U.S. $40,000,000
SECOND AMENDED AND RESTATED
CREDIT AGREEMENT,
dated as of August 13, 2001
between
ESENJAY EXPLORATION, INC.,
as the Borrower
and
DEUTSCHE BANK AG New York Branch
as the Lender
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
THIS SECOND AMENDED AND RESTATED CREDIT AGREEMENT, dated as of August 13,
2001, between ESENJAY EXPLORATION, INC., a Delaware corporation and the
successor-by-merger to Frontier Natural Gas Corporation and the
successor-by-merger to 3DX Technologies, Inc. (the "BORROWER"), and DEUTSCHE
BANK AG New York Branch (the "LENDER"),
W I T N E S S E T H:
WHEREAS, the Borrower is engaged in the business of oil and gas
exploration and production, and activities related or ancillary thereto; and
WHEREAS, the Borrower is a party to the Amended and Restated Credit
Agreement, dated as of January 25, 2000 (herein, as the same may have been
amended, supplemented or modified prior to the date hereof, the "EXISTING CREDIT
AGREEMENT"), with the Lender pursuant to which the Lender agreed to extend
credit (including by issuing letters of credit) to the Borrower in an aggregate
principal amount (including the aggregate face amount of letters of credit) of
up to $29,000,000; and
WHEREAS, pursuant to the Existing Credit Agreement, Grantors (as defined
in the Security Documents) have entered into various mortgages, security
agreements, pledges and other security documents (collectively, the "EXISTING
SECURITY DOCUMENTS") under which the Grantors (i) have granted Liens to the
Lender on substantially all of their properties and assets to secure the payment
and performance of the Obligations (as defined in the Existing Credit Agreement)
and (ii) are guaranteeing the Obligations; and
WHEREAS, the indebtedness of the Borrower to the Lender under the Existing
Credit Agreement is evidenced by certain promissory notes of the Borrower
(collectively, the "EXISTING NOTES") and is secured by the Existing Security
Documents (the Existing Notes, the Existing Security Documents and various
related agreements, instruments and documents are referred to collectively as
the "EXISTING CREDIT DOCUMENTS"); and
WHEREAS, the Borrower desires to amend and restate the Existing Credit
Agreement, and to obtain Commitments from the Lender pursuant to which Loans
will be made to the Borrower from time to time prior to the applicable
Commitment Termination Date, in a maximum aggregate principal amount of Loans at
any one time not to exceed in the aggregate the lesser of (x) the Collateral
Value, or (y) $40,000,000; and
WHEREAS, the Lender is willing, on the terms and subject to the conditions
hereinafter set forth (including ARTICLE V), to extend such Commitments, to
amend and restate the Existing Credit Agreement, and to make such Loans to the
Borrower; and
1
WHEREAS, the proceeds of such Loans will be used
(1) to refinance the Existing Secured Debt (defined below);
(2) to conduct other Approved Development Activities (defined
below) on the Oil and Gas Properties owned by the Borrower or
one of the Borrower's Subsidiaries on the Effective Date,
including those Properties located in Liberty, Hardin,
Wharton, Aransas, Xxxxxxx, Goliad, Bee, De Xxxx, Lovaca,
Brazoria, Jefferson, Chambers, Galveston, Matagorda, Live Oak,
San Patricio, Karnes, Willacy and Xxxxxxx Counties, Texas;
Beaureguard, Calcasieu, Cameron and Terrebonne Parishes,
Louisiana; and Cleveland County, Oklahoma (1);
(3) to finance Acquired Properties (defined below);
(4) to conduct Approved Development Activities on Acquired
Properties;
(5) for general corporate and working capital purposes; and
WHEREAS, the Parties have agreed it is in their respective best interests
to enter into this Agreement amending, restating and superseding the Existing
Credit Agreement,
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1. DEFINED TERMS. The following terms (whether or not
underscored) when used in this Agreement, including its preamble and recitals,
shall, except where the context otherwise requires, have the following meanings
(such meanings to be equally applicable to the singular and plural forms
thereof):
"ACQUIRED PROPERTIES" means those Oil and Gas Properties and other assets
that are acquired from time to time in an Acquisition.
"ACQUISITION" means an acquisition, after the Effective Date, by the
Borrower or one or more of its Subsidiaries of Acquired Properties.
"AFFILIATE" of any Person means any other Person which, directly or
indirectly, controls, is controlled by or is under common control with such
Person (excluding any trustee under, or any committee with responsibility for
administering, any Plan). A
------------------------------
(1) Update list as appropriate.
2
Person shall be deemed to be "controlled by" any other Person if such other
Person possesses, directly or indirectly, power
(a) to vote 10% or more of the securities (on a fully diluted basis)
having ordinary voting power for the election of directors or managing
general partners; or
(b) to direct or cause the direction of the management and policies
of such Person whether by contract or otherwise.
"AGREEMENT" means, on any date, this Second Amended and Restated Credit
Agreement as originally in effect on the Effective Date and as thereafter from
time to time amended, supplemented, amended and restated, or otherwise modified
and in effect on such date.
"ALTERNATE REFERENCE RATE" means, on any date and with respect to all Base
Rate Loans, a fluctuating rate of interest per annum equal to the higher of
(a) the rate of interest as announced from time to time by the
Lender as its base rate, prime rate or other reference rate at its
Domestic Office; or
(b) the Federal Funds Rate most recently determined by the Lender
plus 1/2%.
The Alternate Reference Rate is not necessarily intended to be the lowest rate
of interest in connection with extensions of credit. Changes in the rate of
interest on that portion of any Loans maintained as Base Rate Loans will take
effect simultaneously with each change in the Alternate Reference Rate. The
Lender will give notice to the Borrower of changes in the Alternate Reference
Rate.
"APPLICABLE LAW" means with respect to any Person or matter, any federal,
state, regional, tribal or local statute, law, code, rule, treaty, convention,
application, order, decree, consent decree, injunction, directive, determination
or other requirement (whether or not having the force of law) relating to such
Person or matter and, where applicable, any interpretation thereof by a
Government Agency having jurisdiction with respect thereto or charged with the
administration or interpretation thereof.
"APPLICABLE MARGIN" means, with respect to any Credit Extension at any
time of determination, a margin above the interest rate or fee applicable to
such Credit Extension equal to the following:
--------------------------------------- -------------------- --------------------------------------
LIBO Rate Alternate Reference Rate
--------------------------------------- -------------------- --------------------------------------
Tranche A Loan 2.0% 0%
--------------------------------------- -------------------- --------------------------------------
Tranche B Loan 6.0% LIBO RATE MINUS 2.0%
--------------------------------------- -------------------- --------------------------------------
Letter of Credit 2.0% 0%
--------------------------------------- -------------------- --------------------------------------
"APPROVALS" means each and every approval, authorization, license, permit,
consent, variance, land use entitlement, franchise, agreement, filing or
registration by or
3
with any Government Agency or other Person necessary for all stages of
developing, operating, maintaining and abandoning Oil and Gas Properties.
"APPROVED BUDGET" means the Borrower's plan, as approved by the Lender
pursuant to SECTION 8.1.3, for conducting Approved Development Activities on the
Oil and Gas Properties comprising the Borrowing Base Properties, Mortgaged
Properties and the Development Properties. The Approved Budget shall set forth,
by geographic region or trend, as appropriate, projected drilling costs,
completion costs, geological and geophysical costs, G&A Expenses, workover
expenses (beyond those accounted for by the Borrower as lease operating
expenses), the number of xxxxx to be drilled and other major items as the Lender
may reasonably request, in each quarter for the 12 month period covered by such
Approved Budget. The Approved Budget shall be presented in substantially the
form of EXHIBIT P, or such other form as the Lender may approve, and shall be
updated each Fiscal Quarter for the following eight (8) Fiscal Quarters as
provided in SECTION 8.1.1.
"APPROVED DEVELOPMENT ACTIVITIES" means drilling, geological and
geophysical investigations and evaluations and related activities on the
Borrowing Base Properties, the Mortgaged Properties and/or Development
Properties substantially in accordance with the Approved Budget (i) in order to
bring into production Proven Reserves which the Lender has included in its
determination of the Borrowing Base, and (ii) in order to further explore and/or
develop the Mortgaged Properties and the Development Properties not otherwise
included in the Borrowing Base, in each case as approved by the Lender.
"ARRANGER" means Deutsche Bank Alex. Xxxxx, Inc.
"ASPECT" means Aspect Resources LLC, a Colorado limited liability company.
"ASSIGNEE LENDER" is defined in SECTION 10.11.1.
"ASSIGNMENT" means the Assignment and Conveyance of Overriding Royalty
Interest, substantially in the form of EXHIBIT J, from the Borrower and/or the
Borrower's Subsidiaries to the Designee, assigning to the Designee, as
additional consideration for the making of Commitments by the Lender and not as
collateral security for the Loans, overriding royalty interests in its or their
Hydrocarbon Interests comprising certain Oil and Gas Properties of the Borrower
and its Subsidiaries, as set forth in the Confidential Fee Letter. The
overriding royalty interest conveyed by the Assignment is subject to reduction
as set forth in the Agreement Concerning Overriding Royalty Interest between the
Borrower, the Lender and the Designee, and the Borrower has the optional right
to purchase such overriding royalty interest from the Designee as provided in
the Confidential Fee Letter.
"AUTHORIZED OFFICER" means, relative to any Obligor, those of its officers
whose signatures and incumbency shall have been certified to the Lender pursuant
to SECTION 6.1.1.
4
"BASE RATE LOAN" means a Loan bearing interest at a fluctuating rate
determined by reference to the Alternate Reference Rate.
"BONUS PLAN" means the employee bonus plan of Borrower, which cannot be
modified, revised or amended without the prior written consent of Lender, a copy
of which is attached hereto as SCHEDULE VIII.
"BORROWER" is defined in the PREAMBLE.
"BORROWING" means the Loans of the same type and, in the case of LIBO Rate
Loans, having the same Interest Period made by the Lender on the same Business
Day and pursuant to the same Borrowing Request in accordance with SECTION 2.1.
"BORROWING BASE" means, as at any date, (a) prior to the initial Borrowing
Base Redetermination, $20,000,000, subject to reduction, however, as set forth
in that certain Closing Agreement dated as of the Effective Date between the
Borrower and the Lender (the "CLOSING AGREEMENT"), and (b) thereafter, (i) that
amount of Indebtedness for borrowed money under the Facility that the Lender
determines can be supported by the Proven Reserves attributable to Hydrocarbon
Interests owned directly by the Borrower or its Subsidiaries which are a part of
the Borrowing Base Properties, after an engineering and economic review of such
reserves conducted by the Lender using its customary standards for oil and gas
facilities of this type, taking into account the value of all those proved
developed producing oil and gas reserves and certain portions of certain other
categories of Proven Reserves attributable to the Borrowing Base Properties.
"BORROWING BASE DEFICIENCY" means the amount by which (a) the sum of the
aggregate outstanding principal amount of all Tranche A Loans plus Letter of
Credit Outstandings exceeds (b) the then current Borrowing Base.
"BORROWING BASE DEFICIENCY NOTIFICATION DATE" means the date on which any
notice of a Borrowing Base Deficiency is received by the Borrower.
"BORROWING BASE PROPERTIES" means those Mortgaged Properties, those
Development Properties and those other Oil and Gas Properties owned by the
Borrower or its Subsidiaries, if any, that are given value by the Lender in its
determination of the then current Borrowing Base.
"BORROWING BASE REDETERMINATION" is defined in SECTION 2.6.
"BORROWING REQUEST" means a loan request and certificate duly executed by
an Authorized Officer of the Borrower, substantially in the form of EXHIBIT B-1
hereto.
"BUSINESS DAY" means
(a) any day which is neither a Saturday or Sunday nor any other day
on which banks are authorized or required to be closed in
New York,
New
York; and
5
(b) relative to the making, continuing, prepaying or repaying of any
LIBO Rate Loans, any day on which dealings in Dollars are carried on in
the London interbank market.
"CAPITAL EXPENDITURES" means, for any period, (without duplication) the
aggregate amount of all expenditures of the Borrower and its consolidated
Subsidiaries for fixed or capital assets made during such period which, in
accordance with GAAP, would be classified as capital expenditures including,
with respect to any period, payments made by the Borrower and its consolidated
Subsidiaries with respect to Capitalized Lease Liabilities incurred during such
period.
"CAPITALIZATION" means, at any time, the sum of (a) the total Debt of the
Borrower and its consolidated Subsidiaries PLUS (b) the total equity of the
Borrower and its consolidated Subsidiaries, PLUS or MINUS as the case may be (c)
the effects, if any, of FAS 133.
"CAPITALIZED LEASE LIABILITIES" means all monetary obligations of the
Borrower or any of its consolidated Subsidiaries under any leasing or similar
arrangement which, in accordance with GAAP, would be classified as capitalized
leases, and, for purposes of this Agreement and each other Loan Document, the
amount of such obligations shall be the capitalized amount thereof, determined
in accordance with GAAP.
"CASH EQUIVALENT INVESTMENT" means, at any time:
(a) any evidence of Indebtedness, maturing not more than one year
after such time, issued or guaranteed by the United States Government;
(b) commercial paper, maturing not more than nine months from the
date of issue, which is issued by
(i) a corporation (other than an Affiliate of the Borrower)
organized under the laws of any state of the United States or of the
District of Columbia and rated at least A-1 by S&P or P-1 by
Xxxxx'x., or
(ii) the Lender;
(c) any certificate of deposit or bankers acceptance, maturing not
more than one year after such time, which is issued by
(i) a commercial banking institution that is a member of the
Federal Reserve System and has a combined capital and surplus and
undivided profits of not less than $500,000,000, or
(ii) the Lender; or
(d) any repurchase agreement entered into with the Lender (or other
commercial banking institution of the stature referred to in CLAUSE (c))
which
6
(i) is secured by a fully perfected security interest in any
obligation of the type described in any of CLAUSES (a) through (c);
and
(ii) has a market value at the time such repurchase agreement
is entered into of not less than 100% of the repurchase obligation
of the Lender (or other commercial banking institution) thereunder.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended.
"CERCLIS" means the Comprehensive Environmental Response Compensation
Liability Information System List.
"CHANGE IN CONTROL" means if (a) either Old Esenjay or Aspect shall fail
beneficially to own at least 80% of their existing percentages of the
outstanding shares of the voting capital stock of the Borrower as of August 1,
2001 (subject to dilution only in the event of the issuance of additional shares
of such voting capital stock), on a fully diluted basis, (b) Xxxxxxx Xxxxxxx,
Xxxx Xxxxxxxx, Xxxxx Xxxxx and/or Xxxxx X. Xxxxxxxxxxxxxx shall fail to be
actively involved in the management of the business of the Borrower or (c) the
Borrower ceases to own beneficially and of record 100% of the capital stock of
each of the Borrower's Subsidiaries.
"CODE" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time, and the regulations promulgated
thereunder.
"COLLATERAL VALUE" shall mean, as at any date, (a) prior to the initial
Collateral Value Redetermination, $30,000,000, subject to reduction, however, as
set forth in the Closing Agreement, and (b) thereafter, the lesser of
(X) the quotient of (i) the projected net future cash flow, discounted at
ten percent (10%) per annum, from the anticipated production of
Hydrocarbons from Proven Reserves attributable to Hydrocarbon Interests
owned directly by the Borrower or one of the Borrower's Subsidiaries which
are a part of the Borrowing Base Properties, after an engineering and
economic review of such reserves conducted by the Lender taking into
account the value of all those proved developed producing oil and gas
reserves and all other categories of Proven Reserves attributable to the
Borrowing Base Properties that the Lender expects can become proved
developed producing reserves with funds that the Lender determines are
available to the Borrower for such purpose and use, divided by (ii) 1.4,
and
(Y) quotient of (i) the projected net future cash flow, discounted at ten
percent (10%) per annum, from the anticipated production of Hydrocarbons
from Proven Reserves attributable to Hydrocarbon Interests owned directly
by the Borrower or one of the Borrower's Subsidiaries which are a part of
the Borrowing Base Properties, after an engineering and economic review of
such reserves conducted by the Lender taking into account the value of all
those proved developed producing oil and gas reserves and all other
categories of Proven
7
Reserves attributable to the Borrowing Base Properties that the Lender
expects can become proved developed producing reserves with funds that the
Lender determines are available to the Borrower for such purpose and use,
divided by (ii) 1.25, minus the amount calculated from time to time by the
Lender as the Xxxx to Market Exposure under all Hedging Agreements between
the Borrower and the Lender or any Affiliate of the Lender and all other
Hedging Agreements of the Borrower that are otherwise permitted by this
Agreement.
"COLLATERAL VALUE DEFICIENCY" means the amount by which (a) the sum of the
aggregate outstanding principal amount of all Tranche A Loans PLUS the aggregate
outstanding principal amount of the Tranche B Loan PLUS all Letter of Credit
Outstandings exceeds (b) the then current Collateral Value.
"COLLATERAL VALUE DEFICIENCY NOTIFICATION DATE" shall mean the date on
which any notice of a Collateral Value Deficiency is received by the Borrower.
"COLLATERAL VALUE REDETERMINATION" is defined in SECTION 2.6.
"COMMITMENT" means the Lender's commitment pursuant to SECTION 2.1 to make
Loans to the Borrower and to issue Letters of Credit in accordance with the
terms and provisions of this Agreement.
"COMMITMENT AMOUNT" means the lesser of
(a) (i) $40,000,000, as reduced from time to time pursuant to the
provisions of SECTION 2.2, and (ii) the Collateral Value (at all times
prior to the Tranche B Availability Termination Date), and
(b) (i) $30,000,000, as reduced from time to time pursuant to the
provisions of SECTION 2.2, and (ii) the Borrowing Base (at all times
subsequent to the Tranche B Availability Termination Date).
"COMMITMENT AVAILABILITY" means, on any date, the excess of
(c) the then applicable Commitment Amount, over
(d) the sum of
(i) the aggregate outstanding principal amount of all
applicable Loans on such date, plus
(ii) the Letter of Credit Outstandings on such date.
"COMMITMENT TERMINATION DATE" means the earliest of
(a) the date on which either the Tranche A Commitment Amount or the
Tranche B Commitment Amount, or either of them, as applicable, is
terminated in full or reduced to zero pursuant to SECTION 2.2; and
8
(b) the date on which any Commitment Termination Event occurs.
"COMMITMENT TERMINATION EVENT" means
(a) the occurrence of any Default described in CLAUSES (a) through
(d) of SECTION 9.1.9 with respect to the Borrower or any Subsidiary; or
(b) the occurrence and continuance of any other Event of Default and
either
(i) the declaration of the Loans and other Obligations to be
due and payable pursuant to SECTION 9.3, or
(ii) in the absence of such declaration, the giving of notice
by the Lender to the Borrower that the Commitments have been
terminated.
