (iii) any person whom the Lender reasonably believes
to be an officer of the Borrower or such a designated agent.
(b) Upon fulfillment of the applicable conditions set forth in
Article IV, the Lender shall disburse the proceeds of the requested Advance
within five (5) days by wiring the same to the Borrower's account identified in
the Advance request. Any request for an Advance shall be deemed to be a
representation by the Borrower that the conditions set forth in Section 4.2 have
been satisfied as of the time of the request.
Section 2.2 INTEREST; USURY. Interest accruing on the Note shall be due
and payable in arrears on the last day of each calendar quarter, beginning June
30, 2007.
(a) NOTE. Except as set forth in Section 2.2(b), the
outstanding principal balance of the Note shall bear interest at the Floating
Rate. Advances shall be added to the principal balance of the Note upon receipt
of the Advance by the Borrower. An Advance
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shall be deemed to be received by the Borrower when it is credited to the
account identified in the Borrower's wiring instructions.
(b) USURY. In any event no rate change shall be put into effect
which would result in a rate greater than the highest rate permitted by law.
Notwithstanding anything to the contrary contained in any Loan Document, all
agreements which either now are or which shall become agreements between the
Borrower and the Lender are hereby limited so that in no contingency or event
whatsoever shall the total liability for payments in the nature of interest,
additional interest and other charges exceed the applicable limits imposed by
the usury laws of the State of Colorado. If any payments in the nature of
interest, additional interest and other charges made under any Loan Document are
held to be in excess of the applicable limits imposed by the usury laws of the
State of Colorado, it is agreed that any such amount held to be in excess shall
be considered payment of principal hereunder, and the indebtedness evidenced
hereby shall be reduced by such amount so that the total liability for payments
in the nature of interest, additional interest and other charges shall not
exceed the applicable limits imposed by the usury laws of the State of Colorado,
in compliance with the desires of the Borrower and the Lender. This provision
shall never be superseded or waived and shall control every other provision of
the Loan Documents and all agreements between the Borrower and the Lender, or
their successors and assigns.
Section 2.3 ADVANCE FEES. The Borrower hereby agrees to pay the Lender
an Advance Fee equal to two percent (2%) of the amount of the Advance, payable
when the Lender makes the Advance to Borrower. Section 2.4 WARRANTS. The
Borrower shall issue to the Lender warrants to purchase two million (2,000,000)
shares of PetroHunter Stock upon the execution of this Agreement and warrants to
purchase four hundred thousand (400,000) shares of PetroHunter Stock for each
One Million Dollars ($1,000,000) of Advance upon each Advance. The warrants will
be exercisable until five (5) years of the date of this Agreement. The exercise
price of the warrants shall be a price equal to one hundred twenty percent
(120%) of the weighted average price of the PetroHunter Stock for the thirty
(30) days immediately prior to each warrant issuance date.
Section 2.5 COMPUTATION OF INTEREST; WHEN INTEREST DUE AND PAYABLE.
Interest accruing on the outstanding principal balance of the Advances
outstanding from time to time shall be computed on the basis of actual number of
days elapsed in a year of 365 days. Interest shall be payable in arrears on the
last day of each calendar quarter beginning June 30, 2007 and on the Maturity
Date.
Section 2.6 VOLUNTARY PREPAYMENT; TERMINATION OF THE CREDIT FACILITY BY
THE BORROWER. Except as otherwise provided herein, the Borrower may prepay the
Advances in whole or in part at any interest payment date without notice,
penalty, or bonus. The Borrower may terminate the Credit Facility at any time if
it (i) gives the Lender at least 30 days' prior written notice. Subject to
termination of the Credit Facility and payment and performance of the Note, the
Lender shall release or terminate the Security Interest and the Security
Documents to which the Borrower is entitled by law.
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Section 2.7 MANDATORY PREPAYMENT. If the Properties are sold in whole
or in part, Borrower agrees to make a mandatory prepayment in an amount equal to
such sales proceeds, not to exceed the outstanding balances under the Credit
Facility only with respect to that portion of the Properties sold.
Section 2.8 MANDATORY REPAYMENT. Beginning at the end of the first
quarter following the end of the Availability Period, the Borrower shall
commence making principal payments. Principal payments shall be made in such
amounts as may be agreed upon by the Borrower and the Lender based on the then
outstanding principal balance in order to repay the Advances by the Maturity
Date.
Section 2.9 PAYMENT ON NON-BANKING DAYS. Whenever any payment to be
made hereunder shall be stated to be due on a day which is not a Banking Day,
such payment may be made on the next succeeding Banking Day, and such extension
of time shall in such case be included in the computation of interest on the
Advances, as the case may be.
Section 2.10 USE OF PROCEEDS. The Borrower shall use the proceeds of
Advances to provide funds for drilling, development, installation and operation
of facilities all related to Borrower's interest in its Piceance Basin
properties in Colorado, and other mineral interests owned and to be acquired by
Borrower, as well as ongoing working capital needs.
ARTICLE III
SECURITY INTEREST
Section 3.1 GRANT OF SECURITY INTEREST. The Borrower hereby pledges,
assigns and grants to the Lender a first priority perfected mortgage and
security interest (collectively referred to as the "SECURITY INTEREST") in the
Properties and Collateral, as security for the payment of the Note and its
performance under the Loan Documents, limited to the specific portion of the
Properties and Collateral to which the Advances are applied by the Borrower and
hereafter acquired by the Borrower. The Lender hereby acknowledges and agrees
that the Security Interest in the Properties and Collateral is also available on
a pro rata basis with the lender identified in that certain Credit and Security
Agreement dated as of January 9, 2007 between the Borrower and Global Project
Finance AG.
Section 3.2 VENDOR AND OTHER FINANCING. The Lender hereby agrees to
cooperate and work with the Borrower to the fullest extent possible to
accommodate vendor financing and other potential facilities by which the
Borrower shall seek to finance supplementally stand-alone development activities
on the Properties.
Section 3.3 NOTIFICATION OF ACCOUNT DEBTORS AND OTHER OBLIGORS. During
any Default Period, the Lender may notify any account debtor or other person
obligated to pay the amount due that such right to payment has been assigned or
transferred to the Lender for security and shall be paid directly to the Lender.
The Borrower will join in giving such notice if the Lender so requests. At any
time after the Borrower or the Lender gives such notice to an account debtor or
other obligor, the Lender may, but need not, in the Lender's name or in the
Borrower's name, demand, xxx for, collect or receive any money or property at
any time payable or receivable on account of, or securing, any such right to
payment, or grant any extension to, make
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any compromise or settlement with or otherwise agree to waive, modify, amend or
change the obligations (including collateral obligations) of any such account
debtor or other obligor.
Section 3.4 ASSIGNMENT OF INSURANCE. As additional security for the
payment of the Note, the Borrower hereby assigns to the Lender any and all
monies (including, without limitation, proceeds of insurance and refunds of
unearned premiums) due or to become due under, and all other rights of the
Borrower with respect to, any and all policies of insurance now or at any time
hereafter covering the Collateral or any evidence thereof or any business
records or valuable papers pertaining thereto, and the Borrower hereby directs
the issuer of any such policy to pay all such monies directly to the Lender. At
any time, whether or not a Default Period then exists, the Lender may (but need
not), in the Lender's name or in the Borrower's name, execute and deliver proof
of claim, receive all such monies, endorse checks and other instruments
representing payment of such monies, and adjust, litigate, compromise or release
any claim against the issuer of any such policy.
Section 3.5 LICENSE. The Borrower hereby grants to the Lender a
non-exclusive, worldwide and royalty-free license to use or otherwise exploit
all trademarks, franchises, trade names, copyrights and patents of the Borrower
for the purpose of selling, leasing or otherwise disposing of any or all
Collateral during any Default Period.
Section 3.6 FINANCING STATEMENT. A carbon, photographic or other
reproduction of this Agreement or of any financing statements signed by the
Borrower is sufficient as a financing statement and may be filed as a financing
statement in any state to perfect the security interests granted hereby. For
this purpose, the following information is set forth:
Name and address of Debtor:
PetroHunter Energy Corporation
0000 Xxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx, XX 00000
Federal Tax Identification No. 00-0000000
Name and address of Secured Party:
Global Project Finance AG
Xxxxxxxxxxxxx 00
0000 Xxxxxx
Xxxxxxxxxxx
ARTICLE IV
CONDITIONS OF LENDING
Section 4.1 CONDITIONS PRECEDENT TO INITIAL ADVANCE. The obligation of
the Lender to make the initial Advance hereunder shall be subject to the
following conditions:
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(a) Receipt of the following, each in form and substance
satisfactory to the Lender:
(i) This Agreement, properly executed by the Borrower.
(ii) The Note, properly executed by the Borrower.
(iii) Such financial statements of the Borrower as
requested by the Lender.
(iv) Current searches of appropriate filing offices
showing that (A) no state or federal tax liens have been filed and remain in
effect against the Borrower, (B) no financing statements or assignments of
patents, trademarks or copyrights have been filed and remain in effect against
the Borrower except those financing statements and assignments of patents,
trademarks or copyrights relating to Permitted Liens or to liens held by Persons
who have agreed in writing that upon receipt of proceeds of the Advances, they
will deliver UCC releases and/or terminations and releases of such assignments
of patents, trademarks or copyrights satisfactory to the Lender, and (C) the
Lender has duly filed all financing statements necessary to perfect the Security
Interest, to the extent the Security Interest is capable of being perfected by
filing.
(v) A certificate of the Borrower's Secretary or
Assistant Secretary certifying as to (A) the resolutions of the Borrower's
directors and, if required, shareholders, authorizing the execution, delivery
and performance of the Loan Documents, (B) the Borrower's articles of
incorporation and bylaws, and (C) the signatures of the Borrower's officers or
agents authorized to execute and deliver the Loan Documents and other
instruments, agreements and certificates, including Advance requests, on the
Borrower's behalf.
(vi) A current certificate issued by the Secretary of
State of Colorado certifying that Borrower is in compliance with all applicable
organizational requirements of the State of Colorado.
(vii) Evidence that the Borrower is duly licensed or
qualified to transact business in all jurisdictions where the character of the
property owned or leased or the nature of the business transacted by it makes
such licensing or qualification necessary.
(viii) A certificate of an officer of Borrower
confirming, in his personal capacity, the representations and warranties set
forth in Article V.
(ix) An opinion of counsel to the Borrower, addressed to
the Lender.
(x) Such other documents as the Lender in its sole
discretion may require.
(b) Receipt of reimbursement for all reasonable agreed-upon
expenses for which invoices have been presented to the Borrower.
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(c) The Lender's completion and satisfaction of the business,
gas market, financial, legal, title, engineering and environmental due diligence
on the Properties, the Collateral and the Borrower conducted by the Lender.
(d) Title review of the Properties, including the Borrower's
right to produce oil and gas from xxxxx held under oil and gas leases,
satisfactory to the Lender and its counsel.
(e) No material adverse changes in the Borrower or the
Properties shall have occurred.
Section 4.2 CONDITIONS PRECEDENT TO ALL ADVANCES. The Lender will not
fund further requests for an Advance unless on such date:
(a) the representations and warranties contained in Article V
are correct on and as of the date of such Advance as though made on and as of
such date, except to the extent that such representations and warranties relate
solely to an earlier date; and
(b) no event has occurred and is continuing, or would result
from such Advance which constitutes a Default or an Event of Default.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender as follows:
Section 5.1 CORPORATE EXISTENCE AND POWER; NAME; CHIEF EXECUTIVE
OFFICE; INVENTORY AND EQUIPMENT LOCATIONS; TAX IDENTIFICATION NUMBER. Each
Borrower is a corporation, duly organized, validly existing and in good standing
under the laws of the State of Maryland and is duly licensed or qualified to
transact business in all jurisdictions where the character of the property owned
or leased or the nature of the business transacted by it makes such licensing or
qualification necessary. The Borrower has all requisite power and authority,
corporate or otherwise, to conduct its business, to own its properties and to
execute and deliver, and to perform all of its obligations under, the Loan
Documents. During its existence, the Borrower has done business solely under the
names set forth in Schedule 5.1 hereto. The Borrower's chief executive office
and principal place of business is located at the address set forth in Schedule
5.1 hereto, and all of the Borrower's records relating to its business or the
Collateral are kept at that location. All Inventory and Equipment is located at
that location or at one of the other locations set forth in Schedule 5.1 hereto.
The Borrower's tax identification numbers are correctly set forth in Section 3.6
hereto.
Section 5.2 AUTHORIZATION OF BORROWING; NO CONFLICT AS TO LAW OR
AGREEMENTS. The execution, delivery and performance by the Borrower of the Loan
Documents and the borrowings from time to time hereunder have been duly
authorized by all necessary corporate action and do not and will not (i) require
any consent or approval of the Borrower's
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stockholders; (ii) require any authorization, consent or approval by, or
registration, declaration or filing with, or notice to, any governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, or any third party, except such authorization, consent, approval,
registration, declaration, filing or notice as has been obtained, accomplished
or given prior to the date hereof; (iii) violate any provision of any law, rule
or regulation (including, without limitation, Regulation X of the Board of
Governors of the Federal Reserve System) or of any order, writ, injunction or
decree presently in effect having applicability to the Borrower or of the
Borrower's articles of incorporation or bylaws; (iv) result in a breach of or
constitute a default under any indenture or loan or credit agreement or any
other material agreement, lease or instrument to which the Borrower is a party
or by which it or its properties may be bound or affected; or (v) result in, or
require, the creation or imposition of any mortgage, deed of trust, pledge,
lien, security interest or other charge or encumbrance of any nature (other than
the Security Interest) upon or with respect to any of the properties now owned
or hereafter acquired by the Borrower.
Section 5.3 LEGAL AGREEMENTS. This Agreement constitutes and, upon due
execution by the Borrower, the other Loan Documents will constitute the legal,
valid and binding obligations of the Borrower, enforceable against the Borrower
in accordance with their respective terms.
Section 5.4 SUBSIDIARIES. Except as set forth in Schedule 5.4, the
Borrower has no Subsidiaries.