"CONFIDENTIAL FEE LETTER" means that certain confidential fee letter dated
as of August 13, 2001, between the Borrower, the Arranger and the Lender, as the
same may be from time to time amended, modified and supplemented.
"CONSENT" means a Consent to Assignment executed and delivered pursuant to
SECTION 6.2.6, substantially in the form of EXHIBIT R, as amended, supplemented,
restated or otherwise modified from time to time pursuant to which the
Borrower's counterparty to each Material Contract (i) consents to the assignment
of each such Material Contract to the Lender as security for the Obligations and
(ii) provides the Lender an independent right to cure defaults under such
Material Contract.
"CONSOLIDATED NET INCOME" means, with respect to the Borrower and its
consolidated Subsidiaries for any period, the consolidated net income (or loss)
of the Borrower and its consolidated Subsidiaries for such period determined in
accordance with GAAP.
"CONTINGENT LIABILITY" means, as to any Person, any direct or indirect
liability of that Person, whether or not contingent, with or without recourse,
(a) with respect to any Indebtedness, lease, dividend, letter of credit or other
obligation (the "primary obligations") of another Person (the "primary
obligor"), including any obligation of that Person (i) to purchase, repurchase
or otherwise acquire such primary obligations or any security therefor, (ii) to
advance or provide funds for the payment or discharge of any such primary
obligation, or to maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency or any balance sheet
item, level of income or financial condition of the primary obligor, (iii) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation, or (iv) otherwise to assure or hold
harmless the holder of any such primary obligation against loss in respect
thereof (each, a "GUARANTY OBLIGATION"); (b) with respect to any Surety
Instrument issued for the account of that Person or as to which that Person is
otherwise liable for reimbursement of drawings or payments; or (c) to purchase
any materials, supplies or other property from, or to obtain the services of,
9
another Person if the relevant contract or other related document or obligation
requires that payment for such materials, supplies or other property, or for
such services, shall be made regardless of whether delivery of such materials,
supplies or other property is ever made or tendered, or such services are ever
performed or tendered.
"CONTINUATION/CONVERSION NOTICE" means a notice of continuation or
conversion and certificate duly executed by an Authorized Officer of the
Borrower, substantially in the form of Exhibit B-2 hereto.
"CONTROLLED GROUP" means all members of a controlled group of corporations
and all members of a controlled group of trades or businesses (whether or not
incorporated) under common control which, together with the Borrower, are
treated as a single employer under Section 414(b) or 414(c) of the Code or
Section 4001 of ERISA.
"CREDIT EXTENSION" means and includes
(a) the advancing of any Tranche A Loans by the Lender in connection
with a Borrowing hereunder,
(b) the advancing of any Tranche B Loans by the Lender in connection
with a Borrowing hereunder, and
(c) any issuance by an Issuer, or the extension of the Stated Expiry
Date by an Issuer, of a Letter of Credit.
"CURRENT RATIO" means, as of the end of each Fiscal Quarter, the ratio of
(a) the current assets (including the unused portion of the
Commitment Amount (to the extent available to be borrowed)) of the
Borrower and its consolidated Subsidiaries
TO
(b) the current liabilities (minus the current portion of long term
Debt) of the Borrower and its consolidated Subsidiaries.
"DEBT" means the outstanding principal amount of all Indebtedness of the
Borrower and its consolidated Subsidiaries of the nature referred to in CLAUSES
(a) and (b) of the definition of "INDEBTEDNESS".
"DEBT TO CAPITALIZATION RATIO" means, as of the end of each Fiscal
Quarter, the ratio of (a) Debt to (b) Capitalization.
"DEBT TO EBITDA RATIO" means, for any four (4) consecutive Fiscal Quarters
commencing with the Fiscal Quarter beginning July 1, 2001, the ratio of (a) Debt
as of the last day of such Fiscal Quarter to (b) EBITDA for such Fiscal
Quarters; PROVIDED, HOWEVER, that solely for purposes of calculating the Debt to
EBITDA Ratio there shall be excluded from the calculation of Consolidated Net
Income those expenses of the
10
Borrower and its Consolidated Subsidiaries for geological and geophysical
services and those incurred in connection with oil and gas xxxxx that were not
commercially successful, in each case with respect to such entities' Oil and Gas
Properties where such expenses have not been capitalized.
"DEFAULT" means any Event of Default or any condition, occurrence or event
which, after notice or lapse of time or both, would constitute an Event of
Default.
"DEVELOPMENT PROPERTIES" means the Oil and Gas Properties owned directly
by the Borrower and its Subsidiaries that are projected to be the subject of
Approved Development Activities in accordance with the then current Approved
Budget.
"DISBURSEMENT DATE" is defined in SECTION 4.4.
"DESIGNEE" is defined in SECTION 3.5.
"DISBURSEMENT" means the amount disbursed by the Issuer on a Disbursement
Date.
"DISCLOSURE SCHEDULE" means the Disclosure Schedule attached hereto as
SCHEDULE I, as it may be amended, supplemented or otherwise modified from time
to time by the Borrower with the written consent of the Lender.
"DISTRIBUTION PAYMENTS" is defined in SECTION 8.2.6.
"DOLLAR" and the sign "$" mean lawful money of the United States.
"DOMESTIC OFFICE" means the office of the Lender designated as such on its
signature page hereto or designated in a Lender Assignment Notice or such other
office of the Lender (or any successor or assign of the Lender) within the
United States as may be designated from time to time by notice from the Lender,
as the case may be, to each other Person party hereto.
"EBITDA" means for any period, the sum, without duplication, of the
following:
(a) Consolidated Net Income for such period, plus
(b) Interest Expense for such period, plus
(c) all depreciation and amortization of assets (including goodwill
and other intangible assets) of the Borrower and its consolidated
Subsidiaries deducted in determining Consolidated Net Income for such
period, plus (minus)
(d) all federal, state, local and foreign income taxes of the
Borrower and its consolidated Subsidiaries deducted (or credits added) in
determining Consolidated Net Income for such period, plus (minus)
11
(e) all non-cash items deducted or added pursuant to FAS 133, plus
(minus)
(f) other non-cash items deducted or added in determining
Consolidated Net Income for such period.
"EFFECTIVE DATE" means the date this Agreement becomes effective pursuant
to SECTION 10.8.
"ENGINEERING REPORT" means one or more reports, in form and substance
satisfactory to the Lender, prepared at the sole cost and expense of the
Borrower by Xxxxx Xxxxx Company or another petroleum engineer acceptable to the
Lender in its reasonable business judgment, which shall evaluate the Proven
Reserves and probable reserves attributable to the Hydrocarbon Interests owned
directly by the Borrower and/or its Subsidiaries and constituting part of the
Borrowing Base Properties, as of the immediately preceding January 1 or July 1.
Each Engineering Report shall set forth volumes, projections of the future rate
of production, Hydrocarbons prices, escalation rates, discount rate assumptions,
and net proceeds of production, present value of the net proceeds of production,
estimated costs of Remedial Action, operating expenses and capital expenditures,
in each case based upon updated economic assumptions reasonably acceptable to
the Lender.
"ENVIRONMENTAL LAWS" means all Applicable Laws relating to public health
and safety through protection of the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time. References
to sections of ERISA also refer to any successor sections.
"EVENT OF DEFAULT" is defined in SECTION 9.1.
"EXISTING CREDIT AGREEMENT" is defined in the SECOND RECITAL.
"EXISTING CREDIT DOCUMENTS" is defined in the FOURTH RECITAL.
"EXISTING NOTES" is defined in the FOURTH RECITAL.
"EXISTING SECURITY DOCUMENTS" is defined in the THIRD RECITAL.
"EXISTING SECURED DEBT" means the Debt of the Borrower under the Existing
Credit Agreement.
"FACILITY" means the Tranche A Facility or the Tranche B Facility, or
either of them, as the case may be, providing for the Commitment and the Loans.
12
"FAS 133" means Statement No. 133 issued by the Financial Accounting
Standards Board and captioned "Accounting for Derivative Instruments and Hedging
Activities".
"FEDERAL FUNDS RATE" means, for any day, the rate set forth in the weekly
statistical release designated as H.15(519), or any successor publication,
published by the Federal Reserve Bank of
New York (including any such successor,
"H.15(519)") on the preceding Business Day opposite the caption "Federal Funds
(Effective)"; or, if for any relevant day, such rate is not so published on any
such preceding Business Day, the rate for such day will be the arithmetic mean
as determined by the Lender of the rates for the last transaction in overnight
Federal funds arranged prior to 9:00 a.m. (
New York City time) on that day by
each of three leading brokers of Federal funds transactions in
New York City
selected by the Lender.
"FISCAL QUARTER" means any quarter ending on the last day of March, June,
September, and December of a Fiscal Year.
"FISCAL YEAR" means any period of twelve consecutive calendar months
ending on December 31; references to a Fiscal Year with a number corresponding
to any calendar year (E.G., "Fiscal Year 2001") refer to the Fiscal Year ending
on the December 31 occurring during such calendar year.
"F.R.S. BOARD" means the Board of Governors of the Federal Reserve System
or any successor thereto.
"GAAP" is defined in SECTION 1.4.
"G&A EXPENSES" means the general and administrative expenses of the
Borrower and its Subsidiaries not attributable to any particular Oil and Gas
Property or Properties, including without limitation, salaries, office rent and
operating expenses, overhead and outside contractors.
"GOVERNMENT AGENCY" means any federal, state, regional, tribal or local
government or governmental department or other entity charged with the
administration, interpretation or enforcement of any Applicable Law.
"GRANTORS" is defined in the THIRD RECITAL.
"GUARANTIES" means the guaranties of the Obligations, executed and
delivered pursuant to SECTION 6.1.3 AND SECTION 6.2.7, substantially in the form
of EXHIBIT E, given by each of the Borrower's Subsidiaries.
"HAZARDOUS MATERIAL" means
(a) any "hazardous substance", as defined by CERCLA;
(b) any "hazardous waste", as defined by the Resource Conservation
and Recovery Act, as amended;
13
(c) any petroleum, crude oil or fraction thereof;
(d) any hazardous, dangerous or toxic chemical, material, waste or
substance within the meaning of any Environmental Law;
(e) any radioactive material, including any naturally occurring
radioactive material, and any source, special or by-product material as
defined in 42 U.S.C. Section 2011 et seq., and any amendments or
reauthorizations thereof;
(f) asbestos-containing materials in any form or condition; or
(g) polychlorinated biphenyls in any form or condition.
"HEDGING AGREEMENTS" means:
(a) interest rate swap agreements, basis swap agreements, interest
rate cap agreements, forward rate agreements, interest rate floor
agreements and interest rate collar agreements, and all other agreements
or arrangements designed to protect such Person against fluctuations in
interest rates or currency exchange rates, and
(b) forward contracts, options, futures contracts, futures options,
commodity swaps, commodity options, commodity collars, commodity caps,
commodity floors and all other agreements or arrangements designed to
protect such Person against fluctuations in the price of commodities.
"HEDGING OBLIGATIONS" means, with respect to any Person, all liabilities
(including but not limited to obligations and liabilities arising in connection
with or as a result of early or premature termination of a Hedging Agreement,
whether or not occurring as a result of a default thereunder) of such Person
under a Hedging Agreement.
"HIGHEST LAWFUL RATE" is defined in SECTION 3.2.4.
"HYDROCARBON INTERESTS" means all rights, titles and interests in and to
oil and gas leases; oil, gas and mineral leases; other Hydrocarbon leases;
mineral interests; mineral servitudes; overriding royalty interests; royalty
interests; net profits interests; production payment interests; and other
similar interests.
"HYDROCARBONS" means, collectively, oil, gas, casinghead gas, drip
gasoline, natural gasoline, condensate, distillate and all other liquid or
gaseous hydrocarbons and related minerals and all products therefrom, in each
case whether in a natural or a processed state.
"INCREMENTAL PROVED PRODUCING RESERVES" means those Proven Reserves
attributable to the Hydrocarbon Interests owned by the Borrower and its
Consolidated Subsidiaries in excess of the baseline volumes set forth on
SCHEDULE VII hereto.
14
"IMPERMISSIBLE QUALIFICATION" means, relative to the opinion or
certification of any independent public accountant as to any financial statement
of the Borrower, any qualification or exception to such opinion or certification
(a) which is of a "going concern" or similar nature;
(b) which relates to the limited scope of examination of matters
relevant to such financial statement; or
(c) which relates to the treatment or classification of any item in
such financial statement and which, as a condition to its removal, would
require an adjustment to such item the effect of which would be to cause
the Borrower to be in default of any of its obligations under SECTION
8.2.4.
"INCLUDING" means including without limiting the generality of any
description preceding such term, and, for purposes of this Agreement and each
other Loan Document, the parties hereto agree that the rule of EJUSDEM GENERIS
shall not be applicable to limit a general statement, which is followed by or
referable to an enumeration of specific matters, to matters similar to the
matters specifically mentioned.
"INDEBTEDNESS" of any Person means, without duplication:
(a) all obligations of such Person for borrowed money and all
obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments;
(b) all obligations, contingent or otherwise, relative to the face
amount of all letters of credit, whether or not drawn, and banker's
acceptances issued for the account of such Person;
(c) all other items which, in accordance with GAAP, would be
included as liabilities on the liability side of the balance sheet of such
Person as of the date at which Indebtedness is to be determined;
(d) net liabilities of such Person under all Hedging Obligations;
(e) all net monetary obligations of such Persons with respect to
Production Payments;
(f) all Capitalized Lease Liabilities;
(g) whether or not so included as liabilities in accordance with
GAAP, all obligations of such Person to pay the deferred purchase price of
property or services, and indebtedness (excluding prepaid interest
thereon) secured by a Lien on property owned or being purchased by such
Person (including indebtedness arising under conditional sales or other
title retention agreements), whether or not such indebtedness shall have
been assumed by such Person or is limited in recourse; and
15
(h) all Contingent Liabilities of such Person;
For all purposes of this Agreement, the Indebtedness of any Person shall include
the Indebtedness of any partnership or joint venture in which such Person is a
general partner or a joint venturer, unless the Lender expressly permits
exclusion based on non-recourse provisions acceptable to the Lender set forth in
the agreements regarding such Indebtedness..
"INDEMNIFIED LIABILITIES" is defined in SECTION 10.4.
"INDEMNIFIED PARTIES" is defined in SECTION 10.4.
"INITIAL TRANCHE B AMOUNT" means the original, principal amount of the
Tranche B Loan made by the Lender on the Effective Date.
"INTEREST COVERAGE RATIO" means, for any four (4) consecutive Fiscal
Quarters commencing with the Fiscal Quarter beginning July 1, 2000, the ratio of
(a) EBITDA for such Fiscal Quarters to (b) Interest Expense for such Fiscal
Quarters; PROVIDED, HOWEVER, that solely for purposes of calculating the
Interest Coverage Ratio there shall be excluded from the calculation of
Consolidated Net Income those expenses of the Borrower and its Consolidated
Subsidiaries for geological and geophysical services and those incurred in
connection with oil and gas xxxxx that were not commercially successful, in each
case with respect to such entities' Oil and Gas Properties where such expenses
have not been capitalized.
"INTEREST EXPENSE" means, for any period, the consolidated interest
expense of the Borrower and its consolidated Subsidiaries for such period
(including all imputed interest under Hedging Agreements, but excluding all fees
paid under Section 3.3), as determined in accordance with GAAP, including the
interest expense associated with any Capitalized Lease Liabilities of the
Borrower and its consolidated Subsidiaries.
"INTEREST PERIOD" means, relative to any LIBO Rate Loan, the period
beginning on (and including) the date on which such LIBO Rate Loan is made or
continued as, or converted into, a LIBO Rate Loan pursuant to SECTION 2.3 or 2.4
and ending on (but excluding) the day which numerically corresponds to such date
one, three or six months thereafter (or, if such month has no numerically
corresponding day, on the last Business Day of such month), in each case as the
Borrower may select in its relevant notice pursuant to SECTION 2.3 or 2.4;
PROVIDED, HOWEVER, that
(a) no more than three different Interest Periods may be in effect
at any time;
(b) Interest Periods commencing on the same date for Loans
comprising part of the same Borrowing shall be of the same duration;
(c) if such Interest Period would otherwise end on a day which is
not a Business Day, such Interest Period shall end on the next following
Business Day (unless, if such Interest Period applies to LIBO Rate Loans,
such next following
16
Business Day is the first Business Day of another calendar month, in which
case such Interest Period shall end on the Business Day next preceding
such numerically corresponding day);
(d) no Interest Period may end later than the Stated Maturity Date;
and
(e) the Borrower shall select each Interest Period for a particular
LIBO Rate Loan so as not to require (as reasonably foreseeable as
possible) a prepayment of such LIBO Rate Loan during such Interest Period.
"INVESTMENT" means, relative to any Person,
(a) any loan or advance made by such Person to any other Person
(excluding commission, travel and similar advances to officers and
employees made in the ordinary course of business and excluding prepaid
expenses incurred in the ordinary course of business);
(b) any Contingent Liability of such Person; and
(c) any ownership or similar interest held by such Person in any
other Person; PROVIDED, HOWEVER, that (i) Hedging Obligations and (ii)
Production Payments where the Borrower or its Subsidiary is the grantor or
transferor thereof shall not be considered Investments.
The amount of any Investment shall be the original principal or capital amount
thereof less all returns of principal or equity thereon (and without adjustment
by reason of the financial condition of such other Person) and shall, if made by
the transfer or exchange of property other than cash, be deemed to have been
made in an original principal or capital amount equal to the fair market value
of such property.
"ISSUANCE REQUEST" means a request for the issuance of a Letter of Credit
and certificate duly executed by the chief executive, accounting or financial
Authorized Officer of the Borrower, in substantially the form of EXHIBIT M
attached hereto (with such changes thereto as may be agreed upon from time to
time by the Issuer and the Borrower).
"ISSUER" means the Lender or its designee, in its capacity as an issuer of
the Letters of Credit.
"LENDER ASSIGNMENT NOTICE" means a Lender Assignment Notice substantially
in the form of EXHIBIT G hereto.
"LENDER" is defined in the PREAMBLE.
"LETTER OF CREDIT" is defined in SECTION 4.1.
"LETTER OF CREDIT AVAILABILITY" means, at any time, the lesser of
17
(a) the excess of
(i) $1,000,000 OVER
(ii) the then Letter of Credit Outstandings,
OR
(b) the Tranche A Commitment Availability at such time.
"LETTER OF CREDIT OUTSTANDINGS" means, at any time, an amount equal to sum
of
(a) the aggregate Stated Amount at such time of all Letters of
Credit then outstanding and undrawn (as such aggregate Stated Amount shall
be adjusted, from time to time, as a result of drawings, the issuance of
Letters of Credit, or otherwise),
PLUS
(b) the then aggregate amount of all unpaid and outstanding
Reimbursement Obligations.