Section 5.5 FINANCIAL CONDITION; NO ADVERSE CHANGE. The Borrower has
heretofore furnished to the Lender consolidated audited financial statements of
the Borrower for the year ended September 30, 2006 and consolidated unaudited
financial statements for the six months ended March 31, 2007, and those
statements fairly present the Borrower's financial condition on the dates
thereof and the results of its operations and cash flows for the periods then
ended and were prepared in accordance with generally accepted accounting
principles. Since the date of the most recent financial statements, there has
been no material adverse change in the Borrower's business, properties or
condition (financial or otherwise).
Section 5.6 LITIGATION. There are no actions, suits or proceedings
pending or, to the Borrower's knowledge, threatened against or affecting the
Borrower or the properties of the Borrower before any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, which, if determined adversely to the Borrower, would have a material
adverse effect on the financial condition, properties or operations of the
Borrower.
Section 5.7 REGULATION U. The Borrower is not engaged in the business
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System), and no part of the proceeds of any Advance will be used to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying any margin stock.
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Section 5.8 TAXES. The Borrower has paid or caused to be paid to the
proper authorities when due all federal, state and local taxes required to be
withheld by it. The Borrower has filed all federal, state and local tax returns
which to the knowledge of the officers of the Borrower, are required to be
filed, and the Borrower has paid or caused to be paid to the respective taxing
authorities all taxes as shown on said returns or on any assessment received by
any of them to the extent such taxes have become due.
Section 5.9 TITLES AND LIENS. Borrower has good and absolute title to
all Collateral described in the collateral reports provided to the Lender and
all other Collateral, properties and assets reflected in the latest financial
statements referred to in Section 5.5 and all proceeds thereof, free and clear
of all mortgages, security interests, liens and encumbrances, except for
Permitted Liens. No financing statement naming the Borrower as debtor is on file
in any office except to perfect only Permitted Liens.
Section 5.10 PLANS. Except as disclosed to the Lender in writing prior
to the date hereof, the Borrower does not maintain and has not maintained any
Plan. The Borrower has not received any notice or has any knowledge to the
effect that it is not in full compliance with any of the requirements of ERISA.
No Reportable Event or other fact or circumstance which may have an adverse
effect on the Plan's tax qualified status exists in connection with any Plan.
Section 5.11 DEFAULT. The Borrower is in compliance with all provisions
of all agreements, instruments, decrees and orders to which it is a party or by
which it or its property is bound or affected, the breach or default of which
could have a material adverse effect on the Borrower's financial condition,
properties or operations.
Section 5.12 ENVIRONMENTAL MATTERS.
(a) DEFINITIONS. As used in this Agreement, "Environmental
Laws" means all federal, state, local or foreign laws relating to pollution or
protection of human health or the environment (including ambient air, surface
water, groundwater, land surface or subsurface strata), including laws relating
to emissions, discharges, releases or threatened releases of chemicals,
pollutants, contaminants, or toxic or hazardous substances or wastes into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of hazardous materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.
(b) To the Borrower's best knowledge, Borrower is in compliance
with any and all Environmental Laws, (ii) has received all permits, licenses or
other approvals required of it under applicable Environmental Laws to conduct
its business and (iii) is in compliance with all terms and conditions of any
such permit, license or approval.
Section 5.13 SUBMISSIONS TO LENDER. All financial and other information
provided to the Lender by or on behalf of the Borrower in connection with the
Borrower's request for the credit facilities contemplated hereby is true and
correct in all material respects
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and, as to projections, valuations or proforma financial statements, present a
good faith opinion as to such projections, valuations and proforma condition and
results.
Section 5.14 FINANCING STATEMENTS. The Borrower has provided to the
Lender signed financing statements sufficient when filed to perfect the Security
Interest and the other security interests created by the Security Documents.
When such financing statements are filed in the offices noted therein, the
Lender will have a valid and perfected security interest in the Properties and
all Collateral and all other collateral described in the Security Documents
which is capable of being perfected by filing financing statements. None of the
Collateral or other collateral covered by the Security Documents is or will
become a fixture on real estate, unless a sufficient fixture filing is in effect
with respect thereto.
Section 5.15 RIGHTS TO PAYMENT. Each right to payment and each
instrument, document, chattel paper and other agreement constituting or
evidencing Collateral or other collateral covered by the Security Documents is
(or, in the case of all future Collateral or such other collateral, will be when
arising or issued) the valid, genuine and legally enforceable obligation,
subject to no defense, setoff or counterclaim, of the account debtor or other
obligor named therein or in the Borrower's records pertaining thereto as being
obligated to pay such obligation.
Section 5.16 FINANCIAL SOLVENCY. Both before and after giving effect to
all of the transactions contemplated in the Loan Documents, the Borrower:
(a) was not or will not be insolvent, as that term is used and
defined in Section 101(32) of the United States Bankruptcy Code and Section 2 of
the Uniform Fraudulent Transfer Act;
(b) is not engaged or is not about to engage in a business or a
transaction for which any remaining assets of the Borrower are unreasonably
small;
(c) by executing, delivering or performing its obligations
under the Loan Documents or other documents to which it is a party or by taking
any action with respect thereto, does not intend to, nor believes that it will,
incur debts beyond its ability to pay them as they mature;
(d) by executing, delivering or performing its obligations
under the Loan Documents or other documents to which it is a party or by taking
any action with respect thereto, does not intend to hinder, delay or defraud
either its present or future creditors; and
(e) at this time does not contemplate filing a petition in
bankruptcy or for an arrangement or reorganization or similar proceeding under
any law any jurisdiction, nor, to the best knowledge of the Borrower, is the
subject of any actual, pending or threatened bankruptcy, insolvency or similar
proceedings under any law of any jurisdiction.