"LIBO RATE" means, with respect to each Interest Period for a LIBO Rate
Loan, the rate of interest equal to the average (rounded upward, if necessary,
to the nearest 1/16th of 1%) of the rates per annum at which Dollar deposits in
immediately available funds are offered to the Lender's LIBOR Office in the
London interbank market as at or about 11:00 a.m. London time two (2) Business
Days prior to the beginning of such Interest Period for Dollar deposits of
amounts comparable to the outstanding principal amount of the LIBO Rate Loan for
which an interest rate is then being determined with maturities comparable to
the Interest Period to be applicable to such LIBO Rate Loan.
"LIBO RATE LOAN" means a Loan bearing interest, at all times during an
Interest Period applicable to such Loan, at a fixed rate of interest determined
by reference to the LIBO Rate.
"LIBO RATE (RESERVE ADJUSTED)" means, relative to any Loan to be made,
continued or maintained as, or converted into, a LIBO Rate Loan for any Interest
Period, a rate per annum (rounded upwards, if necessary, to the nearest 1/16 of
1%) determined pursuant to the following formula:
------------------------------------------------ ---------------------------------------------------------
LIBO Rate LIBO Rate
------------------------------------------------ ---------------------------------------------------------
(Reserve Adjusted) 1.00 - LIBOR Reserve Percentage
------------------------------------------------ ---------------------------------------------------------
The LIBO Rate (Reserve Adjusted) for any Interest Period for LIBO Rate
Loans will be determined by the Lender on the basis of the LIBOR Reserve
Percentage in effect on, and the applicable rates furnished to and received by
the Lender, two Business Days before the first day of such Interest Period.
18
"LIBOR OFFICE" means the office of the Lender designated as such on the
signature page hereto or designated in a Lender Assignment Notice or such other
office of the Lender (or any successor or assign of the Lender) as designated
from time to time by notice from the Lender to the Borrower, whether or not
outside the United States, which shall be making or maintaining LIBO Rate Loans
of the Lender hereunder.
"LIBOR RESERVE PERCENTAGE" means, relative to any Interest Period for LIBO
Rate Loans, the reserve percentage (expressed as a decimal) equal to the maximum
aggregate reserve requirements (including all basic, emergency, supplemental,
marginal and other reserves and taking into account any transitional adjustments
or other scheduled changes in reserve requirements) specified under regulations
issued from time to time by the F.R.S. Board and then applicable to assets or
liabilities consisting of and including "Eurocurrency Liabilities", as currently
defined in Regulation D of the F.R.S. Board, having a term approximately equal
or comparable to such Interest Period.
"LIEN" means any security interest, mortgage, deed of trust, pledge,
hypothecation, assignment, charge or deposit arrangement, encumbrance, lien
(statutory or otherwise), charge against or interest in Property to secure (i)
the payment of a debt or (ii) the performance of an obligation, or other
priority or preferential arrangement of any kind or nature whatsoever in respect
of any Property (including those created by, arising under or evidenced by any
conditional sale or other title retention agreement, the interest of a lessor
under a capital lease, any financing lease having substantially the same
economic effect as any of the foregoing, or the filing of any financing
statement naming the owner of the asset to which such lien relates as debtor,
under the Uniform Commercial Code or any comparable law) and any contingent or
other agreement to provide any of the foregoing.
"LOANS" means the loans provided for by SECTION 2.1 and shall include
Tranche A Loans and Tranche B Loans.
"LOAN DOCUMENTS" means this Agreement, the Notes, the Security Documents,
the Warrant Documents, all Letters of Credit, all Hedging Agreements and all
other agreements relating to this Agreement entered into from time to time
between the Borrower (or any or all of its Subsidiaries or Affiliates) and the
Lender (or any Affiliate of the Lender), and any document delivered by the
Borrower or any of its Subsidiaries in connection with any of the foregoing.
"MMBtu" means one million British Thermal Units.
"XXXX TO MARKET EXPOSURE" means the net amount, as determined by the
Lender from time to time, that would be required to terminate all outstanding
transactions then open under Hedging Agreements between the Borrower and any
other Person.
"MATERIAL ADVERSE EFFECT" means (a) a material adverse change in, or a
material adverse effect upon, the operations, business, properties, liabilities,
contractual obligations, condition (financial or otherwise), affairs or
prospects of the Borrower or any
19
other Obligor and its consolidated Subsidiaries; or (b) a material impairment of
the ability of the Borrower or any Obligor to perform under any Loan Document
and to avoid any Event of Default; or (c) a material adverse effect upon (i) the
legality, validity, binding effect or enforceability against the Borrower, its
Subsidiaries or any other Obligor of any Loan Document, or (ii) the perfection
or priority of any Lien granted under any of the Loan Documents.
"MATERIAL CONTRACT" means (i) each Acquisition Agreement, Hydrocarbon
purchase and sale agreement, or similar contract relating to any Hydrocarbon
Interests included in the Mortgaged Properties, Borrowing Base Properties and/or
Development Properties or (ii) other agreement designated as such by the Lender.
"MOODY'S" means Xxxxx'x Investors Services, Inc. or any successor thereto.
"MORTGAGE CONSENTS" means all consents required under existing oil and gas
leases or other agreements and Approvals by Governmental Agencies to the
granting of a Mortgage to the Lender, and as reasonably determined by the Lender
with respect to Acquired Properties that become Mortgaged Properties after the
Effective Date.
"MORTGAGES" means the Mortgage, Deed of Trust, Assignment, Security
Agreement, Financing Statements and Fixture Filing executed and delivered
pursuant to SECTION 6.1.7 and SECTION 6.2.2, substantially in the form of
EXHIBIT D hereto, as amended, supplemented, restated or otherwise modified from
time to time.
"MORTGAGED PROPERTIES" means the Hydrocarbon Interests, Properties and
interests described in and secured by the Mortgages, as such Properties and
interests are from time to time constituted, all as further provided in SECTION
6.1.7 and SECTION 6.2.2.
"NON-REDEEMABLE STOCK" means stock issued by the Borrower or any of its
Subsidiaries, PROVIDED that such stock is not considered debt for GAAP, tax law
or any other purpose and PROVIDED FURTHER that neither the Borrower nor any of
its Subsidiaries has any obligation to redeem or purchase or pay dividends on
such stock or to exchange such stock for, or convert such stock to, any other
security, whether such obligation arises pursuant to the terms of such stock or
any other agreement relating thereto or otherwise and whether or not such
obligation exists in all circumstances or only upon the occurrence of a
particular event or condition or upon the passage of time or otherwise.
"NOTES" means the secured promissory note or notes of the Borrower payable
to the order of the Lender, in the form of EXHIBIT A hereto (as such promissory
notes may be amended, endorsed or otherwise modified from time to time),
evidencing the aggregate Indebtedness of the Borrower to the Lender resulting
from outstanding Loans, and also means all other promissory notes accepted from
time to time in substitution therefor or renewal thereof.
"OBLIGATIONS" means all obligations (monetary or otherwise) of the
Borrower and/or any other Obligor arising under or in connection with this
Agreement, the Notes
20
and each other Loan Document, including without limitation, all Hedging
Obligations arising under Hedging Agreements between the Borrower (or any
Affiliate of the Borrower) and the Lender (or any Affiliate of the Lender).
"OBLIGOR" means the Borrower, any of its Subsidiaries or any other Person
(other than the Lender or any Affiliate of the Lender) obligated under, or
otherwise a party to, any Loan Document.
"OIL AND GAS PROPERTIES" means Hydrocarbon Interests; the Properties now
or hereafter pooled or unitized with Hydrocarbon Interests; all presently
existing or future unitization, pooling agreements and declarations of pooled
units and the units created thereby (including without limitation all units
created under orders, regulations and rules of any Government Agency having
jurisdiction) which may affect all or any portion of the Hydrocarbon Interests;
all operating agreements, joint venture agreements, contracts and other
agreements which relate to any of the Hydrocarbon Interests or the production,
sale, purchase, exchange or processing of Hydrocarbons from or attributable to
such Hydrocarbon Interests; all Hydrocarbons in and under and which may be
produced and saved or attributable to the Hydrocarbon Interests, the lands
covered thereby and all oil in tanks and all rents, issues, profits, proceeds,
products, revenues and other incomes from or attributable to the Hydrocarbon
Interests; all tenements, profits a prendre, hereditaments, appurtenances and
Properties in anywise appertaining, belonging, affixed or incidental to the
Hydrocarbon Interests, Properties, rights, titles, interests and estates
described or referred to above, including any and all Property, real or
personal, now owned or hereinafter acquired and situated upon, used, held for
use or useful in connection with the operating, working or development of any of
such Hydrocarbon Interests or Property (excluding drilling rigs, automotive
equipment or other personal property which may be on such premises for the
purpose of drilling a well or for other similar temporary uses) and including
any and all oil xxxxx, gas xxxxx, water xxxxx, injection xxxxx or other xxxxx,
buildings, structures, fuel separators, liquid extraction plants, plant
compressors, pumps, pumping units, field gathering systems, tanks and tank
batteries, fixtures, valves, fittings, machinery and parts, engines, boilers,
meters, apparatus, equipment, appliances, tools, implements, cables, wires,
towers, casing, tubing and rods, surface leases, rights-of-way, easements and
servitudes together with all additions, substitutions, replacements, accessions
and attachments to any and all of the foregoing.
"OLD ESENJAY" means Esenjay Petroleum Corporation, a Texas corporation.
"ORGANIC DOCUMENT" means, relative to any corporate Obligor, its
certificate of incorporation, its by-laws and all shareholder agreements, voting
trusts and similar arrangements applicable to any of its authorized shares of
capital stock, and, relative to any partnership Obligor, its partnership
agreement.
"OVERRIDING ROYALTY INTEREST" means the (i) interests conveyed and
assigned by the Assignment (including those delivered on the Effective Date and
those delivered at any time thereafter), and (ii) all overriding royalty
interests previously conveyed and
21
assigned by the Borrower and its Consolidated Subsidiaries to the Lender or the
Designee pursuant to the terms of the Existing Credit Agreement.
"PARTICIPANT" is defined in SECTION 10.11.2.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"PENSION PLAN" means a "pension plan", as such term is defined in section
3(2) of ERISA, which is subject to Title IV of ERISA (other than a multiemployer
plan as defined in section 4001(a)(3) of ERISA), and to which the Borrower or
any corporation, trade or business that is, along with the Borrower, a member of
a Controlled Group, may have liability, including any liability by reason of
having been a substantial employer within the meaning of section 4063 of ERISA
at any time during the preceding five years, or by reason of being deemed to be
a contributing sponsor under section 4069 of ERISA.
"PERCENTAGE" means, relative to the Lender, 100%, as such percentage may
be adjusted from time to time pursuant to Lender Assignment Notice(s) executed
by the Lender and its Assignee Lender(s) and delivered pursuant to SECTION
10.11.
"PERSON" means any natural person, corporation, partnership, joint
venture, limited liability company, firm, association, trust, Government Agency
or any other entity, whether acting in an individual, fiduciary or other
capacity.
"PLAN" means any Pension Plan or Welfare Plan.
"PLEDGE AGREEMENT" means a Pledge Agreement of the Borrower executed and
delivered pursuant to SECTION 6.1.4 and SECTION 6.2.8, substantially in the form
of EXHIBIT F-1 hereto, and a Pledge Agreement of each of the Borrower's
Subsidiaries executed and delivered pursuant to SECTION 6.1.4 and SECTION 6.2.8,
substantially in the form of EXHIBIT F-2 hereto, in each case as amended,
supplemented, restated or otherwise modified from time to time.
"PROCEEDS ACCOUNT" is defined in SECTION 3.4.
"PRODUCTION PAYMENTS" means a production payment (whether volumetric or
dollar denominated) or similar royalty, overriding royalty, net profits interest
or other similar interest in Oil and Gas Properties, or the right to receive all
or a portion of the production or the proceeds from the sale of production
attributable to such Oil and Gas Properties where the holder of such interest
has recourse solely to such interest and the grantor or transferor thereof has
an express contractual obligation to produce and sell Hydrocarbons from such Oil
and Gas Properties, or to cause such Oil and Gas Properties to be so operated
and maintained, in each case in a reasonably prudent manner.
"PROPERTY" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
22
"PROVEN RESERVES" means collectively, "proved oil and gas reserves,"
"proved developed producing oil and gas reserves," "proved developed
non-producing oil and gas reserves" (consisting of proved developed shut-in oil
and gas reserves and proved developed behind pipe oil and gas reserves), and
"proved undeveloped oil and gas reserves," as such terms are defined by the U.S.
Securities and Exchange Commission in its standards and guidelines.
"QUARTERLY PAYMENT DATE" means, commencing in October 2001, the first
Business Day of each April, July, October and January.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement,
substantially in the form of EXHIBIT O-3, between the Borrower and the Lender or
the Designee.
"REIMBURSEMENT OBLIGATION" is defined in SECTION 4.5.
"RELEASE" means a "release," as such term is defined in CERCLA.
"REMEDIAL ACTION" means any action under Environmental Laws required to
(a) clean up, remove, treat, dispose of, xxxxx, or in any other way address
pollutants (including Hazardous Materials) in the environment, (b) prevent the
Release or threat of a Release or minimize the further Release of pollutants, or
(c) investigate and determine if a remedial response is needed and to design
such a response and any post-remedial investigation, monitoring, operation, and
maintenance and care.
"RESOURCE CONSERVATION AND RECOVERY ACT" means the Resource Conservation
and Recovery Act, 42 U.S.C. Section 6901, ET SEQ., as in effect from time to
time.
"RESTRICTED PAYMENT TESTS" means compliance with each of the following
restrictions (both before and immediately after giving effect to the applicable
Distribution Payment):
(a) Tangible Net Worth shall not be less than the sum of (i)
$20,000,000 plus (ii) fifty percent (50%) of Consolidated Net Income
(excluding the effects of consolidated net losses), for all Fiscal
Quarters beginning after the Effective Date and treated as a single
accounting period;
(b) the Current Ratio shall be not less than 1.0:1.0;
(c) the Debt to Capitalization Ratio shall not be greater than 60%;
(d) the Debt to EBITDA Ratio shall not be greater than 3.0:1.0;
(e) the Interest Coverage Ratio shall be not less than 3.0:1.0;
(f) the Tranche B Loan shall have been paid in full and the Tranche
B Commitment shall have been terminated;
23
(g) there shall exist no Collateral Value Deficiency;
(h) there shall exist no Borrowing Base Deficiency; and
(i) no Default shall have occurred and be continuing.
"S&P" means Standard & Poor's Ratings Group, a division of the XxXxxx-Xxxx
Companies, Inc. or any successor thereto.
"SECURITY AGREEMENT" means a security agreement and any similar instrument
or agreement executed and delivered pursuant to SECTION 6.1.5 or SECTION 6.2.6,
substantially in the form of EXHIBIT C, as amended, supplemented, restated or
otherwise modified from time to time.
"SECURITY DOCUMENTS" means, collectively, (a) the Guaranties, (b) the
Pledge Agreements, (c) the Mortgages, (d) the Security Agreements, (e) the
Consents and (f) the Mortgage Consents, together with any exhibits, schedules
and other attachments to such documents and any financing statements related
thereto, as such documents, exhibits, schedules, attachments or financing
statements may be, from time to time, amended, supplemented, restated or
otherwise modified.
"STATED AMOUNT" of each Letter of Credit means the face amount or the
"Stated Amount" of such Letter of Credit (as defined therein).
"STATED EXPIRY DATE" is defined in SECTION 4.1.
"STATED MATURITY DATE" means
(a) as to any Tranche A Loan, that date that is four (4) years after
the Tranche A Availability Termination Date; and
(b) as to any Tranche B Loan, that date that is two (2) years after
the Tranche B Availability Termination Date.
"SUBSIDIARY" means, with respect to any Person, (a) any corporation of
which more than 50% of the outstanding capital stock having ordinary voting
power to elect a majority of the board of directors of such corporation
(irrespective of whether at the time capital stock of any other class or classes
of such corporation shall or might have voting power upon the occurrence of any
contingency) is at the time directly or indirectly owned by such Person, (b) any
partnership, limited liability company, joint venture, association or other
business entity in which more than 50% of the equity interest or voting power is
at the time directly or indirectly owned by such Person, by such Person and one
or more other Subsidiaries of such Person, or by one or more other Subsidiaries
of such Person or (c) any partnership in which such Person is a general partner.
24
"SURETY INSTRUMENTS" means all letters of credit (including standby and
commercial), banker's acceptances, bank guaranties, shipside bonds, surety bonds
and similar instruments.
"TANGIBLE NET WORTH" means the consolidated net worth of the Borrower and
its consolidated Subsidiaries after subtracting therefrom the aggregate amount
of any intangible assets of the Borrower and its consolidated Subsidiaries,
including goodwill, franchises, licenses, patents, trademarks, trade names,
copyrights, service marks, brand names and adding or subtracting the effects, if
any, of FAS 133.
"TAXES" is defined in SECTION 5.6.
"TERM LOAN" means a Tranche A Loan that has been converted from a
revolving loan to a term loan pursuant to the provisions of SECTION 2.1.1.
"TRANCHE A AVAILABILITY TERMINATION DATE" means July 31, 2002.
"TRANCHE A COMMITMENT" means the Lender's commitment pursuant to SECTION
2.1.1 to make Tranche A Loans to the Borrower in accordance with the terms and
provisions of this Agreement.
"TRANCHE A COMMITMENT AMOUNT" means $30,000,000, as reduced from time to
time pursuant to the provisions of SECTION 2.2.
"TRANCHE A FACILITY" means the Facility providing for the Tranche A
Commitment and the Tranche A Loans.
"TRANCHE A LOAN" means the loans made by the Lender to the Borrower
pursuant to its Tranche A Commitment in accordance with SECTIONS 2.1.1 and 2.3,
and includes such Loans during all times before and after they have been
converted into a Term Loan pursuant to SECTION 2.1.1(B).
"TRANCHE B AVAILABILITY TERMINATION DATE" means the Effective Date.
"TRANCHE B COMMITMENT" means the Lender's commitment pursuant to SECTION
2.1.2 to make the Tranche B Loan to the Borrower in accordance with the terms
and provisions of this Agreement.
"TRANCHE B COMMITMENT AMOUNT" means $10,000,000, as reduced from time to
time pursuant to the provisions of SECTION 2.2.
"TRANCHE B FACILITY" means the Facility providing for the Tranche B
Commitment and the Tranche B Loan.
"TRANCHE B LOAN" means the Loan made by the Lender to the Borrower
pursuant to its Tranche B Commitment in accordance with SECTIONS 2.1.2 and 2.3.
25
"TYPE" means, relative to any Loan, the portion thereof, if any, being
maintained as a Base Rate Loan or a LIBO Rate Loan.
"UNITED STATES" or "U.S." means the United States of America, its fifty
States and the District of Columbia.
"WARRANT AGREEMENT" means the Warrant Agreement, substantially in the form
of EXHIBIT O-1, between the Borrower and the Lender or the Designee.