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ARTICLE VI
BORROWER'S AFFIRMATIVE COVENANTS
So long as the Note shall remain unpaid, or the Credit Facility shall
remain outstanding, the Borrower will comply with the following requirements,
unless the Lender shall otherwise consent in writing:
Section 6.1 REPORTING REQUIREMENTS. The Borrower will deliver, or cause
to be delivered, to the Lender each of the following, which shall be in form and
detail acceptable to the Lender:
(a) as soon as available, and in any event within 90 days after
the end of each fiscal year of the Borrower, the Borrower's consolidating and
consolidated audited financial statements with the unqualified opinion of
independent certified public accountants selected by the Borrower and acceptable
to the Lender, which annual financial statements shall include the Borrower's
balance sheet as of the end of such fiscal year and the related statements of
the Borrower's income, retained earnings and cash flows for the fiscal year then
ended, prepared, if the Lender so requests, on a consolidating and consolidated
basis to include any Subsidiaries, all in reasonable detail and prepared in
accordance with GAAP, together with (i) copies of all management letters
prepared by such accountants; and (ii) a certificate of Borrower's chief
financial officer stating that such financial statements have been prepared in
accordance with GAAP and whether or not such officer has knowledge of the
occurrence of any Default or Event of Default hereunder and, if so, stating in
reasonable detail the facts with respect thereto;
(b) as soon as available and in any event within 45 days after
the end of each fiscal quarter, a consolidating and consolidated unaudited
balance sheet and statements of income and retained earnings of the Borrower as
at the end of and for such quarter and for the year to date period then ended,
prepared, on a consolidating and consolidated basis to include any Subsidiaries,
in reasonable detail and stating in comparative form the figures for the
corresponding date and periods in the previous year, all prepared in accordance
with GAAP, subject to year-end audit adjustments; and accompanied by a
certificate of Borrower's chief financial officer, substantially in the form of
EXHIBIT B hereto stating (i) that such financial statements have been prepared
in accordance with GAAP, subject to year-end audit adjustments, and (ii) whether
or not such officer has knowledge of the occurrence of any Default or Event of
Default hereunder not theretofore reported and remedied and, if so, stating in
reasonable detail the facts with respect thereto;
(c) immediately after the commencement thereof, notice in
writing of all litigation and of all proceedings before any governmental or
regulatory agency affecting the Borrower of the type described in Section 5.12
or which seek a monetary recovery against the Borrower in excess of One Hundred
Thousand Dollars ($100,000.00);
(d) as promptly as practicable (but in any event not later than
five business days) after an officer of the Borrower obtains knowledge of the
occurrence of any breach, default or event of default under any Security
Document or any event which constitutes a
15
Default or Event of Default hereunder, notice of such occurrence, together with
a detailed statement by a responsible officer of the Borrower of the steps being
taken by the Borrower to cure the effect of such breach, default or event;
(e) as soon as possible and in any event within 30 days after
the Borrower knows or has reason to know that any Reportable Event with respect
to any Plan has occurred, the statement of the Borrower's chief financial
officer setting forth details as to such Reportable Event and the action which
the Borrower proposes to take with respect thereto, together with a copy of the
notice of such Reportable Event to the Pension Benefit Guaranty Corporation;
(f) as soon as possible, and in any event within 10 days after
the Borrower fails to make any quarterly contribution required with respect to
any Plan under Section 412(m) of the Internal Revenue Code of 1986, as amended,
the statement of the Borrower's chief financial officer setting forth details as
to such failure and the action which the Borrower proposes to take with respect
thereto, together with a copy of any notice of such failure required to be
provided to the Pension Benefit Guaranty Corporation;
(g) promptly upon knowledge thereof, notice of any loss of or
material damage to any Collateral or other collateral covered by the Security
Documents or of any substantial adverse change in any Collateral or such other
collateral or the prospect of payment thereof;
(h) promptly upon their distribution, copies of all financial
statements, reports and proxy statements which the Borrower shall have sent to
its stockholders;
(i) promptly after the sending or filing thereof, copies of all
regular and periodic reports which the Borrower shall file with the Securities
and Exchange Commission or any national securities exchange;
(j) promptly upon knowledge thereof, notice of the Borrower's
violation of any law, rule or regulation, the non-compliance with which could
materially and adversely affect the Borrower's business or its financial
condition; and
(k) from time to time, with reasonable promptness, any and all
purchase agreements entered into by Borrower (whether as buyer or seller), Motor
Vehicle certificates of title, Motor Vehicle lien releases, copies of checks or
drafts for Motor Vehicle purchases, receivables schedules, collection reports,
deposit records, equipment schedules, copies of invoices to account debtors,
shipment documents and delivery receipts for goods sold, and such other
material, reports, records or information as the Lender may request.
Section 6.2 BOOKS AND RECORDS; INSPECTION AND EXAMINATION. The Borrower
will keep accurate books of record and account for itself pertaining to the
Collateral and pertaining to the Borrower's business and financial condition and
such other matters as the Lender may from time to time request in which true and
complete entries will be made in accordance with GAAP and, upon the Lender's
request, will permit any officer, employee,
16
attorney or accountant for the Lender to audit, review, make extracts from or
copy any and all corporate and financial books and records of the Borrower at
all times during ordinary business hours, to send and discuss with account
debtors and other obligors requests for verification of amounts owed to the
Borrower, and to discuss the Borrower's affairs with any of its directors,
officers, employees or agents. The Borrower will permit the Lender, or its
employees, accountants, attorneys or agents, to examine and inspect any
Collateral, other collateral covered by the Security Documents or any other
property of the Borrower at any time during ordinary business hours.
Section 6.3 ACCOUNT VERIFICATION. The Lender may at any time and from
time to time send or require the Borrower to send requests for verification of
accounts or notices of assignment to account debtors and other obligors. The
Lender may also at any time and from time to time telephone account debtors and
other obligors to verify accounts.
Section 6.4 COMPLIANCE WITH LAWS.
(a) The Borrower will (i) comply with the requirements of
applicable laws and regulations, the non-compliance with which would materially
and adversely affect its business or its financial condition and (ii) use and
keep the Collateral, and require that others use and keep the Collateral, only
for lawful purposes, without violation of any federal, state or local law,
statute or ordinance.
(b) Without limiting the foregoing undertakings, the Borrower
specifically agrees that it will comply with all applicable Environmental Laws
and obtain and comply with all permits, licenses and similar approvals required
by any Environmental Laws.
Section 6.5 PAYMENT OF TAXES AND OTHER CLAIMS. The Borrower will pay or
discharge, when due, (a) all taxes, assessments and governmental charges levied
or imposed upon it or upon its income or profits, upon any properties belonging
to it (including, without limitation, the Collateral) or upon or against the
creation, perfection or continuance of the Security Interest, prior to the date
on which penalties attach thereto, (b) all federal, state and local taxes
required to be withheld by it, and (c) all lawful claims for labor, materials
and supplies which, if unpaid, might by law become a lien or charge upon any
properties of the Borrower; provided, that the Borrower shall not be required to
pay any such tax, assessment, charge or claim whose amount, applicability or
validity is being contested in good faith by appropriate proceedings and for
which proper reserves have been made.
Section 6.6 MAINTENANCE OF PROPERTIES.
(a) The Borrower will keep and maintain the Collateral, the
other collateral covered by the Security Documents and all of its other
properties necessary or useful in its business in good condition, repair and
working order (normal wear and tear excepted) and will from time to time replace
or repair any worn, defective or broken parts; provided, however, that nothing
in this Section 6.6 shall prevent the Borrower from discontinuing the operation
and maintenance of any of its properties if such discontinuance is, in the
Lender's judgment,
17
desirable in the conduct of the Borrower's business and not disadvantageous in
any material respect to the Lender.
(b) The Borrower will defend the Collateral against all claims
or demands of all persons (other than the Lender) claiming the Collateral or any
interest therein.
(c) The Borrower will keep all Collateral and other collateral
covered by the Security Documents free and clear of all security interests,
liens and encumbrances except Permitted Liens.
Section 6.7 INSURANCE. The Borrower will obtain and at all times
maintain insurance with insurers believed by the Borrower to be responsible and
reputable, in such amounts and against such risks as may from time to time be
required by the Lender, but in all events in such amounts and against such risks
as is usually carried by companies engaged in similar business and owning
similar properties in the same general areas in which the Borrower operates.
Without limiting the generality of the foregoing, the Borrower will at all times
maintain business interruption insurance including coverage for force majeure
and keep all tangible Collateral insured against risks of fire (including
so-called extended coverage), theft, collision (for Collateral consisting of
motor vehicles) and such other risks and in such amounts as the Lender may
reasonably request, with any loss payable to the Lender to the extent of its
interest, and all policies of such insurance shall contain a lender's loss
payable endorsement for the Lender's benefit acceptable to the Lender. All
policies of liability insurance required hereunder shall name the Lender as an
additional insured.
Section 6.8 PRESERVATION OF EXISTENCE. The Borrower will preserve and
maintain its existence and all of its rights, privileges and franchises
necessary or desirable in the normal conduct of its business and shall conduct
its business in an orderly, efficient and regular manner.
Section 6.9 DELIVERY OF INSTRUMENTS, ETC. Upon request by the Lender,
the Borrower will promptly deliver to the Lender in pledge all instruments,
documents and chattel papers constituting Collateral, duly endorsed or assigned
by the Borrower.
Section 6.10 PERFORMANCE BY THE LENDER. If the Borrower at any time
fails to perform or observe any of the foregoing covenants contained in this
Article VI or elsewhere herein, and if such failure shall continue for a period
of ten calendar days after the Lender gives the Borrower written notice thereof
(or in the case of the agreements contained in Sections 6.5 and 6.7, immediately
upon the occurrence of such failure, without notice or lapse of time), the
Lender may, but need not, perform or observe such covenant on behalf and in the
name, place and stead of the Borrower (or, at the Lender's option, in the
Lender's name) and may, but need not, take any and all other actions which the
Lender may reasonably deem necessary to cure or correct such failure (including,
without limitation, the payment of taxes, the satisfaction of security
interests, liens or encumbrances, the performance of obligations owed to account
debtors or other obligors, the procurement and maintenance of insurance, the
execution of assignments, security agreements and financing statements, and the
endorsement of instruments); and the Borrower shall thereupon pay to the Lender
on demand the amount of all monies expended and
18
all costs and expenses (including reasonable attorneys' fees and legal expenses)
incurred by the Lender in connection with or as a result of the performance or
observance of such agreements or the taking of such action by the Lender,
together with interest thereon from the date expended or incurred at the
Floating Rate. To facilitate the Lender's performance or observance of such
covenants of the Borrower, the Borrower hereby irrevocably appoints the Lender,
or the Lender's delegate, acting alone, as the Borrower's attorney in fact
(which appointment is coupled with an interest) with the right (but not the
duty) from time to time to create, prepare, complete, execute, deliver, endorse
or file in the name and on behalf of the Borrower any and all instruments,
documents, assignments, security agreements, financing statements, applications
for insurance and other agreements and writings required to be obtained,
executed, delivered or endorsed by the Borrower under this Section 6.10.
Section 6.11 PARTICIPATION IN FUTURE ISSUANCES. Lender shall have the
right to participate in any future debt or equity financings (a "FUTURE
FINANCING") by the Borrower. For purposes of this SECTION 6.11, however, a
Future Financing shall not include the issuance of PetroHunter Stock pursuant to
the exercise of options or in accordance with the terms of any employee benefit
or compensation plan adopted by the Borrower. Lender shall be entitled to
receive written notice of any Future Financing (an "OFFERING NOTICE") at least
fifteen (15) days prior to the proposed closing date of such Future Financing,
which Offering Notice must include a description of the securities to be
offered, sold or exchanged, including the price and other terms upon which they
are to be issued, sold or exchanged, the parties to whom such securities are
being offered, sold or exchanged and the number or amount of the offered
securities to be issued, sold or exchanged. If Lender elects to participate in a
Future Financing, Lender must give written notice of such election to the
Borrower within seven (7) days following the receipt by Lender of the Offering
Notice. Such participation by Lender in any Future Financing shall be at the
same price and otherwise on the same terms as those described in the Offering
Notice.
Section 6.12 PARTICIPATION IN CREDIT FACILITY. In the event a Person
expresses interest in participating in this Credit Facility, the Borrower shall
refer that Person to Lender. The Borrower agrees that while the Note is
outstanding, it will not enter into another credit facility or similar agreement
with another Person without the express written consent of Lender.
ARTICLE VII
NEGATIVE COVENANTS
So long as the Note shall remain unpaid, or the Credit Facility shall
remain outstanding, the Borrower agrees that, without the Lender's prior written
consent, which shall not be unreasonably withheld:
Section 7.1 LIENS. The Borrower will not create, incur or suffer to
exist any mortgage, deed of trust, pledge, lien, security interest, assignment
or transfer upon or of any of its assets, now owned or hereafter acquired, to
secure any indebtedness; excluding, HOWEVER, from the operation of the
foregoing, the following (collectively, "Permitted Liens"):
(a) in the case of any of the Borrower's property which is not
Collateral or other collateral described in the Security Documents, covenants,
restrictions, rights,
19
easements and minor irregularities in title which do not materially interfere
with the Borrower's business or operations as presently conducted;
(b) mortgages, deeds of trust, pledges, liens, security
interests and assignments in existence on the date hereof and listed in Schedule
7.1 hereto, securing indebtedness for borrowed money permitted under Section
7.2;
(c) the Security Interest and liens and security interests
created by the Security Documents; and
(d) purchase money security interests relating to the
acquisition of machinery and equipment of the Borrower not exceeding the cost or
fair market value thereof so long as no Default Period is then in existence and
none would exist immediately after such acquisition.
Section 7.2 INDEBTEDNESS. The Borrower will not incur, create, assume
or permit to exist any indebtedness or liability on account of deposits or
advances or any indebtedness for borrowed money or letters of credit issued on
the Borrower's behalf, or any other indebtedness or liability evidenced by
notes, bonds, debentures or similar obligations, except:
(a) indebtedness arising hereunder;
(b) indebtedness of the Borrower in existence on the date
hereof and listed in Schedule 7.2 hereto; and
(c) indebtedness relating to liens permitted in accordance with
Section 7.1.
Section 7.3 GUARANTIES. The Borrower will not assume, guarantee,
endorse or otherwise become directly or contingently liable in connection with
any obligations of any other Person, except:
(a) the endorsement of negotiable instruments by the Borrower
for deposit or collection or similar transactions in the ordinary course of
business; and
(b) guaranties, endorsements and other direct or contingent
liabilities in connection with the obligations of other Persons, in existence on
the date hereof and listed in Schedule 7.2 hereto.
Section 7.4 INVESTMENTS. The Borrower will not purchase or hold
beneficially any stock or other securities or evidences of indebtedness of, make
or permit to exist any loans or advances to, or make any investment or acquire
any interest whatsoever in, any other Person, including specifically but without
limitation any partnership or joint venture, except:
20
(a) investments in direct obligations of the United States of
America or any agency or instrumentality thereof whose obligations constitute
full faith and credit obligations of the United States of America having a
maturity of one year or less, commercial paper issued by U.S. corporations rated
"A-1" or "A-2" by Standard & Poors Corporation or "P-1" or "P-2" by Xxxxx'x
Investors Service or certificates of deposit or bankers' acceptances having a
maturity of one year or less issued by members of the Federal Reserve System
having deposits in excess of $100,000,000 (which certificates of deposit or
bankers' acceptances are fully insured by the Federal Deposit Insurance
Corporation);
(b) travel advances or loans to the Borrower's officers and
employees not exceeding at any one time an aggregate of Ten Thousand Dollars
($10,000.00); and
(c) advances in the form of progress payments, prepaid rent not
exceeding one month or security deposits.