"WARRANT DOCUMENTS" means the Warrant Agreement, the Warrants and the
Registration Rights Agreement.
"WARRANTS" means the warrants, substantially in the form of EXHIBIT O-2,
from the Borrower to the Lender or the Designee.
"WELFARE PLAN" means a "welfare plan", as such term is defined in section
3(1) of ERISA.
SECTION 1.2. USE OF DEFINED TERMS. Unless otherwise defined or the context
otherwise requires, terms for which meanings are provided in this Agreement
shall have such meanings when used in the Disclosure Schedule and in each Note,
Borrowing Request, Continuation/Conversion Notice, notice and other
communication or other Loan Document delivered from time to time in connection
with this Agreement or any other Loan Document.
SECTION 1.3. CROSS-REFERENCES. Unless otherwise specified, references in
this Agreement and in each other Loan Document to any Article or Section are
references to such Article or Section in this Agreement or other Loan Document,
as applicable.
(a) The meanings of defined terms are equally applicable to the
singular and plural forms of the defined terms.
(b) The words "hereof," "herein," "hereunder" and similar words
refer to this Agreement as a whole and not to any particular provision of
this Agreement; and subsection, Section, Schedule and Exhibit references
are to this Agreement or such other Loan Document, as the case may be,
and, unless otherwise specified, references in any Article, Section or
definition to any clause are references to such clause of such Article,
Section or definition.
(c) (i) The term "documents" includes any and all instruments,
documents, agreements, certificates, indentures, notices and other
writings, however evidenced.
(ii) In the computation of periods of time from a specified
date to a later specified date, the word "from" means "from and
including"; the words "to" and "until" each mean "to but excluding,"
and the word "through" means "to and including."
26
(iii) The term "property" includes any kind of property or
asset, real, personal or mixed, tangible or intangible.
(d) Unless otherwise expressly provided herein, (i) references to
agreements (including this Agreement) and other contractual instruments
shall be deemed to include all subsequent amendments and other
modifications thereto, but only to the extent such amendments and other
modifications are not prohibited by the terms of any Loan Document, and
(ii) references to any statute or regulation are to be construed as
including all statutory and regulatory provisions consolidating, amending,
replacing, supplementing or interpreting the statute or regulation.
(e) This Agreement and other Loan Documents may use several
different limitations, tests or measurements to regulate the same or
similar matters. All such limitations, tests and measurements are
cumulative and shall each be performed in accordance with their terms.
Unless otherwise expressly provided, any reference to any action of the
Lender by way of consent, approval or waiver shall be deemed modified by
the phrase "in its sole discretion."
(f) This Agreement and the other Loan Documents are the result of
negotiations among and have been reviewed by counsel to the Lender, the
Borrower and the other parties, and are the products of all parties.
Accordingly, they shall not be construed against the Lender merely because
of the Lender's involvement in their preparation.
SECTION 1.4. ACCOUNTING AND FINANCIAL DETERMINATIONS. Unless otherwise
specified, all accounting terms used herein or in any other Loan Document shall
be interpreted, all accounting determinations and computations hereunder or
thereunder (including under SECTION 8.2.4) shall be made, and all financial
statements required to be delivered hereunder or thereunder shall be prepared in
accordance with, those generally accepted accounting principles ("GAAP") applied
in the preparation of the financial statements referred to in SECTION 7.7.
ARTICLE II
COMMITMENTS, BORROWING PROCEDURES AND NOTES
SECTION 2.1. COMMITMENTS. On the terms and subject to the conditions of
this Agreement (including ARTICLE V), the Lender agrees to make loans ("LOANS")
to the Borrower equal to the aggregate amount of the Borrowing of Loans
requested by the Borrower to be made pursuant to the Commitments on such day
described in this SECTION 2.1.
SECTION 2.1.1. TRANCHE A COMMITMENT.
(a) From time to time on any Business Day during the period from and
after the Effective Date to the earlier to occur of (x) Tranche A
Availability Termination Date and (y) any Commitment Termination Date
relating to all
27
Commitments or to the Tranche A Commitment, the Lender will make Tranche A
Loans to the Borrower equal to the amount of the Tranche A Loan requested
by the Borrower to be made on such day in the applicable Borrowing Request
therefor. On the terms and subject to the conditions of this Agreement,
the Borrower may from time to time borrow, prepay and reborrow Tranche A
Loans.
(b) On the terms and subject to the conditions of this Agreement,
the Lender agrees to convert the aggregate unpaid principal amount of the
Tranche A Loans outstanding at the opening of business on the Tranche A
Availability Termination Date to a Term Loan, PROVIDED that (i) no Event
of Default has occurred and is continuing at that time, (ii) the
representations and warranties of the Borrower and its Subsidiaries made
and given in the Loan Documents are true and correct and (iii) the
Borrower has provided a certificate to the Lender to that effect. Once
repaid or prepaid, such Term Loan may not be reborrowed.
SECTION 2.1.2. TRANCHE B COMMITMENT. On the Effective Date, the Lender
will make the Tranche B Loan to the Borrower in an amount equal to the aggregate
amount of the Tranche B Loan requested by the Borrower to be made on such day in
the applicable Borrowing Request therefor. On the terms and subject to the
conditions of this Agreement, the Borrower may from time to time prepay or repay
Tranche B Loans, but may not reborrow any amounts paid or prepaid.
SECTION 2.1.3. LETTERS OF CREDIT. From time to time on any Business Day,
the Issuer will issue the Letters of Credit in accordance with ARTICLE IV.
SECTION 2.1.4. LENDER NOT REQUIRED TO MAKE LOANS, ETC. UNDER CERTAIN
CIRCUMSTANCES. The Lender shall not be required to
(a) make any Loan if, after giving effect thereto
(i) the aggregate outstanding principal amount of all Tranche
A Loans would exceed the Tranche A Commitment Amount less the Letter
of Credit Outstandings, or
(ii) the aggregate outstanding principal amount of all Tranche
B Loans would exceed the Tranche B Commitment Amount, or
(iii) a Collateral Value Deficiency would exist; or
(iv) a Borrowing Base Deficiency would exist; or
(v) an Event of Default has occurred and is continuing; or
(b) cause an Issuer to issue any Letter of Credit if, after giving
effect thereto
28
(i) all Letter of Credit Outstandings together with the
aggregate outstanding principal amount of all Tranche A Loans would
exceed the Tranche A Commitment Amount; or
(ii) a Collateral Value Deficiency would exist; or
(iii) a Borrowing Base Deficiency would exist; or
(iv) all Letter of Credit Outstandings would exceed
$1,000,000; or
(v) an Event of Default has occurred and is continuing.
SECTION 2.2. REDUCTION OF COMMITMENT AMOUNTS. The Commitment Amount is
subject to reduction from time to time pursuant to this SECTION 2.2.
SECTION 2.2.1. OPTIONAL. The Borrower may, from time to time on any
Business Day, voluntarily reduce the Tranche A Commitment Amount; PROVIDED,
HOWEVER, that all such reductions shall require at least three (3) Business
Days' prior notice to the Lender and be permanent, and any partial reduction of
either Commitment Amount shall be in a minimum amount of $250,000 and in an
integral multiple of $50,000.
SECTION 2.2.2. MANDATORY.
(a) On the Tranche A Availability Termination Date, the unused
portion of the Tranche A Commitment shall, without any further action,
automatically and permanently be cancelled.
(b) On the Tranche B Availability Termination Date, the unused
portion of the Tranche B Commitment shall, without any further action,
automatically and permanently be cancelled.
(c) On any Commitment Termination Date, the Commitment Amount shall
be reduced to zero.
SECTION 2.3. BORROWING PROCEDURE. By delivering a Borrowing Request to the
Lender on or before 10:00 a.m. (
New York time) on a Business Day, the Borrower
may from time to time irrevocably request, on not less than three (3) nor more
than five (5) Business Days' notice, that a Borrowing be made in a minimum
amount of $250,000 and an integral multiple of $50,000, or in the unused amount
of the applicable Commitment. On the terms and subject to the conditions of this
Agreement, each Borrowing shall be made on the Business Day specified in such
Borrowing Request. The Lender shall make such funds available to the Borrower by
wire transfer to the accounts the Borrower shall have specified in its Borrowing
Request.
SECTION 2.4. CONTINUATION AND CONVERSION ELECTIONS. By delivering a
Continuation/Conversion Notice to the Lender on or before 10:00 a.m. (
New York
time)
29
on a Business Day, the Borrower may from time to time irrevocably elect, on not
less than three (3) nor more than five (5) Business Days' notice that all, or
any portion in an aggregate minimum amount of $250,000 and an integral multiple
of $50,000, of any Base Rate Loans, be converted into a LIBO Rate Loan, or of
any LIBO Rate Loans, be converted into a Base Rate Loan or continued as a LIBO
Rate Loan (in the absence of delivery of a Continuation/Conversion Notice with
respect to any LIBO Rate Loan at least three (3) Business Days before the last
day of the then current Interest Period with respect thereto, such LIBO Rate
Loan shall, on such last day, automatically convert to a Base Rate Loan);
PROVIDED, HOWEVER, that no portion of the outstanding principal amount of any
LIBO Rate Loan may be continued as, and no portion of the outstanding principal
amount of any Base Rate Loan may be converted into, LIBO Rate Loans when any
Default has occurred and is continuing.
SECTION 2.5. LOAN ACCOUNTS AND NOTES.
(a) The Loans made by the Lender shall be evidenced by one or more
loan accounts or records maintained by the Lender in the ordinary course
of business. The loan accounts or records maintained by the Lender shall
be conclusive absent manifest error of the amount of the Loans made by the
Lender to the Borrower and the interest and payments thereon. Any failure
so to record or any error in doing so shall not, however, limit or
otherwise affect the obligation of the Borrower hereunder to pay any
amount owing with respect to the Loans.
(b) The Loans made by the Lender shall also be evidenced by a Note
or Notes payable to the order of the Lender in a maximum principal amount
equal to the original, aggregate Commitment Amount. The Borrower hereby
irrevocably authorizes the Lender to make (or cause to be made)
appropriate notations on the grid attached to the Notes (or on any
continuation of such grid) or in other books and records maintained by the
Lender, which notations, if made, shall evidence, INTER ALIA, the date of,
the outstanding principal of, and the interest rate applicable to the
Loans evidenced thereby (the Borrower may from time to time reasonably
request a copy of such grid). Such notations shall be conclusive and
binding on the Borrower absent manifest error rebuttable presumptive
evidence of the matters described therein; PROVIDED, HOWEVER, that the
failure of the Lender to make any such notations shall not limit or
otherwise affect any Obligations of the Borrower or any other Obligor.
(c) The Borrower acknowledges that the Note delivered to the Lender
as of the Effective Date amends, restates and renews the Existing Notes
given by the Borrower under the Existing Credit Agreement.
SECTION 2.6. BORROWING BASE REDETERMINATION AND COLLATERAL VALUE
REDETERMINATION.
(a) Within thirty (30) days after receipt of the Engineering Report
required to be delivered semi-annually, commencing with the Engineering
Report required to be delivered sixty (60) days after January 1, 2002, the
Lender shall
30
notify the Borrower in writing of the Borrowing Base determined by the
Lender on the basis of such Engineering Report. Borrower or Lender may
request, and Lender will consider, one (1) additional determination of the
Borrowing Base at any time during each Fiscal Year following the Effective
Date. Each such determination is herein called a "BORROWING BASE
REDETERMINATION". Contemporaneously with each Borrowing Base
Redetermination that shall occur at any time that any Tranche B Loan is
outstanding, the Lender shall notify the Borrower in writing of the
Collateral Value determined by the Lender on the basis of such Engineering
Report. Each such determination is herein called a "COLLATERAL VALUE
REDETERMINATION". Each Borrowing Base Redetermination (and, as applicable,
Collateral Value Redetermination) shall be effective as of April 1st (with
respect to Engineering Reports effective January 1st), October 1st (with
respect to Engineering Reports effective July 1st) or upon notice from the
Lender (with respect to any requested Borrowing Base Redetermination) when
the Borrower is notified of the amount of the redetermined Borrowing Base
(and, as applicable the amount of the redetermined Collateral Value) by
the Lender.
(b) The Borrowing Base and Collateral Value are also subject to
adjustment as provided for in SECTION 3.1.2.
SECTION 2.7. PURPOSES. The Borrower shall apply the proceeds of each Loan
only in the following manner:
(a) to refinance the Existing Secured Debt;
(b) to finance Approved Development Activities with respect to the
Oil and Gas Properties owned by the Borrower or one of the Borrower's
Subsidiaries including those Properties located in Liberty, Hardin,
Wharton, Aransas, Xxxxxxx, Goliad, Bee, De Xxxx, Lovaca, Brazoria,
Jefferson, Chambers, Galveston, Matagorda, Live Oak, San Patricio, Karnes,
Willacy and Xxxxxxx Counties, Texas; Beaureguard, Calcasieu, Cameron and
Terrebonne Parishes, Louisiana; and Cleveland County, Oklahoma;
(c) to finance Acquired Properties;
(d) to conduct Approved Development Activities on Acquired
Properties; and
(e) for other general corporate and working capital purposes.
ARTICLE III
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES
SECTION 3.1. REPAYMENTS AND PREPAYMENTS AND CERTAIN BORROWING BASE
MATTERS. The Borrower shall repay the unpaid principal amount of the Loans as
set forth in this SECTION 3.1.
31
SECTION 3.1.1. REPAYMENTS AND PREPAYMENTS. The Borrower shall repay in
full the unpaid principal amount of each Tranche A Loan, and each Tranche A Loan
shall mature and be due and payable, on the Tranche A Availability Termination
Date; PROVIDED, HOWEVER, that, as provided in SECTION 2.1.1(b), if (i) no Event
of Default has occurred and is continuing, (ii) the representations and
warranties of the Borrower and its Subsidiaries are true and correct in all
material respects and (iii) the Lender shall have received a certificate to that
effect, the unpaid principal amount of the Tranche A Loans shall, on the Tranche
A Availability Termination Date, not be due and payable but shall convert to a
Term Loan. The Borrower shall repay in full the unpaid principal amount of each
Loan upon the Stated Maturity Date applicable thereto. Prior thereto, the
Borrower
(a) may, from time to time on any Business Day, make a voluntary
prepayment, in whole or in part, of the outstanding principal amount of
any Loans; PROVIDED, HOWEVER, that
(i) any such prepayment shall be made PRO RATA among Loans of
the same type;
(ii) no such prepayment of any LIBO Rate Loan may be made on
any day other than the last day of the Interest Period for such
Loan;
(iii) all such voluntary prepayments shall require at least
three (3) but no more than five (5) Business Days' prior written
notice to the Lender (which notice is irrevocable) stating the date
and amount of such prepayment and the type of Loan to be prepaid;
and
(iv) all such voluntary partial prepayments shall be in an
aggregate minimum amount of $100,000 and an integral multiple of
$50,000;
(b) shall, on each date when any reduction in any Commitment Amount
shall become effective, including pursuant to SECTION 2.2, make a
mandatory prepayment (which shall be applied (or held for application, as
the case may be) by the Lender to the payment of the aggregate unpaid
principal amount of those Loans then outstanding and then to the payment
of the then Letter of Credit Outstandings) equal to the excess, if any, of
the aggregate outstanding principal amount of all Loans and Letter of
Credit Outstandings over such Commitment Amount as so reduced;
(c) shall make prepayments as specified in SECTION 3.1.2;
(d) shall, if Tranche A Loans have been converted to a Term Loan
pursuant to the terms and conditions hereof, on each Quarterly Payment
Date after the Tranche A Availability Termination Date, make a payment in
an amount equal to that necessary to amortize the principal of all Tranche
A Loans that have been converted into a Term Loan equally over the
remaining Quarterly Payment Dates and the Stated Maturity Date that is
applicable to Tranche A Loans;
32
(e) shall pay on the Stated Maturity Date applicable to the Tranche
B Loan the amount necessary to repay in full the entire amount of the
Tranche B Loan; and
(f) shall, immediately upon any acceleration of the Loans pursuant
to SECTION 9.2 or SECTION 9.3, repay all Loans, unless, pursuant to
SECTION 9.3, only a portion of all Loans is so accelerated.
Each payment or prepayment of any Loans made pursuant to this Section
shall be without premium or penalty, except as may be required by SECTION 4.4,
and shall be applicable, to the extent of such prepayment, in the inverse order
of maturity. No voluntary prepayment of principal of any Loans or any prepayment
pursuant to the preceding CLAUSE (c) shall cause a reduction in any Commitment
Amount.
SECTION 3.1.2. BORROWING BASE DEFICIENCIES, COLLATERAL VALUE DEFICIENCIES
AND ASSET SALES.
(a) Upon the occurrence of a Borrowing Base Deficiency and/or a
Collateral Value Deficiency, the Lender may notify the Borrower of such
Borrowing Base Deficiency and/or such Collateral Value Deficiency, as
applicable. Within ten (10) days from and after the Borrowing Base
Deficiency Notification Date and/or such Collateral Value Deficiency
Notification Date, as applicable, the Borrower shall notify the Lender
that it shall take one of the following actions:
(i) execute and deliver to the Lender supplemental or
additional Security Documents, in form and substance reasonably
satisfactory to the Lender and its counsel, securing payment of the
Notes and the other Obligations and covering other Properties of the
Borrower or its Subsidiaries, including additional Oil and Gas
Properties directly owned by the Borrower or one or more of the
Borrower's Subsidiaries which are not then covered by any Loan
Document and which are of a type and nature satisfactory to the
Lender, and having a value, in addition to other Oil and Gas
Properties already subject to a Mortgage, sufficient to eliminate
the Borrowing Base Deficiency and the Collateral Value Deficiency,
as applicable, all as more particularly described in SECTION
8.1.7(a) and (b); or
(ii) make a payment with respect to the Obligations, (which
shall be applied (or held for application, as the case may be) by
the Lender to the payment of the aggregate unpaid principal amount
of those Loans then outstanding and then to the payment of the then
Letter of Credit Outstandings) in an aggregate principal amount
sufficient to eliminate such Borrowing Base Deficiency and
Collateral Value Deficiency, as applicable, within sixty (60) days
after the Borrowing Base Deficiency Notification Date or Collateral
Value Deficiency Notification Date, as applicable (and the Borrower
shall make such payment within such 60-day period).