Section 7.5 DIVIDENDS. Except as set forth below, the Borrower will not
declare or pay any dividends (other than dividends payable solely in stock of
the Borrower) on any class of its stock or make any payment on account of the
purchase, redemption or other retirement of any shares of such stock or make any
distribution in respect thereof, either directly or indirectly.
Section 7.6 SALE OR TRANSFER OF ASSETS; SUSPENSION OF BUSINESS
OPERATIONS. The Borrower will not sell, lease, assign, transfer or otherwise
dispose of (i) its stock of any Subsidiary, (ii) all or a substantial part of
its assets, or (iii) any Collateral or any interest therein (whether in one
transaction or in a series of transactions) to any other Person other than the
sale of Inventory in the ordinary course of business and will not liquidate,
dissolve or suspend business operations. The Borrower will not in any manner
transfer any property without prior or present receipt of full and adequate
consideration.
Section 7.7 CONSOLIDATION AND MERGER; ASSET ACQUISITIONS. The Borrower
will not consolidate with or merge into any Person, or permit any other Person
to merge into it, or acquire (in a transaction analogous in purpose or effect to
a consolidation or merger) all or substantially all the assets of any other
Person.
Section 7.8 SALE AND LEASEBACK. The Borrower will not enter into any
arrangement, directly or indirectly, with any other Person whereby the Borrower
shall sell or transfer any real or personal property, whether now owned or
hereafter acquired, and then or thereafter rent or lease as lessee such property
or any part thereof or any other property which the Borrower intends to use for
substantially the same purpose or purposes as the property being sold or
transferred.
Section 7.9 RESTRICTIONS ON NATURE OF BUSINESS. The Borrower will not
engage in any line of business materially different from that presently engaged
in by the Borrower and will not purchase, lease or otherwise acquire assets not
related to its business.
21
Section 7.10 ACCOUNTING. The Borrower will not adopt any material
change in accounting principles other than as required by GAAP. The Borrower
will not adopt, permit or consent to any change in its fiscal year.
Section 7.11 DEFINED BENEFIT PENSION PLANS. The Borrower will not
adopt, create, assume or become a party to any defined benefit pension plan,
unless disclosed to the Lender pursuant to Section 5.10.
Section 7.12 OTHER DEFAULTS. The Borrower will not permit any breach,
default or event of default to occur under any note, loan agreement, indenture,
lease, mortgage, contract for deed, security agreement or other contractual
obligation binding upon the Borrower.
Section 7.13 PLACE OF BUSINESS; NAME. The Borrower will not transfer
its chief executive office or principal place of business, or move, relocate,
close or sell any business location. The Borrower will not permit any tangible
Collateral or any records pertaining to the Collateral to be located in any
state or area in which, in the event of such location, a financing statement
covering such Collateral would be required to be, but has not in fact been,
filed in order to perfect the Security Interest. The Borrower will not change
its name.
Section 7.14 ORGANIZATIONAL DOCUMENTS. The Borrower will not amend its
certificate of incorporation, articles of incorporation or bylaws. The Borrower
will not become an S Corporation.
Section 7.15 SALARIES. The Borrower will not pay excessive or
unreasonable salaries, bonuses, commissions, consultant fees or other
compensation; or increase the salary, bonus, commissions, consultant fees or
other compensation of any director, officer or consultant, or any member of
their families, by more than 10% in any one year, either individually or for all
such persons in the aggregate, or pay any such increase from any source other
than profits earned in the year of payment.
Section 7.16 CHANGE IN OWNERSHIP. The Borrower will not issue or sell
any stock of the Borrower, and will not permit or suffer to occur the sale,
transfer, assignment, pledge or other disposition of any of the issued and
outstanding shares of stock of the Borrower if the result shall be to vest
majority ownership of Borrower or control of the majority of any class of voting
stock of Borrower in any Person or Persons other than those Persons who
constitute the majority of shareholders of Borrower as of the date of this
Agreement.
Section 7.17 PAYMENTS TO AFFILIATES. Except as provided in agreements
existing as of the date of this Agreement, the Borrower shall not make any
transfer, conveyance, loan or payment of any kind to any Affiliate.
Section 7.18. ACQUISITION OF PROPERTIES. The Borrower shall not acquire
any additional oil and gas properties that have a cost in excess of $1,000,000
without the approval of the Lender. In the event that the Borrower has entered
into credit facilities similar to this Agreement, the Borrower shall obtain the
approval of the holders of at least 60% of the
22
outstanding amount of all such credit facilities. This Section 7.18 shall not
apply to the proposed acquisition of the Powder River Basin assets from Galaxy
Energy Corporation.
ARTICLE VIII
EVENTS OF DEFAULT, RIGHTS AND REMEDIES
Section 8.1 EVENTS OF DEFAULT. "Event of Default", wherever used
herein, means any one of the following events:
(a) Default in the payment of the Note when it becomes due and
payable;
(b) Default in the payment of any fees, costs or expenses
required to be paid by the Borrower under this Agreement;
(c) Default in the performance, or breach, of any covenant or
agreement of the Borrower contained in this Agreement;
(d) Either Borrower shall be or become insolvent, or admit in
writing its inability to pay its Debts as they mature, or make an assignment for
the benefit of creditors; or either Borrower shall apply for or consent to the
appointment of any receiver, trustee, or similar officer for it or for all or
any substantial part of its property; or such receiver, trustee or similar
officer shall be appointed without the application or consent of Borrower; or
either Borrower shall institute (by petition, application, answer, consent or
otherwise) any bankruptcy, insolvency, reorganization, arrangement, readjustment
of debt, dissolution, liquidation or similar proceeding relating to it under the
laws of any jurisdiction; or any such proceeding shall be instituted (by
petition, application or otherwise) against either Borrower; or any judgment,
writ, warrant of attachment or execution or similar process shall be issued or
levied against a substantial part of the property of Borrower;
(e) A petition shall be filed by or against Borrower under the
United States Bankruptcy Code naming Borrower as debtor;
(f) Any representation or warranty made by Borrower in this
Agreement, or by Borrower (or any of its officers) in any agreement,
certificate, instrument or financial statement or other statement contemplated
by or made or delivered pursuant to or in connection with this Agreement shall
prove to have been incorrect in any material respect when deemed to be
effective;
(g) The rendering against Borrower of a final judgment, decree
or order for the payment of money in excess of One Hundred Thousand Dollars
($100,000.00) and the continuance of such judgment, decree or order unsatisfied
and in effect for any period of 30 consecutive days without a stay of execution;
(h) A default under any bond, debenture, note or other evidence
of indebtedness of Borrower owed to any Person other than the Lender, or under
any indenture or
23
other instrument under which any such evidence of indebtedness has been issued
or by which it is governed, and the expiration of the applicable period of
grace, if any, specified in such evidence of indebtedness, indenture, other
instrument or lease;
(i) Any Reportable Event, which the Lender determines in good
faith might constitute grounds for the termination of any Plan or for the
appointment by the appropriate United States District Court of a trustee to
administer any Plan, shall have occurred and be continuing 30 days after written
notice to such effect shall have been given to Borrower by the Lender; or a
trustee shall have been appointed by an appropriate United States District Court
to administer any Plan; or the Pension Benefit Guaranty Corporation shall have
instituted proceedings to terminate any Plan or to appoint a trustee to
administer any Plan; or Borrower shall have filed for a distress termination of
any Plan under Title IV of ERISA; or Borrower shall have failed to make any
quarterly contribution required with respect to any Plan under Section 412(m) of
the Internal Revenue Code of 1986, as amended, which the Lender determines in
good faith may by itself, or in combination with any such failures that the
Lender may determine are likely to occur in the future, result in the imposition
of a lien on Borrower's assets in favor of the Plan;
(j) An event of default shall occur under any Security Document
or under any other security agreement, mortgage, deed of trust, assignment or
other instrument or agreement securing any obligations of the Borrower hereunder
or under any note;
(k) Borrower shall liquidate, dissolve, terminate or suspend
its business operations or otherwise fail to operate its business in the
ordinary course, or sell all or substantially all of its assets, without the
Lender's prior written consent; and
(l) Borrower shall fail to pay, withhold, collect or remit any
tax or tax deficiency when assessed or due (other than any tax deficiency which
is being contested in good faith and by proper proceedings and for which it
shall have set aside on its books adequate reserves therefor) or notice of any
state or federal tax liens shall be filed or issued.