33
If the Borrower shall elect to execute and deliver (or cause one or more
of the Borrower's Subsidiaries to execute and deliver) supplemental or
additional Security Documents to the Lender pursuant to CLAUSE (i), it
shall provide the Lender with descriptions of the additional assets to be
collaterally assigned (together with current valuations, Engineering
Reports, Security Documents described in CLAUSE (i) and title evidence
applicable thereto and other documents including opinions of counsel, each
of which shall be in form and substance reasonably satisfactory to the
Lender) within sixty (60) days after the Borrowing Base Deficiency
Notification Date or Collateral Value Deficiency Notification Date, as
applicable. Such supplemental or additional Security Documents shall be
subject to the terms of SECTION 8.1.7. If the Borrower fails to take any
of the actions described in CLAUSES (i) or (ii) above within such ten (10)
day period, then without any necessity for notice to the Borrower or any
other person, the Borrower shall become obligated immediately to pay
Obligations in an aggregate principal amount equal to the applicable
Borrowing Base Deficiency and/or Collateral Value Deficiency.
(b) If the Borrower or any Subsidiary sells, transfers or otherwise
disposes of Borrowing Base Properties that have been given a value in the
most recent determination of the Borrowing Base in the aggregate for the
Borrower and such Subsidiaries in excess of $250,000 during the period
from the effective date of the most recent Borrowing Base Redetermination
until the effective date of the next Borrowing Base Redetermination, the
Borrowing Base and the Collateral Value shall be immediately reduced,
until the effective date of the next Borrowing Base Redetermination and
Collateral Value Redetermination, by an amount as reasonably determined by
the Lender, or if the value of the applicable Oil and Gas Properties
cannot be readily determined by the Lender, by the entire amount of the
net sales proceeds realized from the sale, transfer or other disposition
of such assets.
If such reduction shall result in a Borrowing Base Deficiency and/or
Collateral Value Deficiency, then in lieu of the provisions of CLAUSE (a)
of SECTION 3.1.2, the Borrower shall immediately make a payment with
respect to the Obligations in an amount equal to the greater of such
Borrowing Base Deficiency or such Collateral Value Deficiency. In addition
to and cumulative of the foregoing , if a Borrowing Base Deficiency and/or
Collateral Value Deficiency exists prior to such sale, transfer or other
disposition of assets, then in lieu of the provisions of CLAUSE (a) of
SECTION 3.1.2, the Borrower shall, with the written consent of the Lender,
immediately make a payment with respect to the Obligations (which shall be
applied (or held for application, as the case may be) by the Lender first
to the payment of the aggregate unpaid principal amount of those Loans
then outstanding, and then to the payment of the then Letter of Credit
Outstandings) in an aggregate principal amount equal to the lesser of (i)
the greater of the amount of the Collateral Value Deficiency or the amount
of the Borrowing Base Deficiency (after giving effect to the applicable
sale, transfer or other disposition) or (ii) 100% of the net sales
proceeds realized from the applicable sale, transfer or other disposition.
34
(c) In addition, if the Borrower or any of its Subsidiaries raises
capital through the issuance of any type of common, preferred or other
equity or issues any subordinated debt or senior unsecured debt, the
proceeds of such issuance will first be applied to cure any Borrowing Base
Deficiency and/or Collateral Value Deficiency
SECTION 3.2. INTEREST PROVISIONS. Interest on the outstanding principal
amount of Loans shall accrue and be payable in accordance with this SECTION 3.2.
SECTION 3.2.1. RATE. Pursuant to an appropriately delivered Borrowing
Request or Continuation/Conversion Notice, the Borrower may elect that Loans
accrue interest at a rate per annum:
(a) on that portion maintained from time to time as a Base Rate
Loan, equal to the Alternate Reference Rate plus the Applicable Margin
from time to time in effect; and
(b) on that portion maintained as a LIBO Rate Loan, during each
Interest Period applicable thereto, equal to the sum of the LIBO Rate
(Reserve Adjusted) for such Interest Period plus the Applicable Margin.
All LIBO Rate Loans shall bear interest from and including the first day of the
applicable Interest Period to (but not including) the last day of such Interest
Period at the interest rate determined as applicable to such LIBO Rate Loan.
SECTION 3.2.2. POST-MATURITY RATES. After (w) the date any principal
amount of any Loan shall have become due and payable (whether on the Stated
Maturity Date, upon acceleration or otherwise), (x) the date any other monetary
Obligation of the Borrower shall have become due and payable, (y) the date any
other Event of Default shall have occurred (and so long as such Event of Default
shall be continuing), and (z) the date that is sixty (60) days after a Borrowing
Base Deficiency Notification Date or after a Collateral Value Deficiency
Notification Date, if the applicable Borrowing Base Deficiency or Collateral
Value Deficiency, as applicable, has not been cured, the Borrower shall pay, but
only to the extent permitted by Applicable Law, interest (after as well as
before judgment) on all Obligations at a rate per annum equal to
(a) with respect to LIBO Rate Loans, the higher of (i) the sum of
the LIBO Rate (Reserve Adjusted) for such Interest Period plus the
Applicable Margin plus a margin of 3%, or (ii) the sum of the Alternate
Reference Rate plus the Applicable Margin plus a margin of 3%; or
(b) in all other cases, the sum of the Alternate Reference Rate plus
the Applicable Margin plus a margin of 3%.
SECTION 3.2.3. PAYMENT DATES. Interest accrued on each Loan shall be
payable, without duplication:
35
(a) on the Stated Maturity Date;
(b) on the date of any optional or required payment or prepayment,
in whole or in part, of principal outstanding on such Loan and on that
portion of such Loan so paid or prepaid;
(c) with respect to Base Rate Loans, on each Quarterly Payment Date
occurring after the Effective Date and on each date on which a Base Rate
Loan is converted into a LIBO Rate Loan;
(d) with respect to LIBO Rate Loans, on the last day of each
applicable Interest Period and, if such Interest Period shall exceed three
months, on the ninetieth (90th) day of such Interest Period and on each
date on which a LIBO Rate Loan is converted into a Base Rate Loan; and
(e) on that portion of any Loans which is accelerated pursuant to
SECTION 9.2 or SECTION 9.3, immediately upon such acceleration.
Interest accrued on Loans or other monetary Obligations arising under this
Agreement or any other Loan Document after the date such amount shall have
become due and payable (whether on the Stated Maturity Date, upon acceleration
or otherwise) shall be payable upon demand.
SECTION 3.2.4. MAXIMUM INTEREST. It is the intention of the parties hereto
to conform strictly to applicable usury laws and, anything herein to the
contrary notwithstanding, the Obligations of the Borrower to the Lender under
this Agreement shall be subject to the limitation that payments of interest
shall not be required to the extent that receipt thereof would be contrary to
provisions of Applicable Law limiting rates of interest which may be charged or
collected by the Lender. Accordingly, if the transactions contemplated hereby
would be usurious under Applicable Law with respect to the Lender then, in that
event, notwithstanding anything to the contrary in this Agreement, it is agreed
as follows:
(a) the provisions of this SECTION 3.2.4 shall govern and control;
(b) the aggregate of all consideration which constitutes interest
under Applicable Law that is contracted for, charged or received under
this Agreement, or under any of the other aforesaid agreements or
otherwise in connection with this Agreement by the Lender shall under no
circumstances exceed the maximum amount of interest allowed by Applicable
Law (such maximum lawful interest rate, if any, with respect to the Lender
herein called the "HIGHEST LAWFUL RATE"), and any excess shall be credited
to the Borrower by the Lender (or, if such consideration shall have been
paid in full, such excess refunded to the Borrower);
(c) all sums paid, or agreed to be paid, to the Lender for the use,
forbearance and detention of the indebtedness of the Borrower to the
Lender hereunder shall, to the extent permitted by Applicable Law, be
amortized,
36
prorated, allocated and spread throughout the full term of such
indebtedness until payment in full so that the actual rate of interest is
uniform throughout the full term thereof; and
(d) if at any time the interest provided pursuant to SECTIONS 3.2.1
and 3.2.2 together with any other fees payable pursuant to this Agreement
and deemed interest under Applicable Law, exceeds that amount which would
have accrued at the Highest Lawful Rate, the amount of interest and any
such fees to accrue to the Lender pursuant to this Agreement shall be
limited, notwithstanding anything to the contrary in this Agreement, to
that amount which would have accrued at the Highest Lawful Rate, but any
subsequent reductions, as applicable, shall not reduce the interest to
accrue to such Lender pursuant to this Agreement below the Highest Lawful
Rate until the total amount of interest accrued pursuant to this Agreement
and such fees deemed to be interest equals the amount of interest which
would have accrued to such Lender if a varying rate per annum equal to the
interest provided pursuant to SECTIONS 3.2.1 and 3.2.2 had at all times
been in effect, PLUS the amount of fees which would have been received but
for the effect of this SECTION 3.2.4.
SECTION 3.3. FEES. The Borrower agrees to pay the fees set forth in this
Section 3.3. All such fees shall be non-refundable.
SECTION 3.3.1. CONFIDENTIAL FEE LETTER. The Borrower agrees to pay to the
Lender the fees described in the Confidential Fee Letter.
SECTION 3.3.2. UNUSED FEE. The Borrower agrees to pay to the Lender, for
the period (including any portion thereof when any of the Commitments are
suspended by reason of the Borrower's inability to satisfy any condition of
ARTICLE V) commencing on the Effective Date, and continuing through the final
Commitment Termination Date, an unused fee at the rate of one-half of one
percent (0.5%) per annum on the average daily Commitment Availability. Such fees
shall be based on a year comprised of three-hundred and sixty (360) days and
shall be payable by the Borrower in arrears on each Quarterly Payment Date,
commencing with the first such day following the Effective Date, and on each
Commitment Termination Date.
SECTION 3.3.3. LETTER OF CREDIT STATED AMOUNT FEE. The Borrower agrees to
pay to the Issuer a fee for each Letter of Credit for the period from and
including the date of the issuance of such Letter of Credit to (but not
including) the date upon which such Letter of Credit expires, at a rate per
annum equal to two percent (2%) of the Stated Amount of such Letter of Credit,
based on a year comprised of three-hundred and sixty (360) days. A prorated
portion of such fee shall be payable by the Borrower in arrears on each
Quarterly Payment Date, and on the earlier of the Tranche A Availability
Termination Date or the Tranche A Commitment Termination Date for any period
then ending for which such fee shall not theretofore have been paid, commencing
on the first such date after the issuance of such Letter of Credit.
37
SECTION 3.3.4. LETTER OF CREDIT ISSUANCE FEE. The Borrower agrees to pay
to the Issuer an issuance fee for each Letter of Credit issued by the Issuer
equal to the greater of (x) 0.25% of the Stated Amount of such Letter of Credit
or (y) $500. Such fee shall be payable by the Borrower on the date of issuance
of such Letter of Credit.
SECTION 3.3.5. LETTER OF CREDIT ADMINISTRATIVE FEES. The Borrower agrees
to pay to the Lender the amounts described in SECTION 4.3.
SECTION 3.4. PROCEEDS ACCOUNT. The Security Documents contain an
assignment to the Lender by the Borrower and its Subsidiaries, as applicable, of
all production of Hydrocarbons and all proceeds attributable thereto properly
allocable to the Mortgaged Properties. Notwithstanding such assignment of
production, the Borrower may, until the Lender shall give notice to the
contrary, receive such proceeds. Thereafter, all such proceeds from the sale of
such production shall be paid directly into an account of the Borrower
maintained with the Lender (the "PROCEEDS ACCOUNT"). The Borrower hereby grants
to the Lender, subject to the prior assignment in favor of the Lender of such
production and its proceeds, a security interest in the Proceeds Account and all
proceeds thereof.
SECTION 3.5. OVERRIDING ROYALTY INTEREST AND WARRANTS; ASSIGNMENT AND
WARRANTS ARE NOT COLLATERAL SECURITY.
(a) In addition to interest paid on the Loans, the Borrower and its
Subsidiaries, as applicable, shall assign and convey to the Lender's
designee ("DESIGNEE"), as additional consideration payable to the Lender
to be retained in perpetuity and not as additional collateral security, an
overriding royalty interest in the Borrower's and each of Borrower's
Subsidiaries' Hydrocarbon Interests comprising certain Oil and Gas
Properties of the Borrower and its Subsidiaries as set forth in the
Confidential Fee Letter. Such overriding royalty interest shall be
conveyed by the Assignment. In addition to the representations and
warranties given in the Assignment, the Borrower hereby represents and
warrants that the overriding royalty interest conveyed by the Assignment
is free and clear of any mortgages, deeds of trust, voluntary or
contractual Liens, pledges, security interests, charges, conditional sales
or other title retention documents, or other encumbrances or burdens other
than those in favor of the Lender, and as expressly set forth in the
Assignment.
(b) If all Tranche B Loans are paid in full and the Tranche B
Commitment is terminated at a time that is after the Tranche A
Availability Termination Date, but before September 30, 2003, then the
Borrower may purchase the overriding royalty interest conveyed by the
Assignment pursuant to the terms and conditions set forth in that certain
Agreement Concerning Overriding Royalty Interests of even date herewith
among the Borrower, the Lender and the Designee.
(c) In addition to interest paid on the Loans, the Borrower shall
issue to the Designee, as additional consideration payable to the Lender
to be retained in
38
perpetuity and not as additional collateral security, the rights and
interests granted in the Warrant Documents.
ARTICLE IV
LETTERS OF CREDIT
SECTION 4.1. ISSUANCE REQUESTS. By delivering to the Issuer an
Issuance Request on or before 12:00 noon (
New York time), the Borrower may
request, from time to time prior to the earlier to occur of (x) the
Tranche A Availability Termination Date and (y) the Tranche A Commitment
Termination Date, and on not less than three (3) nor more than ten (10)
Business Days' notice, that the Issuer issue an irrevocable standby letter
of credit in substantially the form of EXHIBIT N hereto, or in such other
form as may be mutually agreed by the Borrower and the Issuer (each a
"LETTER OF CREDIT"), in support of financial obligations of the Borrower
incurred in the Borrower's ordinary course of business and which are
described in such Issuance Request. Each Letter of Credit shall by its
terms:
(a) be issued in a Stated Amount which
(i) is at least $50,000;
(ii) does not exceed (or would not exceed) the then Letter of
Credit Availability;
(b) be stated to expire on a date (its "STATED EXPIRY DATE") no
later than the earlier of (i) one (1) year after its date of issuance, or
(ii) one (1) year after the Tranche A Availability Termination Date; and
(c) on or prior to its Stated Expiry Date
(i) terminate immediately upon notice to the Issuer from the
beneficiary thereunder that all obligations covered thereby have
been terminated, paid, or otherwise satisfied in full,
(ii) reduce in part immediately and to the extent the
beneficiary thereunder has notified the Issuer that the obligations
covered thereby have been paid or otherwise satisfied in part, or
(iii) terminate thirty (30) Business Days after notice to the
beneficiary thereunder from the Lender that an Event of Default has
occurred and is continuing.
So long as the conditions set forth in SECTION 6.3 have been satisfied, by
delivery to the Issuer of an Issuance Request at least three (3) but not more
than ten (10) Business Days prior to the Stated Expiry Date of any Letter of
Credit, the Borrower may request the Issuer to extend the Stated Expiry Date of
such Letter of Credit for an
39
additional period not to exceed the earlier of one (1) year from its date of
extension or the Commitment Termination Date.
SECTION 4.2. ISSUANCES AND EXTENSIONS. On the terms and subject to the
conditions of this Agreement (including ARTICLE VI), the Issuer shall issue
Letters of Credit, and extend the Stated Expiry Dates of outstanding Letters of
Credit, in accordance with the Issuance Requests made therefor. The Issuer will
make available the original of each Letter of Credit which it issues in
accordance with the Issuance Request therefor to the beneficiary thereof and
will notify the beneficiary under any Letter of Credit of any extension of the
Stated Expiry Date thereof. Upon the expiration of any Letter of Credit, the
Borrower may re-use any portion of the Letter of Credit Availability for the
issuance of new Letters of Credit prior to Commitment Termination Date.
The Issuer is under no obligation to issue any Letter of Credit if:
(i) any order, judgment or decree of any Government Agency or
arbitrator shall by its terms purport to enjoin or restrain the Issuer
from issuing such Letter of Credit, or any requirement of Applicable Law
or any request or directive (whether or not having the force of law) from
any Government Agency with jurisdiction over the Issuer shall prohibit, or
request that the Issuer refrain from, the issuance of letters of credit
generally or such Letter of Credit in particular or shall impose upon the
Issuer with respect to such Letter of Credit any restriction, reserve or
capital requirement (for which the Issuer is not otherwise compensated
hereunder) not in effect on the Effective Date, or shall impose upon the
Issuer any unreimbursed loss, cost or expense which was not applicable on
the Effective Date and which the Issuer in good xxxxx xxxxx material to
it;
(ii) one or more of the applicable conditions contained in Article
VI is not then satisfied;
(iii) the expiry date of any requested Letter of Credit is prior to
the maturity date of any financial obligation to be supported by the
requested Letter of Credit;
(iv) any requested Letter of Credit does not provide for drafts, or
is not otherwise in form and substance acceptable to the Issuer, or the
issuance of a Letter of Credit shall violate any applicable policies of
the Issuer;
(v) any standby Letter of Credit is for the purpose of supporting
the issuance of any letter of credit by any other Person; or
(vi) such Letter of Credit is in a face amount denominated in a
currency other than Dollars.
40
The Uniform Customs and Practice for Documentary Credits most recently published
by the International Chamber of Commerce at the time of issuance of any Letter
of Credit shall (unless otherwise expressly provided in the Letters of Credit)
apply to the Letters of Credit.
SECTION 4.3. EXPENSES. The Borrower agrees to pay to the Issuer all
reasonable administrative expenses of the Issuer in connection with the
issuance, maintenance, modification (if any) and administration of each Letter
of Credit issued by the Issuer upon demand from time to time.
SECTION 4.4. DISBURSEMENTS. The Issuer will notify the Borrower promptly
of the presentment for payment of any Letter of Credit, together with notice of
the date (the "DISBURSEMENT DATE") such payment shall be made. Subject to the
terms and provisions of such Letter of Credit, the Issuer shall make such
payment to the beneficiary (or its designee) of such Letter of Credit. In paying
any drawing under a Letter of Credit, the Issuer shall not have any
responsibility to obtain any document (other than to obtain and review any sight
draft and certificates expressly required by the Letter of Credit) or to
ascertain or inquire as to the validity or accuracy of any such document or the
authority of the Person executing or delivering any such document. Prior to
12:00 noon (New York time) on the Disbursement Date, the Borrower will reimburse
the Issuer for all amounts which it has disbursed under the Letter of Credit. To
the extent the Issuer is not reimbursed in full in accordance with the preceding
sentence, the Borrower's Reimbursement Obligation shall accrue interest at a
fluctuating rate equal to the lesser of (i) the Highest Lawful Rate or (ii) the
Alternate Reference Rate, plus the Applicable Margin, plus a margin of 3% per
annum, payable on demand. In the event the Issuer is not reimbursed by the
Borrower on the Disbursement Date, or if the Issuer must for any reason return
or disgorge such reimbursement, the Lender shall, on the terms and subject to
the conditions of this Agreement, fund the Reimbursement Obligation therefor by
making, on the next Business Day, Loans as provided in SECTION 2.1.1 (the
Borrower being deemed to have given a timely Borrowing Request therefor for such
amount); PROVIDED, HOWEVER, for the purpose of determining the availability of
the Commitments to make Loans immediately prior to giving effect to the
application of the proceeds of such Loans, such Reimbursement Obligation shall
be deemed not to be outstanding at such time.