Section 8.2 RIGHTS AND REMEDIES. During any Default Period, the Lender
may exercise any or all of the following rights and remedies:
(a) the Lender may, by notice to the Borrower, declare the
Commitment to be terminated, whereupon the same shall forthwith terminate;
(b) the Lender may, by notice to the Borrower, declare the Note
to be forthwith due and payable, whereupon the Note shall become and be
forthwith due and payable, without presentment, notice of dishonor, protest or
further notice of any kind, all of which the Borrower hereby expressly waives;
(c) the Lender may, without notice to the Borrower and without
further action, apply any and all money owing by the Lender to the Borrower to
the payment of the Note;
24
(d) the Lender may exercise and enforce any and all rights and
remedies available upon default to a secured party under the UCC, including,
without limitation, the right to take possession of Collateral, or any evidence
thereof, proceeding without judicial process or by judicial process (without a
prior hearing or notice thereof, which Borrower hereby expressly waives) and the
right to sell, lease or otherwise dispose of any or all of the Collateral, and,
in connection therewith, Borrower will on demand assemble the Collateral and
make it available to the Lender at a place to be designated by the Lender which
is reasonably convenient to the parties;
(e) the Lender may exercise and enforce its rights and remedies
under the Loan Documents; and
(f) the Lender may exercise any other rights and remedies
available to it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of
Default described in subsections (d) or (e) of Section 8.1, the Note shall be
immediately due and payable automatically without presentment, demand, protest
or notice of any kind.
Section 8.3 CERTAIN NOTICES. If notice to the Borrower of any intended
disposition of Collateral or any other intended action is required by law in a
particular instance, such notice shall be deemed commercially reasonable if
given (in the manner specified in Section 9.3) at least ten calendar days before
the date of intended disposition or other action.
ARTICLE IX
MISCELLANEOUS
Section 9.1 NO WAIVER; CUMULATIVE REMEDIES. No failure or delay by the
Lender in exercising any right, power or remedy under the Loan Documents shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy under the Loan Documents. The
remedies provided in the Loan Documents are cumulative and not exclusive of any
remedies provided by law.
Section 9.2 AMENDMENTS, ETC. No amendment, modification, termination or
waiver of any provision of any Loan Document or consent to any departure by the
Borrower therefrom or any release of a Security Interest shall 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. No notice to or demand on the Borrower in any
case shall entitle the Borrower to any other or further notice or demand in
similar or other circumstances.
Section 9.3 ADDRESSES FOR NOTICES, ETC. Except as otherwise expressly
provided herein, all notices, requests, demands and other communications
provided for under the Loan Documents shall be in writing and shall be (a)
personally delivered, (b) sent by first class United States mail, (c) sent by
overnight courier of national reputation, or (d) transmitted by
25
telecopy, in each case addressed or telecopied to the party to whom notice is
being given at its address or telecopier number as set forth below:
If to Borrower:
PetroHunter Energy Corporation
0000 Xxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx, XX 00000
Telecopier: 000 000 0000
Attention: Xxxxx Xxxxx
If to the Lender:
Global Project Finance AG
Xxxxxxxxxxxxx 00
0000 Xxxxxx
Xxxxxxxxxxx
or, as to each party, at such other address or telecopier number as may
hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have been given on
(a) the date received if personally delivered, (b) when deposited in the mail if
delivered by mail, (c) the date sent if sent by overnight courier, or (d) the
date of transmission if delivered by telecopy, except that notices or requests
to the Lender pursuant to any of the provisions of Article II shall not be
effective until received by the Lender.
Section 9.4 FURTHER DOCUMENTS. The Borrower will from time to time
execute and deliver or endorse any and all instruments, documents, conveyances,
assignments, security agreements, financing statements and other agreements and
writings that the Lender may reasonably request in order to secure, protect,
perfect or enforce the Security Interest or the Lender's rights under the Loan
Documents (but any failure to request or assure that the Borrower executes,
delivers or endorses any such item shall not affect or impair the validity,
sufficiency or enforceability of the Loan Documents and the Security Interest,
regardless of whether any such item was or was not executed, delivered or
endorsed in a similar context or on a prior occasion).
Section 9.5 COLLATERAL. This Agreement does not contemplate a sale of
accounts, contract rights or chattel paper, and, as provided by law, the
Borrower is entitled to any surplus and shall remain liable for any deficiency.
Section 9.6 COSTS AND EXPENSES. The Borrower shall pay upon receipt of
appropriate invoices those costs and expenses, including (without limitation)
attorneys' fees, incurred by the Lender in connection with the Note, this
Agreement, the Loan Documents, and any other document or agreement related
hereto or thereto, and the transactions contemplated hereby, which the Borrower
has agreed to pay.
26
Section 9.7 INDEMNITY. In addition to the payment of expenses pursuant
to Section 9.6, Borrower agrees to indemnify, defend and hold harmless the
Lender, and any of its participants, parent corporations, subsidiary
corporations, affiliated corporations, successor corporations, and all present
and future officers, directors, employees, attorneys and agents of the foregoing
(the "Indemnitees") from and against any of the following (collectively,
"Indemnified Liabilities"):
(i) any and all transfer taxes, documentary taxes, assessments
or charges made by any governmental authority by reason of the execution and
delivery of the Loan Documents or the making of the Advances;
(ii) any claims, loss or damage to which any Indemnitee may be
subjected if any representation or warranty contained in Section 5.12 proves to
be incorrect in any respect or as a result of any violation of the covenant
contained in Section 6.4(b); and
(iii) any and all other liabilities, losses, damages,
penalties, judgments, suits, claims, costs and expenses of any kind or nature
whatsoever (including, without limitation, the reasonable fees and disbursements
of counsel) in connection with the foregoing and any other investigative,
administrative or judicial proceedings, whether or not such Indemnitee shall be
designated a party thereto, which may be imposed on, incurred by or asserted
against any such Indemnitee, in any manner related to or arising out of or in
connection with the making of the Advances and the Loan Documents or the use or
intended use of the proceeds of the Advances.