SECTION 4.5. REIMBURSEMENT. The Borrower's obligation (a "REIMBURSEMENT
OBLIGATION") under SECTION 4.4 to reimburse the Issuer with respect to each
Disbursement (including interest thereon) shall be absolute and unconditional
under any and all circumstances and irrespective of any setoff, counterclaim, or
defense to payment which the Borrower may have or have had against the Lender,
the Issuer or any beneficiary of a Letter of Credit, including any defense based
upon the occurrence of any Default, any draft, demand or certificate or other
document presented under a Letter of Credit proving to be forged, fraudulent,
invalid or insufficient, the failure of any Disbursement to conform to the terms
of the applicable Letter of Credit (if, in the Issuer's good faith opinion, such
Disbursement is determined to be appropriate) or any non-application or
misapplication by the beneficiary of the proceeds of such Disbursement, or the
legality, validity, form, regularity, or enforceability of such Letter of
Credit;
41
PROVIDED, HOWEVER, that nothing herein shall adversely affect the right of the
Borrower to commence any proceeding against the Issuer for any wrongful
Disbursement made by the Issuer under a Letter of Credit as a result of acts or
omissions constituting gross negligence or wilful misconduct on the part of the
Issuer.
SECTION 4.6. DEEMED DISBURSEMENTS. Upon the occurrence and during the
continuation of any Event of Default or the occurrence of the Commitment
Termination Date, an amount equal to that portion of Letter of Credit
Outstandings attributable to outstanding and undrawn Letters of Credit shall, at
the election of the Lender, and without demand upon or notice to the Borrower,
be deemed to have been paid or disbursed by the Lender under such Letters of
Credit (notwithstanding that such amount may not in fact have been so paid or
disbursed), and, upon notification by the Lender to the Borrower of its
obligations under this Section, the Borrower shall be immediately obligated to
reimburse the Lender the amount deemed to have been so paid or disbursed by the
Lender. Any amounts so received by the Lender from the Borrower pursuant to this
Section shall be held as collateral security for the repayment of the Borrower's
obligations in connection with the Letters of Credit issued by the applicable
Issuer. At any time when such Letters of Credit shall terminate and all
Obligations to the Lender are either terminated or paid or reimbursed to the
Lender in full, the Obligations of the Borrower under this Section shall be
reduced accordingly (subject, however, to reinstatement in the event any payment
in respect of such Letters of Credit is recovered in any manner from the Lender
or the Issuer), and the Lender will return to the Borrower the excess, if any,
of
(a) the aggregate amount deposited by the Borrower with the Lender
and not theretofore applied by the Lender to any Reimbursement Obligation
OVER
(b) the aggregate amount of all Reimbursement Obligations to the
Lender pursuant to this Section, as so adjusted.
At such time when all Events of Default shall have been cured or waived, the
Lender shall return to the Borrower all amounts then on deposit with the Lender
pursuant to this Section. All amounts on deposit pursuant to this Section shall,
until their application to any Reimbursement Obligation or their return to the
Borrower, as the case may be, bear interest for the Borrower's account at the
daily average Federal Funds Rate from time to time in effect (net of the costs
of any reserve requirements, in respect of amounts on deposit pursuant to this
Section, pursuant to F.R.S. Board Regulation D), which interest shall be held by
the Lender as additional collateral security for the repayment of the Borrower's
Obligations in connection with the Letters of Credit issued by the Lender.
SECTION 4.7. NATURE OF REIMBURSEMENT OBLIGATIONS. The Borrower shall
assume all risks of the acts, omissions, or misuse of any Letter of Credit by
the beneficiary thereof. Neither the Lender nor any Issuer (except to the extent
of its own gross negligence or wilful misconduct) shall be responsible for:
42
(a) the form, validity, sufficiency, accuracy, genuineness, or legal
effect of any Letter of Credit or any document submitted by any party in
connection with the application for and issuance of a Letter of Credit,
even if it should in fact prove to be in any or all respects invalid,
insufficient, inaccurate, fraudulent, or forged;
(b) the form, validity, sufficiency, accuracy, genuineness, or legal
effect of any instrument transferring or assigning or purporting to
transfer or assign a Letter of Credit or the rights or benefits thereunder
or proceeds thereof in whole or in part, which may prove to be invalid or
ineffective for any reason;
(c) failure of the beneficiary to comply fully with conditions
required in order to demand payment under a Letter of Credit;
(d) errors, omissions, interruptions, or delays in transmission or
delivery of any messages, by mail, cable, telegraph, telex, facsimile or
otherwise;
(e) any loss or delay in the transmission or otherwise of any
document or draft required in order to make a Disbursement under a Letter
of Credit or of the proceeds thereof;
(f) any change in the time, manner or place of payment of, or in any
other term of, all or any of the obligations of the Borrower in respect of
any Letter of Credit;
(g) the existence of any claim, set-off, defense or other right that
the Borrower may have at any time against any beneficiary or any
transferee of any Letter of Credit (or any Person for whom any such
beneficiary or any such transferee may be acting), the Issuer (if other
than the Lender or its Affiliates) or any other Person, whether in
connection with this Agreement, the transactions contemplated hereby or by
the Letters of Credit or any unrelated transaction;
(h) any payment by an Issuer under any Letter of Credit against
presentation of a draft or certificate that does not strictly comply with
the terms of any Letter of Credit; or any payment made by an Issuer under
any Letter of Credit to any Person purporting to be a trustee in
bankruptcy, debtor-in-possession, assignee for the benefit of creditors,
liquidator, receiver or other representative of or successor to any
beneficiary or any transferee of any Letter of Credit, including any
arising in connection with any insolvency proceeding; or
(i) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing, including any other circumstance that
might otherwise constitute a defense available to, or a discharge of, the
Borrower or a guarantor.
None of the foregoing shall affect, impair, or prevent the vesting of any of the
rights or powers granted the Lender or the Issuer hereunder. In furtherance and
extension, and not in limitation or derogation, of any of the foregoing, any
action taken or omitted to be
43
taken by the Lender or the Issuer in good faith and not constituting gross
negligence or willful misconduct shall be binding upon the Borrower and shall
not put the Lender or the Issuer under any resulting liability to the Borrower.
SECTION 4.8. INCREASED COSTS; INDEMNITY. If by reason of
(a) any change in Applicable Law after the Effective Date or any
change in the interpretation or application by any judicial or regulatory
authority of any Applicable Law, or
(b) compliance by the Lender with any direction, request or
requirement (whether or not having the force of law) of any Government
Agency, including Regulation D of the F.R.S. Board:
(i) the Lender shall be subject to any tax (other than taxes
on net income and franchises), levy, charge or withholding of any
nature or to any variation thereof or to any penalty with respect to
the maintenance or fulfillment of its obligations under this ARTICLE
IV, whether directly or by such being imposed on or suffered by the
Lender;
(ii) any reserve, deposit or similar requirement is or shall
be applicable, increased, imposed or modified in respect of any
Letters of Credit issued by an Issuer; or
(iii) there shall be imposed on the Lender any other condition
regarding this ARTICLE IV or any Letter of Credit,
and the result of the foregoing is directly or indirectly to increase the cost
to the Lender or the Issuer of issuing or maintaining any Letter of Credit or to
reduce any amount receivable in respect thereof by the Lender or the Issuer,
then and in any such case the Issuer or the Lender may, at any time after the
additional cost is incurred or the amount received is reduced, notify the
Borrower thereof, and the Borrower shall pay on demand such amounts as the
Lender or the Issuer may specify to be necessary to compensate the Lender or the
Issuer for such additional cost or reduced receipt, together with interest on
such amount from the date demanded until payment in full thereof at a rate equal
at all times to the Alternate Reference Rate plus the Applicable Margin plus
three percent (3%) per annum. The determination by the Lender or the Issuer, as
the case may be, of any amount due pursuant to this Section, as set forth in a
statement setting forth the calculation thereof in reasonable detail shall, in
the absence of manifest error, be final and conclusive and binding on all of the
parties hereto.
(c) In addition to amounts payable as elsewhere provided in this
ARTICLE IV, the Borrower hereby indemnifies, exonerates and holds the
Lender and each Issuer harmless from and against any and all actions,
causes of action, suits, losses, costs, liabilities and damages, and
expenses incurred in connection therewith (irrespective of whether the
Lender or the Issuer is a party to the action for which indemnification is
sought), including reasonable attorneys' fees and
44
disbursements, which the Lender or the Issuer may incur or be subject to
as a consequence, direct or indirect, of
(i) the issuance of the Letters of Credit, other than as a
result of the gross negligence or wilful misconduct of the Issuer as
determined by a court of competent jurisdiction, or
(ii) the failure of the Issuer to honor a drawing under any
Letter of Credit as a result of any act or omission, whether
rightful or wrongful, of any present or future de jure or de facto
Government Agency.
ARTICLE V
CERTAIN INTEREST RATE AND OTHER PROVISIONS
SECTION 5.1. LIBO RATE LENDING UNLAWFUL. If the Lender shall determine
(which determination shall, upon notice thereof to the Borrower, be conclusive
and binding on the Borrower) that the introduction of or any change in or in the
interpretation of any law makes it unlawful, or any central bank or other
governmental authority asserts that it is unlawful, for the Lender to make,
continue or maintain any Loan as, or to convert any Loan into, a LIBO Rate Loan,
the obligation of the Lender to make, continue, maintain or convert into any
such LIBO Rate Loans shall, upon such determination, forthwith be suspended
until the Lender shall notify the Borrower that the circumstances causing such
suspension no longer exist, and all LIBO Rate Loans shall automatically convert
into Base Rate Loans at the end of the then current Interest Periods with
respect thereto or sooner, if required by such law or assertion.
SECTION 5.2. DEPOSITS UNAVAILABLE. If the Lender shall have determined
that Dollar deposits in the relevant amount are not available to the Lender in
its relevant market, then, upon notice from the Lender to the Borrower, the
obligations of the Lender under Section 2.3 to make any Loans shall forthwith be
suspended until the Lender shall notify the Borrower that the circumstances
causing such suspension no longer exist.
SECTION 5.3. INCREASED LOAN COSTS, ETC. If by reason of
(a) any change in Applicable Law after the Effective Date or any
change in the interpretation or application by any judicial or regulatory
authority of any Applicable Law, or
(b) compliance by the Lender with any direction, request or
requirement (whether or not having the force of Governmental Agency,
including Regulation D of the F.R.S. Board:
(i) the Lender shall be subject to any tax (other than taxes
on net income and franchises), levy, charge or withholding of any
nature or to any variation thereof or to any penalty with respect to
any payment due
45
under any LIBO Rate Loan or other amounts due under this Agreement,
whether directly or by such being imposed on or suffered by the
Lender;
(ii) any reserve, deposit or similar requirement is or shall
be applicable, increased, imposed or modified in respect of Letters
of Credit issued by an Issuer or any other extensions of credit or
other assets of, or any deposits with or other liabilities of, the
Lender or Loans made by the Lender, or against any other funds,
obligations or other property owned or held by the Lender and the
Lender actually incurs such additional costs; or
(iii) there shall be imposed on the Lender any other condition
affecting this Agreement (or any of such extensions of credit or
liabilities),
and the result of the foregoing is directly or indirectly to increase the cost
to the Lender of making, continuing or the Issuer of issuing or maintaining (or
of its obligation to make, continue or maintain) any Loans as, or of converting
(or of its obligation to convert) any Loans into, LIBO Rate Loans, any Letter of
Credit or to reduce any amount receivable in respect thereof by the Lender or
the Issuer, then and in any such case the Lender or the Issuer may, at any time
after the additional cost is incurred or the amount received is reduced, notify
the Borrower thereof, and the Borrower shall pay on demand such amounts as the
Lender or the Issuer may specify to be necessary to compensate the Lender or the
Issuer for such additional cost or reduced receipt, together with interest on
such amount from the date demanded until payment in full thereof at a rate equal
at all times to the Alternate Reference Rate plus the Applicable Margin plus
three percent (3%) per annum. The determination by the Lender or the Issuer, as
the case may be, of any amount due pursuant to this Section, as set forth in a
statement setting forth the calculation thereof in reasonable detail, shall, in
the absence of manifest error, be final and conclusive and binding on all of the
parties hereto.
SECTION 5.4. FUNDING LOSSES. In the event the Lender shall incur any loss
or expense (including any loss or expense incurred by reason of the liquidation
or reemployment of deposits or other funds acquired by the Lender to make,
continue or maintain any portion of the principal amount of any Loan as, or to
convert any portion of the principal amount of any Loan into, a LIBO Rate Loan)
as a result of
(a) any conversion or repayment or prepayment of the principal
amount of any LIBO Rate Loans on a date other than the scheduled last day
of the Interest Period applicable thereto, whether pursuant to SECTION 3.1
or otherwise;
(b) any Loans not being made as LIBO Rate Loans in accordance with
the Borrowing Request therefor by reason of any act or omission by the
Borrower or failure of a condition precedent to be satisfied; or
(c) any Loans not being continued as, or converted into, LIBO Rate
Loans in accordance with the Continuation/ Conversion Notice therefor by
reason of any act or omission by the Borrower;
46
then, upon the written notice of the Lender to the Borrower, the Borrower shall,
within five (5) days of its receipt thereof, pay to the Lender such amount as
will (in the reasonable determination of the Lender) reimburse the Lender for
such loss or expense. Such written notice (which shall include calculations in
reasonable detail) shall, in the absence of manifest error, be conclusive and
binding on the Borrower.
SECTION 5.5. INCREASED CAPITAL COSTS. If any change in, or the
introduction, adoption, effectiveness, interpretation, reinterpretation or
phase-in of, any Applicable Law of any Government Agency, affects or would
affect the amount of capital required or expected to be maintained by the Lender
or any Person controlling the Lender, and the Lender determines (in its sole and
absolute discretion) that the rate of return on its or such controlling Person's
capital as a consequence of its Commitments hereunder, issuance of Letters of
Credit or the Loans made by the Lender is reduced to a level below that which
the Lender or such controlling Person could have achieved but for the occurrence
of any such circumstance, then, in any such case upon notice from time to time
by the Lender to the Borrower, the Borrower shall immediately pay directly to
the Lender additional amounts sufficient to compensate the Lender or such
controlling Person for such reduction in rate of return. A statement of the
Lender as to any such additional amount or amounts (including calculations
thereof in reasonable detail) shall, in the absence of manifest error, be
conclusive and binding upon the Borrower. In determining such amount, the Lender
may use any method of averaging and attribution that it (in its reasonable
discretion) shall deem applicable.
SECTION 5.6. TAXES. All payments by the Borrower of principal of, and
interest on, the Loans and all other amounts payable hereunder shall be made
free and clear of and without deduction for any present or future income,
excise, stamp or franchise taxes and other taxes, levies, assessments, imposts,
deductions, fees, duties, withholdings or other charges and all liabilities with
respect thereto of any nature whatsoever imposed by any taxing authority, but
excluding franchise taxes and taxes imposed on or measured by the Lender's net
income or receipts (such non-excluded items being called "TAXES"). In the event
that any withholding or deduction from any payment to be made by the Borrower
hereunder is required in respect of any Taxes pursuant to any Applicable Law
then (unless the Borrower already knows of such withholding or deduction, upon
notice thereof from the Lender) the Borrower will
(a) pay directly to the relevant authority the full amount required
to be so withheld or deducted;
(b) promptly forward to the Lender an official receipt or other
documentation satisfactory to the Lender evidencing such payment to such
authority; and
(c) pay to the Lender such additional amount or amounts as is
necessary to ensure that the net amount actually received by the Lender
will equal the full amount the Lender would have received and retained had
no such withholding or deduction been required.
47
Moreover, if any Taxes are directly asserted against the Lender with respect to
any payment received by the Lender hereunder, the Lender may pay such Taxes and
the Borrower will promptly pay such additional amounts (including any penalties,
interest or expenses) as is necessary in order that the net amount received by
such person after the payment of such Taxes (including any Taxes on such
additional amount) shall equal the amount such person would have received had
not such Taxes been asserted.
If the Borrower fails to pay any Taxes when due to the appropriate taxing
authority or fails to remit to the Lender the required receipts or other
required documentary evidence, the Borrower shall indemnify the Lender for any
incremental Taxes or other liability (including interest, expenses or penalties)
that may become payable by the Lender as a result of any such failure, whether
or not such Taxes or liabilities were correctly or legally asserted. Payment
under this indemnity shall be made within thirty (30) days after the date the
Lender makes written demand therefor.
Upon the request of the Borrower, each Assignee Lender that is organized
under the laws of a jurisdiction other than the United States shall, prior to
the due date of any payment in respect of the Borrowings, execute and deliver to
the Borrower, on or about January 15 of each calendar year, one or more (as the
Borrower may reasonably request) United States Internal Revenue Service Forms
4224 or Forms 1001 or such other forms or documents (or successor forms or
documents), appropriately completed, as may be applicable to establish the
extent, if any, to which a payment to such Assignee Lender is exempt from
withholding or deduction of Taxes.
To the extent taxes are imposed against the overriding royalty interest
conveyed to the Designee, or the production attributable thereto, the terms and
provisions of the Assignment shall govern the payment of the same.
SECTION 5.7. PAYMENTS, COMPUTATIONS, ETC. Unless otherwise expressly
provided, all payments by the Borrower pursuant to this Agreement, the Note or
any other Loan Document shall be made by the Borrower without setoff, deduction
or counterclaim, not later than 11:00 a.m. (New York time) on the date due, in
U.S. Dollars in same day or immediately available funds, to such account with
the Lender in New York, New York as the Lender shall specify from time to time
by notice to the Borrower. Funds received after that time shall be deemed to
have been received by the Lender on the next succeeding Business Day and any
applicable interest or fee shall continue to accrue. All interest shall be
computed on the basis of the actual number of days (including the first day but
excluding the last day) occurring during the period for which such interest is
payable over a year comprised of 360 days (or, in the case of interest on a Base
Rate Loan (other than when calculated with respect to the Federal Funds Rate),
365 days or, if appropriate, 366 days). Whenever any payment to be made shall
otherwise be due on a day which is not a Business Day, such payment shall
(except as otherwise required by CLAUSE (c) of the definition of the term
"Interest Period" with respect to LIBO Rate Loans) be made on the next
succeeding Business Day and such extension of time shall be included in
computing interest and fees, if any, in connection with such payment.