If any investigative, judicial or administrative proceeding arising from any of
the foregoing is brought against any Indemnitee, upon such Indemnitee's request,
the Borrower, or counsel designated by the Borrower and satisfactory to the
Indemnitee, will resist and defend such action, suit or proceeding to the extent
and in the manner directed by the Indemnitee, at the Borrower's sole costs and
expense. Each Indemnitee will use its best efforts to cooperate in the defense
of any such action, suit or proceeding. If the foregoing undertaking to
indemnify, defend and hold harmless may be held to be unenforceable because it
violates any law or public policy, the Borrower shall nevertheless make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The Borrower's obligation
under this Section 9.7 shall survive the termination of this Agreement and the
discharge of the Borrower's other obligations hereunder.
Section 9.8 EXECUTION IN COUNTERPARTS. This Agreement and other Loan
Documents may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which
counterparts, taken together, shall constitute but one and the same instrument.
Section 9.9 PARTICIPANTS. The Lender and its participants, if any, are
not partners or joint venturers, and the Lender shall not have any liability or
responsibility for any obligation, act or omission of any of its participants.
All rights and powers specifically conferred upon the Lender may be transferred
or delegated to any of the Lender's participants, successors or assigns.
27
Section 9.10 BINDING EFFECT; ASSIGNMENT; COMPLETE AGREEMENT. The Loan
Documents shall be binding upon and inure to the benefit of the Borrower and the
Lender and their respective successors and assigns, except that the Borrower
shall not have the right to assign its rights thereunder or any interest therein
without the Lender's prior written consent. This Agreement, together with the
Loan Documents, comprises the complete and integrated agreement of the parties
on the subject matter hereof and supersedes all prior agreements, written or
oral, on the subject matter hereof.
Section 9.11 SEVERABILITY OF PROVISIONS. Any provision of this
Agreement which is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
Section 9.12 HEADINGS. Article and Section headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
Section 9.13 GOVERNING LAW; JURISDICTION, VENUE; WAIVER OF JURY TRIAL.
The Loan Documents shall be governed by and construed in accordance with the
substantive laws (other than conflict laws) of the State of Colorado. The
parties hereto hereby (i) consents to the personal jurisdiction of the state and
federal courts located in the State of Colorado in connection with any
controversy related to this Agreement; (ii) waives any argument that venue in
any such forum is not convenient, (iii) agrees that any litigation initiated by
the Lender or the Borrower in connection with this Agreement or the other Loan
Documents shall be venued in either the District Court of the City and County of
Denver, Colorado, or the United States District Court, District of Colorado; and
(iv) agrees that a final judgment in any such suit, action or proceeding shall
be conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law. THE PARTIES WAIVE ANY RIGHT TO TRIAL BY
JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT.
[THE REMAINDER OF THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY.]
28
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
GLOBAL PROJECT FINANCE AG
By /S/ XXXXXXXXX XXXXXXXXXXXX
--------------------------------------------------
Its DIRECTOR
-------------------------------------------------
PETROHUNTER ENERGY CORPORATION, a Maryland
corporation
By /S/ XXXXX XXXXXX
--------------------------------------------------
Its PRESIDENT
-------------------------------------------------
PETROHUNTER OPERATING COMPANY, a Maryland
corporation
By /S/ XXXXX XXXXXX
--------------------------------------------------
Its PRESIDENT
-------------------------------------------------
29
Table of Exhibits and Schedules
Exhibit A Form of Note
Exhibit B Compliance Certificate
--------------------------------------------------------------------------------
Schedule 1.1 Copyrights, Patents, Properties and Trademarks
Schedule 5.1 Trade Names, Chief Executive Office, Principal
Place of Business, and Locations of Collateral
Schedule 5.4 Subsidiaries
Schedule 7.1 Permitted Liens
Schedule 7.2 Permitted Indebtedness and Guaranties
30
Exhibit A to Credit and Security Agreement
PROMISSORY NOTE
$60,000,000.00 Denver, Colorado
May __, 2007
For value received, the undersigned, PETROHUNTER ENERGY CORPORATION, a
Maryland corporation, and PETROHUNTER OPERATING COMPANY, a Maryland corporation
(collectively, the "Borrower"), hereby promise to pay on the Termination Date
under the Credit Agreement (defined below), to the order of GLOBAL PROJECT
FINANCE AG (the "Lender"), at its main office in Sarnen, Switzerland, or at any
other place designated at any time by the holder hereof, in lawful money of the
United States of America and in immediately available funds, the principal sum
of SIXTY MILLION AND NO/100 DOLLARS ($60,000,000.00) or, if less, the aggregate
unpaid principal amount of all Advances made by the Lender to the Borrower under
the Credit Agreement (defined below) together with interest on the principal
amount hereunder remaining unpaid from time to time, computed on the basis of
the actual number of days elapsed and a 365-day year, from the date hereof until
this Note is fully paid at the rate from time to time in effect under the Credit
and Security Agreement of even date herewith (as the same may hereafter be
amended, supplemented or restated from time to time, the "Credit Agreement") by
and between the Lender and the Borrower. The principal hereof and interest
accruing thereon shall be due and payable as provided in the Credit Agreement.
This Note may be prepaid only in accordance with the Credit Agreement.
This Note is issued pursuant, and is subject, to the Credit Agreement,
which provides, among other things, for acceleration hereof. This Note is the
Note referred to in the Credit Agreement. This Note is secured, among other
things, pursuant to the Credit Agreement and the Security Documents as therein
defined, and may now or hereafter be secured by one or more other security
agreements, mortgages, deeds of trust, assignments or other instruments or
agreements.
The Borrower hereby agrees to pay all costs of collection, including
attorneys' fees and legal expenses in the event this Note is not paid when due,
whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and protest
are expressly waived.
PETROHUNTER ENERGY CORPORATION, PETROHUNTER OPERATING COMPANY,
a Maryland corporation a Maryland corporation
By By
------------------------------ ---------------------------------------
Its Its
----------------------------- ---------------------------------------
EXHIBIT A
Exhibit B to Credit and Security Agreement
COMPLIANCE CERTIFICATE
To: Global Project Finance AG
Date: ___________________, 2007
Subject: PetroHunter Energy Corporation
Financial statements
___________________, 2007
In accordance with our Credit and Security Agreement dated as of May
__, 2007 (the "Credit Agreement"), attached are the financial statements of
PetroHunter Energy Corporation (the "Borrower") as of and for
__________________, 20__ (the "Reporting Date") and the year-to-date period then
ended (the "Current Financials"). All terms used in this certificate have the
meanings given in the Credit Agreement.
I certify that the Current Financials have been prepared in accordance
with GAAP, subject to year-end audit adjustments, and fairly present the
Borrower's financial condition and the results of its operations as of the date
thereof.
EVENT OF DEFAULT. (Check one):
[ ] The undersigned does not have knowledge of the occurrence of a
Default or Event of Default under the Credit Agreement.
[ ] The undersigned has knowledge of the occurrence of a Default
or Event of Default under the Credit Agreement and attached
hereto is a statement of the facts with respect to thereto.
PETROHUNTER ENERGY CORPORATION
By
----------------------------------------
Its
---------------------------------------
EXHIBIT B