48
SECTION 5.8. SETOFF. The Lender shall, upon the occurrence of any Default
described in CLAUSES (a) through (d) of SECTION 9.1.9 or upon the occurrence of
any other Event of Default, have the right to appropriate and apply to the
payment of the Obligations owing to it (whether or not then due), and (as
security for such Obligations) the Borrower hereby grants to the Lender a
continuing security interest in, any and all balances, credits, deposits,
accounts or moneys of the Borrower then or thereafter maintained with or
otherwise held by the Lender, including without limitation, the Proceeds
Account. The Lender agrees promptly to notify the Borrower after any such setoff
and application made by the Lender; PROVIDED, HOWEVER, that the failure to give
such notice shall not affect the validity of such setoff and application. The
rights of the Lender under this SECTION 5.8 are in addition to other rights and
remedies (including other rights of setoff under Applicable Law or otherwise)
which the Lender may have.
SECTION 5.9. USE OF PROCEEDS. The Borrower shall apply the proceeds of
each Borrowing in accordance with SECTION 2.7; without limiting the foregoing,
no proceeds of any Loan will be used to acquire any equity security of a class
which is registered pursuant to Section 12 of the Securities Exchange Act of
1934 or any "margin stock", as defined in F.R.S. Board Regulation T, U or X.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.1. INITIAL CREDIT EXTENSION. The obligation of the Lender to
make the initial Credit Extension shall be subject to the prior or concurrent
satisfaction of each of the conditions precedent set forth in this SECTION 6.1.
SECTION 6.1.1. RESOLUTIONS, ETC. The Lender shall have received from the
Borrower and each of Borrower's Subsidiaries a certificate, dated the date of
the initial Credit Extension, of the respective Secretary or Assistant Secretary
of each of the Borrower and the Borrower's Subsidiaries, respectively, as to
(a) resolutions of the respective Boards of Directors of the
Borrower, or such Borrower's Subsidiary then in full force and effect
authorizing the execution, delivery and performance of this Agreement, the
Notes and each other Loan Document to be executed by it;
(b) the incumbency and signatures of those of its officers or
Persons authorized to act with respect to this Agreement, the Notes and
each other Loan Document executed by it;
(c) the Organic Documents of the Borrower or such Borrower's
Subsidiary; and
(d) evidence that each of the Borrower or such Borrower's Subsidiary
in good standing under the laws of the jurisdiction of its respective
organization and in each of the jurisdictions where the Mortgaged
Properties, Borrowing Base Properties and Development Properties are
located,
49
upon which certificates the Lender may conclusively rely until it shall have
received a further certificate of the Secretary of the Borrower canceling or
amending such prior certificate.
SECTION 6.1.2. DELIVERY OF NOTES. The Lender shall have received the Notes
duly executed and delivered by the Borrower.
SECTION 6.1.3. GUARANTIES. The Lender shall have received executed
counterparts of the Guaranties (or amendments and restatements of guaranties
previously delivered under the Existing Credit Documents), dated as of the date
hereof, duly executed by each of the Borrower's Subsidiaries.
SECTION 6.1.4. PLEDGE AGREEMENTS. The Lender shall have received executed
counterparts of the Pledge Agreements (or amendments and restatements of pledge
agreements previously delivered under the Existing Credit Documents), dated as
of the date hereof, duly executed by the Borrower pledging all of its interest
in the capital stock of each of the Borrower's Subsidiaries, in each case
together with the certificates, evidencing all of the issued and outstanding
shares of capital stock pledged pursuant to the Pledge Agreements, which
certificates shall in each case be accompanied by undated stock powers duly
executed in blank, or, if any securities pledged pursuant to the Pledge
Agreements are uncertificated securities, confirmation and evidence satisfactory
to the Lender that the security interest in such uncertificated securities has
been transferred to and perfected by the Lender in accordance with Section 8-313
and Section 8-321 of the Uniform Commercial Code, as in effect in the State of
Texas and/or New York, and, as applicable, with the evidence of completion (or
satisfactory arrangement for the completion) of all filings and recordings of
the Pledge Agreements as may be necessary, or in the reasonable opinion of the
Lender, desirable, effectively to create a valid, perfected first priority lien
against and security interest in the collateral covered thereby.
SECTION 6.1.5. SECURITY AGREEMENT. The Lender shall have received executed
counterparts of a Security Agreement (or amendments and restatements of security
agreements previously delivered under the Existing Credit Documents), dated as
of the date hereof, duly executed by the Borrower and each of its Subsidiaries,
as applicable, together with
(a) executed copies of Uniform Commercial Code financing statements
(Form UCC-1), in proper form for filing, naming the Borrower (or its
Subsidiary, as applicable) as the debtor and the Lender as the secured
party, or other similar instruments or documents, filed under the Uniform
Commercial Code of all jurisdictions as may be necessary or, in the
opinion of the Lender, desirable to perfect the security interest of the
Lender pursuant to such Security Agreement; and
(b) executed copies of proper Uniform Commercial Code Form UCC-3
termination statements, if any, necessary to release all Liens and other
rights of any Person in any collateral described in such Security
Agreement previously
50
granted by any Person together with such other Uniform Commercial Code
Form UCC-3 termination statements as the Lender may reasonably request
from the Borrower.
SECTION 6.1.6. CONSENTS, MORTGAGE CONSENTS AND APPROVALS. The Lender shall
have received true and correct copies, certified by the Borrower, of (a) all
Mortgage Consents and Consents required in connection with the Properties to be
encumbered by Mortgages delivered pursuant to SECTION 6.1.7 or the Security
Agreements delivered pursuant to SECTION 6.1.5, respectively, and (b) all
Approvals that may be requested by the Lender.
SECTION 6.1.7. MORTGAGE. The Lender shall have received counterparts of a
Mortgage (or amendments and restatements of mortgages previously delivered under
the Existing Credit Documents), relating to all of the Hydrocarbon Interests and
related Oil and Gas Properties of the Borrower and its Subsidiaries that are
included in the Lender's determination of the initial Borrowing Base, dated as
of a recent date, duly executed by the Borrower and/or its Subsidiaries, as
applicable, together with
(a) evidence of the completion (or satisfactory arrangements for the
completion) of all recordings and filings of such Mortgage as may be
necessary or, in the reasonable opinion of the Lender, desirable
effectively to create a valid, perfected first priority Lien against the
Properties purported to be covered thereby;
(b) favorable mortgagee's title opinions in favor of the Lender (in
form and substance and issued by title counsel reasonably satisfactory to
the Lender, substantially in the form of EXHIBIT I hereto), with respect
to the Property purporting to be covered by the Mortgage setting forth the
working interest and net revenue interest of the Borrower and/or its
Subsidiaries in such Properties and opining that the Borrower's and/or its
Subsidiaries' title to such property is good and marketable and valid and
that the interests created by the Mortgage constitute valid first Liens
thereon free and clear of all defects and encumbrances other than as
approved by the Lender; and
(c) such other approvals, opinions, or documents as the Lender may
reasonably request.
SECTION 6.1.8. OPINIONS OF COUNSEL. The Lender shall have received
opinions, dated the date of the initial Borrowing and addressed to the Lender,
from
(a) Xxxxxx & Xxxxxx, counsel to the Borrower and the Borrower's
Subsidiaries, substantially in the form of EXHIBIT H hereto;
(b) special title counsel to the Borrower, who shall be acceptable
to the Lender, with respect to the Oil and Gas Properties described on
SCHEDULE II hereto, substantially in the form of EXHIBIT I hereto.
51
SECTION 6.1.9. UCC-11S. The Lender shall have received certified copies of
Uniform Commercial Code Requests for Information or Copies (Form UCC-11), or a
similar search report certified by a party acceptable to the Lender, dated a
date reasonably near to the date of the initial Borrowing, listing all effective
financing statements which name the Borrower, its Subsidiaries, and each other
Obligor (under their present names and any previous names) as the debtor and
which are filed in the State of Texas, together with copies of such financing
statements (none of which shall cover any collateral described in the Mortgages
or other Security Documents).
SECTION 6.1.10. EVIDENCE OF INSURANCE. The Lender shall have received
certificates of insurance satisfactory to it evidencing the existence of all
insurance required to be maintained by the Borrower by this Agreement and the
other Loan Documents.
SECTION 6.1.11. ENGINEERING REPORTS. The Lender shall have received
Engineering Reports from Xxxxx Xxxxx Company, dated as of July 1, 2001, as to
the Borrowing Base Properties listed on SCHEDULE II, covering at least 90% of
the Borrowing Base Properties and Engineering Reports from internal engineers
employed by the Borrower as to all other Borrowing Base Properties.
SECTION 6.1.12. ENVIRONMENTAL REPORT. The Lender shall have received the
Phase I environmental assessments prepared by Cornerstone Environmental
Resources, Inc. or other Person acceptable to the Lender with respect to the
Mortgaged Properties, and such other information with respect to the ownership
and past use of the Mortgaged Properties as the Lender may reasonably request,
and such reports and information shall be satisfactory in form, substance and
scope to the Lender.
SECTION 6.1.13. APPROVED BUDGET. The Lender shall have received the
Approved Budget for covering a period of eight (8) Fiscal Quarters commencing as
of July 1, 2001, in form, scope and detail reasonably satisfactory to the
Lender.
SECTION 6.1.14. AMENDMENT AND RESTATEMENT OF EXISTING CREDIT DOCUMENTS.
The documents, instruments and agreements comprising or evidencing the Debt and
the collateral security for the obligations pursuant to the Existing Credit
Agreement shall each have been amended, or amended and restated to provide that
such documents, instruments and agreements secure the Obligations, in each case
pursuant to instruments in form and substance satisfactory to the Lender and its
counsel.
SECTION 6.1.15. ORRI AGREEMENT AND CERTIFICATE, ETC. The Lender shall have
received an executed Agreement Concerning Overriding Royalty Interests,
substantially in the form of EXHIBIT K-1 and a Certificate as to Overriding
Royalty Interests, substantially in the form of EXHIBIT K-2.
SECTION 6.1.16. ASSIGNMENT. The Lender shall have received counterparts of
the Assignment with respect to the Borrowing Base Properties
52
described on SCHEDULE II,(1) duly executed by the Borrower and the Borrower's
Subsidiaries, together with
(a) evidence of the completion (or satisfactory arrangements for the
completion) of all recordings and filings of the Assignment as may be
necessary or desirable to vest title to the Overriding Royalty Interest
described therein in favor of the Designee; and
(b) such title opinions or other assurances of title with respect to
the overriding royalties which are the subject of the Assignment as the
Lender may reasonably require.
SECTION 6.1.17. HEDGING AGREEMENTS. The Borrower shall have entered into
(and shall have delivered to the Lender copies of) each of the Hedging
Agreements required by SECTIONS 8.1.8 and 8.1.9.
SECTION 6.1.18. WARRANTS, ETC. The Lender or the Designee shall have
received the Warrant Documents, in each case executed and delivered by the
Borrower.
SECTION 6.1.19. CLOSING FEES, EXPENSES, ETC. The Lender shall have
received all reasonable costs and expenses due and payable pursuant to SECTIONS
3.3 and 10.3, if then invoiced.
SECTION 6.1.20. OTHER DOCUMENTS. The Lender shall have received such other
documents as it may reasonably request.
SECTION 6.2. INCLUSION OF HYDROCARBON INTERESTS IN THE BORROWING BASE. The
inclusion of any additional Hydrocarbon Interests in the Borrowing Base is
subject to the following conditions having been satisfied and receipt by the
Lender of the following documents, in each case with respect to each Hydrocarbon
Interest and related Oil and Gas Properties which the Borrower requests be
included in the Borrowing Base, and each of which conditions and documents shall
be satisfactory to the Lender in form and substance:
SECTION 6.2.1. ENVIRONMENTAL REPORT. The Lender shall have received Phase
I environmental assessments as of a recent date prepared by an environmental
consulting firm as shall be acceptable to the Lender, and such other information
with respect to the ownership and past use of the Mortgaged Properties relating
to such Hydrocarbon Interests as the Lender may reasonably request, and such
reports shall be satisfactory in form, substance and scope to the Lender.
SECTION 6.2.2. MORTGAGE. The Lender shall have received counterparts of a
Mortgage relating to such Hydrocarbon Interests and related Oil and Gas
------------------------------
(1) This is the list of properties where the Lender expects to receive an ORRI
at closing. We will need Borrower and Lender to agree upon the list and then
will need the Borrower to furnish us with legal descriptions of the properties.
53
Properties, dated as of a recent date, duly executed by the Borrower and/or its
Subsidiaries, as applicable, together with
(a) evidence of the completion (or satisfactory arrangements for the
completion) of all recordings and filings of such Mortgage as may be
necessary or, in the reasonable opinion of the Lender, desirable
effectively to create a valid, perfected first priority Lien against the
Properties purported to be covered thereby;
(b) favorable mortgagee's title opinions in favor of the Lender (in
form and substance and issued by title counsel reasonably satisfactory to
the Lender, substantially in the form of EXHIBIT I hereto), with respect
to the Property purporting to be covered by the Mortgage setting forth the
working interest and net revenue interest of the Borrower and/or its
Subsidiaries in such Properties and opining that the Borrower's and/or its
Subsidiaries' title to such property is good and marketable and valid and
that the interests created by the Mortgage constitute valid first Liens
thereon free and clear of all defects and encumbrances other than as
approved by the Lender; and
(c) such other approvals, opinions, or documents as the Lender may
reasonably request.
SECTION 6.2.3. UCC-11S. The Lender shall have received certified copies of
Uniform Commercial Code Requests for Information or Copies (Form UCC-11), or a
similar search report certified by a party acceptable to the Lender, dated as of
a recent date, listing all effective financing statements which name the
Borrower or its Subsidiaries (under their present names and any previous names)
as the debtor and which are filed in the jurisdictions in the State of Texas or
the state in which such Oil and Gas Properties are located and in which the
Mortgage referenced in SECTION 6.2.2. is to be filed, together with copies of
such financing statements (none of which shall cover any collateral described in
any such Mortgage).
SECTION 6.2.4. EVIDENCE OF INSURANCE. The Lender shall have received
certificates of insurance satisfactory to it evidencing the existence of all
insurance required to be maintained by the Borrower by this Agreement and the
other Loan Documents with respect to the Hydrocarbon Interests and related Oil
and Gas Properties being added to the Borrowing Base.
SECTION 6.2.5. ENGINEERING REPORTS. The Lender shall have received an
Engineering Report, dated as of a recent date from a petroleum engineer
reasonably acceptable to the Lender, as to the Hydrocarbon Interests being added
to the Borrowing Base.
SECTION 6.2.6. MATERIAL CONTRACTS AND RELATED CONSENTS; SECURITY
AGREEMENT. The Lender shall have received true and correct copies, certified by
the Borrower, and approved the form and substance of, (a) each Material Contract
related to the Hydrocarbon Interests being added to the Borrowing Base, (b) each
Approval as
54
may be requested by the Lender. In addition, the Lender shall have received duly
executed counterparts of a Security Agreement or, if applicable, amendments to
an existing Security Agreement which add any such Material Contract to the
Collateral (as defined in the Security Agreement), a Consent and, as applicable,
a Mortgage Consent, for each such Material Contract, dated as of a recent date.
SECTION 6.2.7. GUARANTIES. The Lender shall have received duly executed
counterparts of a Guaranty from any Subsidiary of the Borrower which is adding
Hydrocarbon Interests to the Borrowing Base, unless such a Guaranty has already
been delivered to the Lender in connection with a previous addition to the
Borrowing Base or on the Effective Date.
SECTION 6.2.8. ADDITIONAL STOCK OR PARTNERSHIP PLEDGE. The Lender shall
have received executed counterparts of the Pledge Agreement, dated not later
than the date of such Loan, duly executed by the Borrower or the applicable
Guarantor pledging its interest in the capital stock or partnership interest, as
the case may be, of any Subsidiary which is adding Hydrocarbon Interests to the
Borrowing Base, unless such Pledge Agreement has already been delivered to the
Lender, accompanied by the original share certificate evidencing such capital
stock and executed stock powers (in blank) and the evidence of satisfactory
arrangement for the completion of all filings and recordings of the Pledge
Agreement as may be necessary or, in the reasonable opinion of the Lender,
desirable, effectively to create a valid, perfected first priority lien against
and security interest in the collateral covered thereby.
SECTION 6.2.9. OVERRIDING ROYALTY INTERESTS. To the extent that (x)
certain new Properties (or new classifications of Properties) are considered by
the Lender in a redetermination of the Borrowing Base and the Collateral Value,
(y) the Designee has not already received an Assignment pertaining thereto and
(z) pursuant to the Confidential Fee Letter, the Designee is entitled to receive
an overriding royalty interest, the Designee shall have received an Assignment
and a Certificate as to Overriding Royalty Interests with respect to such
Properties duly executed by the Borrower and the Borrower's Subsidiaries,
together with
(a) evidence of the completion (or satisfactory arrangements for the
completion) of all recordings and filings of the Assignment as may be
necessary or desirable to vest title to the Overriding Royalty Interest
described therein; and
(b) such title opinions or other assurances of title with respect to
the overriding royalties which are the subject of the Assignment as the
Lender may reasonably require.
SECTION 6.2.10. OTHER DOCUMENTS. The Lender shall have received such other
documents as it may reasonably request.
SECTION 6.3. ALL CREDIT EXTENSIONS. The obligation of the Lender to make
any Credit Extension shall be subject to the satisfaction of each of the
conditions precedent set forth in this SECTION 6.3.
55
SECTION 6.3.1. COMPLIANCE WITH WARRANTIES, NO DEFAULT, ETC. Both before
and after giving effect to any Credit Extension (but, if any Default of the
nature referred to in SECTION 9.1.5 shall have occurred with respect to any
other Indebtedness, without giving effect to the application, directly or
indirectly, of the proceeds of any Borrowing) the following statements shall be
true and correct
(a) the representations and warranties set forth in ARTICLE VII
(excluding, however, those contained in SECTION 7.9) and in the other Loan
Documents shall be true and correct with the same effect as if then made
(unless stated to relate solely to an earlier date, in which case such
representations and warranties shall be true and correct as of such
earlier date);
(b) except as disclosed by the Borrower to the Lender pursuant to
SECTION 7.9
(i) no labor controversy, litigation, arbitration or
governmental investigation or proceeding shall be pending or, to the
knowledge of the Borrower, threatened against the Borrower or any of
its Subsidiaries which has or might reasonably be expected to have a
Material Adverse Effect; and
(ii) no development shall have occurred in any labor
controversy, litigation, arbitration or governmental investigation
or proceeding disclosed pursuant to SECTION 7.9 which has or might
reasonably be expected to have a Material Adverse Effect; and
(c) no Default shall have then occurred and be continuing, and
neither the Borrower nor any other Obligor are in material violation of
any Applicable Law or court order or decree if such violation has or might
reasonably be expected to have a Material Adverse Effect.
SECTION 6.3.2. CREDIT REQUEST. The Lender shall have received a Borrowing
Request or Issuance Request, as the case may be, for such Credit Extension. Each
of the delivery of a Borrowing Request or an Issuance Request and the acceptance
by the Borrower of the proceeds of the Borrowing or the issuance of the Letter
of Credit as applicable, shall constitute a representation and warranty by the
Borrower that on the date of such Borrowing (both immediately before and after
giving effect to such Borrowing and the application of the proceeds thereof) or
the issuance of the Letter of Credit, as applicable, the statements made in
SECTION 6.3.1 are true and correct.
SECTION 6.3.3. SATISFACTORY LEGAL FORM. All documents executed or
submitted pursuant hereto by or on behalf of the Borrower or any of its
Subsidiaries shall be reasonably satisfactory in form and substance to the
Lender and its counsel; the Lender and its counsel shall have received all
information, approvals, opinions, documents or instruments as the Lender or its
counsel may reasonably request.
56
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
In order to induce the Lender to enter into this Agreement and to make
Loans and to issue or cause the issuance of Letters of Credit hereunder, the
Borrower represents and warrants unto the Lender and any Issuer as set forth in
this ARTICLE VII.
SECTION 7.1. ORGANIZATION, ETC. The Borrower is a Delaware corporation and
each of the Borrower's Subsidiaries is an Oklahoma corporation validly organized
and existing and in good standing under the laws of the jurisdiction of its
organization, is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction where the nature of its business
requires such qualification, where the failure so to qualify would have a
Material Adverse Effect and has full power and authority and holds all requisite
governmental licenses, permits and other approvals to enter into and perform its
Obligations under this Agreement, the Notes and each other Loan Document to
which it is a party and to own and hold under lease its Property and to conduct
its business substantially as currently conducted by it, in each case where the
failure so to do would have a Material Adverse Effect. As of the Effective Date,
Old Esenjay is the owner of not less than 24% of the issued and outstanding
shares of the Borrower, and Aspect is the owner of not less than 24% of the
issued and outstanding shares of the Borrower. The Borrower is the sole
shareholder of each of the Borrower's Subsidiaries. As of the Effective Date,
the Borrower has no Subsidiaries other than as listed in SCHEDULE III.
SECTION 7.2. DUE AUTHORIZATION, NON-CONTRAVENTION, ETC. The execution,
delivery and performance by the Borrower and each other Obligor of this
Agreement, the Notes and each other Loan Document executed or to be executed by
it are within the Borrower's and each such Obligor's corporate powers, have been
duly authorized by all necessary corporate action, and do not
(a) contravene the Borrower's or such Obligor's Organic Documents;
(b) contravene or result in any violation of or default under any
Applicable Law or any material contractual restriction, court decree or
order, in each case binding on or affecting the Borrower or any other
Obligor or any Properties, businesses, assets or revenues of the Borrower
or any other Obligor;
(c) result in, or require the creation or imposition of, any Lien on
(except for the Liens of the Loan Documents) any of the Borrower's or any
other Obligor's Properties, businesses, assets or revenues.
SECTION 7.3. GOVERNMENT APPROVAL, REGULATION, ETC. No authorization or
approval or other action by, and no notice to or filing with, any Government
Agency or other Person is required for the due execution, delivery or
performance by the Borrower or any other Obligor of this Agreement, the Notes or
any other Loan Document to which it is a party.
57
SECTION 7.4. INVESTMENT COMPANY ACT. Neither the Borrower, its
Subsidiaries nor any Affiliate thereof, is an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
SECTION 7.5. PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Borrower nor
any of its Subsidiaries is a "holding company" or a "subsidiary company" of a
"holding company", or an "affiliate" of a "holding company" or of a "subsidiary
company" of a "holding company", within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
SECTION 7.6. VALIDITY, ETC. This Agreement constitutes, and the Notes and
each other Loan Document executed by the Borrower or any of its Subsidiaries
will, on the due execution and delivery thereof, constitute, the legal, valid
and binding obligations of the Borrower and such Subsidiaries, as applicable,
enforceable in accordance with their respective terms, and each Loan Document
executed pursuant hereto by each other Obligor will, on the due execution and
delivery thereof by such Obligor, be the legal, valid and binding obligation of
such Obligor enforceable in accordance with its terms, in each case subject to
the effect of any applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting creditors' rights generally.
SECTION 7.7. FINANCIAL INFORMATION. The audited consolidated balance
sheets of the Borrower and each of its consolidated Subsidiaries as at December
31, 2000, and the unaudited consolidated balance sheets of the Borrower and its
consolidated Subsidiaries as at March 31, 2001, and the respective, related
consolidated unaudited statements of operations and cash flow of the Borrower
and each of its Subsidiaries, copies of which have been furnished to the Lender,
have been prepared in accordance with GAAP consistently applied, and present
fairly the consolidated financial condition of the corporations covered thereby
as at the date thereof and the results of their unaudited operations for the
period then ended, and show all material Indebtedness of the Borrower and its
consolidated Subsidiaries, as of the date thereof, including liabilities for
taxes, material commitments and Contingent Liabilities.
SECTION 7.8. NO MATERIAL ADVERSE CHANGE. Since March 31, 2001, there has
been no change in the financial condition, operations, assets, business,
Properties or prospects of the Borrower or its Subsidiaries that has or might
reasonably be expected to have a Material Adverse Effect, except that solely
with respect to financial reporting purposes and due solely to certain non cash
charges, Borrower expects to report an operating loss for the Fiscal Quarter
ended June 30, 2001, due to the effects of FAS 133.
SECTION 7.9. LITIGATION, LABOR CONTROVERSIES, ETC. There is no pending or,
to the knowledge of the Borrower, threatened litigation, action, proceeding, or
labor controversy affecting the Borrower or any of its Subsidiaries, or any of
their respective Properties, businesses, assets or revenues, which has or might
reasonably be expected
58
to have a Material Adverse Effect, except as disclosed in ITEM 7.9
("LITIGATION") of the Disclosure Schedule.
SECTION 7.10. OWNERSHIP OF PROPERTIES. Each of the Borrower and each of
its Subsidiaries has good and merchantable title to its Properties (including,
without limitation, all Hydrocarbon Interests), free and clear of all Liens
except (a) those referred to in the financial statements referred to in SECTION
7.7, (b) as disclosed to the Lender in the DISCLOSURE SCHEDULE or (c) as
permitted by SECTION 8.2.3. After giving full effect to all Liens permitted
under SECTION 8.2.3, the Borrower and its Subsidiaries own the net interests in
Hydrocarbons produced from the Oil and Gas Properties as reflected in the most
recent Engineering Report, and neither the Borrower nor any of its Subsidiaries
is obligated to bear costs or expenses in respect of the Oil and Gas Properties
in excess of its working interest percentage as reflected in the most recent
Engineering Report.
SECTION 7.11. TAXES. Each of the Borrower and its Subsidiaries has filed
all Federal and other tax returns and reports required by Applicable Law to have
been filed by it and has paid all taxes and other governmental charges thereby
shown to be owing, except any such taxes or charges which are being diligently
contested in good faith by appropriate proceedings and for which adequate
reserves in accordance with GAAP shall have been set aside on its books.
SECTION 7.12. PENSION AND WELFARE PLANS. During the
twelve-consecutive-month period prior to the Effective Date and prior to the
date of any Borrowing hereunder, no steps have been taken to terminate any
Pension Plan, and no contribution failure has occurred with respect to any
Pension Plan sufficient to give rise to a Lien under section 302(f) of ERISA. No
condition exists or event or transaction has occurred with respect to any
Pension Plan which might result in the incurrence by the Borrower or any member
of the Controlled Group of any material liability, fine or penalty. Except as
disclosed in ITEM 7.12 ("EMPLOYEE BENEFIT PLANS") of the Disclosure Schedule or
as otherwise reflected in the Financial Statements of the Borrower and its
consolidated Subsidiaries, neither the Borrower nor any member of the Controlled
Group has any contingent liability with respect to any post-retirement benefit
under a Welfare Plan, other than liability for continuation coverage described
in Part 6 of Title I of ERISA.
SECTION 7.13. COMPLIANCE WITH LAW. Neither the Borrower nor any of its
Subsidiaries (a) is in violation of any Applicable Law of, or the terms of any
Approval issued by, any Government Agency; or (b) has failed to obtain any
Approval necessary to ownership of any of its properties or the conduct of its
business (including without limitation any such authorization from the Federal
Energy Regulatory Commission or any state conservation commission or similar
body); which violation or failure could reasonably be expected to have a
Material Adverse Effect.
SECTION 7.14. CLAIMS AND LIABILITIES. Except as disclosed to the Lender in
ITEM 7.14 ("CLAIMS AND LIABILITIES") of the Disclosure Schedule, neither the
Borrower nor any of its Subsidiaries has accrued any liabilities under gas
purchase contracts for gas not taken, but for which it is liable to pay if not
made up and which, if not paid,
59
would have a Material Adverse Effect. Except as disclosed to the Lender in ITEM
7.14 of the Disclosure Schedule, no claims exist against the Borrower or any of
its Subsidiaries for gas imbalances which claims if adversely determined would
have a Material Adverse Effect. No purchaser of product supplied by the Borrower
or any of its Subsidiaries has any claim against the Borrower or any of its
Subsidiaries for product paid for, but for which delivery was not taken as and
when paid for, which claim if adversely determined would have a Material Adverse
Effect.
SECTION 7.15. NO PROHIBITION ON PERFECTION OF SECURITY DOCUMENTS. None of
the terms or provisions of any indenture, mortgage, deed of trust, agreement or
other instrument to which the Borrower or any of its Subsidiaries is a party or
by which the Borrower or any of its Subsidiaries or the property of the Borrower
or any of its Subsidiaries is bound prohibit the filing or recordation of any of
the Loan Documents or any other action which is necessary or appropriate in
connection with the perfection of the Liens evidenced and created by any of the
Loan Documents.
SECTION 7.16. SOLVENCY. Neither the Borrower nor any of its Subsidiaries
is "insolvent", as such term is used and defined in the United States Bankruptcy
Code, 11 U.S.C. Section 101, ET SEQ.
SECTION 7.17. ENVIRONMENTAL WARRANTIES. As a reasonable and prudent
operator of oil and gas producing properties, in the ordinary course of its
business, the Borrower has conducted, with respect to its Oil and Gas
Properties, and, on an ongoing basis, conducts a review of the effect of
Environmental Laws on the business, operations and Properties of the Borrower
and its Subsidiaries, in the course of which it identifies and evaluates
associated liabilities and costs (including any capital or operating
expenditures required for Remedial Action or other clean-up or closure of
Properties presently owned or operated, any capital or operating expenditures
required for Remedial Action or otherwise to achieve or maintain compliance with
environmental protection standards imposed by any Environmental Law or as a
condition of any Approval, license, permit or contract, any related constraints
on operating activities, including any periodic or permanent shutdown of any
facility or reduction in the level of or change in the nature of operations
conducted thereat and any actual or potential liabilities to third parties,
including employees, and any related costs and expenses). On the basis of this
review, the Borrower has reasonably concluded that, except as disclosed in ITEM
7.17 ("ENVIRONMENTAL MATTERS") of the Disclosure Schedule, to the best of its
knowledge after due inquiry:
(a) all facilities and Property (including underlying groundwater)
owned, leased or operated by the Borrower or any of its Subsidiaries have
been, and continue to be, owned, leased or operated by the Borrower or any
of its Subsidiaries in compliance with all Environmental Laws where the
failure to do so could reasonably be expected to have a Material Adverse
Effect;
(b) there have been no past, and there are no pending or threatened
60
(i) claims, complaints, notices or inquiries to, or requests
for information received by, the Borrower or any of its Subsidiaries
with respect to any alleged violation of any Environmental Law,
that, singly or in the aggregate, have or may reasonably be expected
to have a Material Adverse Effect, or
(ii) claims, complaints, notices or inquiries to, or requests
for information received by, the Borrower or any of its Subsidiaries
regarding potential liability under any Environmental Law or under
any common law theories relating to operations or the condition of
any facilities or Property (including underlying groundwater) owned,
leased or operated by the Borrower or any of its Subsidiaries that,
singly or in the aggregate, have, or may reasonably be expected to
have a Material Adverse Effect;
(c) there have been no Releases of Hazardous Materials at, on or
under any Property now or previously owned or leased by the Borrower or
any of its Subsidiaries that, singly or in the aggregate, have, or may
reasonably be expected to have, a Material Adverse Effect;
(d) each of the Borrower or any of its Subsidiaries, as applicable,
has been issued and is in compliance with all permits, certificates,
approvals, licenses and other authorizations relating to environmental
matters and necessary or desirable for its business where the failure to
do so could reasonably be expected to have a Material Adverse Effect;
(e) no Property now or previously owned, leased or operated by the
Borrower or any of its Subsidiaries is listed or proposed for listing on
the National Priorities List pursuant to CERCLA, or, to the extent that
such listing may, singly or in the aggregate, have, or may reasonably be
expected to have a Material Adverse Effect, on the CERCLIS or on any other
similar federal or state list of sites requiring investigation or
clean-up;
(f) there are no underground storage tanks, active or abandoned,
including petroleum storage tanks, on or under any Property now or
previously owned, leased or operated by the Borrower or any of its
Subsidiaries that, singly or in the aggregate, have, or may reasonably be
expected to have, a Material Adverse Effect;
(g) neither the Borrower nor any Subsidiaries of the Borrower has
directly transported or directly arranged for the transportation of any
Hazardous Material to any location which is listed or proposed for listing
on the National Priorities List pursuant to CERCLA, or, to the extent that
such listing may, singly or in the aggregate, have, or may reasonably be
expected to have a Material Adverse Effect, on the CERCLIS or on any
similar federal or state list or which is the subject of federal, state or
local enforcement actions or other investigations which may lead to
material claims against the Borrower or any of its Subsidiaries
61
for any remedial work, damage to natural resources or personal injury,
including claims under CERCLA;
(h) there are no polychlorinated biphenyls, radioactive materials or
friable asbestos present at any Property now or previously owned or leased
by the Borrower or any of its Subsidiaries that, singly or in the
aggregate, have, or may reasonably be expected to have, a Material Adverse
Effect;
(i) since the respective dates of the reports delivered pursuant to
SECTION 6.1.12 and SECTION 6.2.1, no event has occurred or condition
changed which would make the descriptions and characterizations of the
Properties covered thereby incomplete or misleading in any material
respect; and
(j) no condition exists at, on or under any property now or
previously owned or leased by the Borrower or any of its Subsidiaries
which, with the passage of time, or the giving of notice or both, would
give rise to material liability under any Environmental Law that, singly
or in the aggregate have, or may reasonably be expected to have a Material
Adverse Effect.
SECTION 7.18. REGULATIONS T, U AND X. Neither the Borrower nor any of its
Subsidiaries is engaged in the business of extending credit for the purpose of
purchasing or carrying margin stock, and no proceeds of any Loans will be used
for a purpose which violates, or would be inconsistent with, F.R.S. Board
Regulation T, U or X. Terms for which meanings are provided in F.R.S. Board
Regulation T, U or X or any regulations substituted therefor, as from time to
time in effect, are used in this Section with such meanings.
SECTION 7.19. INSURANCE. The Borrower and its Subsidiaries have the
benefit of the insurance coverage described in the certificates of insurance
delivered pursuant to SECTION 6.1.10 and required to be maintained pursuant to
SECTION 8.1.4.
SECTION 7.20. ACCURACY OF INFORMATION. All factual information heretofore
or contemporaneously furnished by or on behalf of the Borrower or any of its
Subsidiaries in writing to the Lender for purposes of or in connection with this
Agreement or any transaction contemplated hereby (including without limitation
each Engineering Report) is, and all other such factual information hereafter
furnished by or on behalf of the Borrower or any of its Subsidiaries to the
Lender will be, true and accurate in every material respect on the date as of
which such information is dated or certified and as of the date of execution and
delivery of this Agreement by the Lender, and such information is not, or shall
not be, as the case may be, incomplete by omitting to state any material fact
necessary to make such information not misleading.
SECTION 7.21. TITLE WARRANTY. The Borrower represents and warrants that
the Overriding Royalty Interest conveyed in the Assignment is free and clear of
any mortgages, deeds of trust, voluntary or contractual Liens, pledges, security
interests, charges, conditional sales or other title retention documents, or
other encumbrances or burdens other than those in favor of the Lender or the
Designee and as expressly set
62
forth in the Assignment, and the Borrower hereby binds itself, its successors
and assigns to warrant and forever defend the title to the Overriding Royalty
Interest therein granted, conveyed, assigned, and transferred unto the Designee,
its successors and assigns, against the lawful claims and demands of every
person whomsoever claiming or to claim the same or any part thereof, by, through
or under the Borrower or any of its Subsidiaries but not otherwise.
ARTICLE VIII
COVENANTS
SECTION 8.1. AFFIRMATIVE COVENANTS. The Borrower agrees with the Lender
and any Issuer that, until all Commitments have terminated and all Obligations
have been paid and performed in full, the Borrower and each of its Subsidiaries
will perform the obligations set forth in this SECTION 8.1.
SECTION 8.1.1. FINANCIAL INFORMATION, REPORTS, NOTICES, ETC. The Borrower
will furnish, or will cause to be furnished, to the Lender copies of the
following financial statements, reports, notices and other information:
(a) as soon as available and in any event within fifty (50) days
after the end of each of the first three (3) Fiscal Quarters of each
Fiscal Year of the Borrower, consolidated and consolidating balance sheets
of the Borrower and its consolidated Subsidiaries as of the end of such
Fiscal Quarter and consolidated and consolidating statements of operations
and cash flow of the Borrower and its consolidated Subsidiaries for such
Fiscal Quarter and for the period commencing at the end of the previous
Fiscal Year and ending with the end of such Fiscal Quarter, certified by
the chief financial Authorized Officer of the Borrower;
(b) as soon as available and in any event within ninety-five (95)
days after the end of each Fiscal Year of the Borrower, a copy of the
annual audit report for such Fiscal Year for the Borrower and its
consolidated Subsidiaries, including therein the audited consolidated and
consolidating balance sheets of the Borrower and its consolidated
Subsidiaries as of the end of such Fiscal Year and audited statements of
operations and cash flow of the Borrower and its consolidated Subsidiaries
for such Fiscal Year, in the case of such audited financials, each case
certified (without any Impermissible Qualification) in a manner reasonably
acceptable to the Lender by an independent public accountant acceptable to
the Lender, together with a certificate from the Chief Financial Officer
of the Borrower from such accountants containing a computation of, and
showing compliance with, each of the financial ratios and restrictions
contained in SECTION 8.2.4 and to the effect that, in making the
examination necessary for the signing of such annual report by such
accountants, they have not become aware of any Default that has occurred
and is continuing, or, if they have become aware of such Default,
describing such Default and the steps, if any, being taken to cure it;
63
(c) concurrently with the delivery of the financial statements
referred to in CLAUSES (a) and (b), a certificate, executed by the
Authorized Officer of the Borrower, showing (in reasonable detail and with
appropriate calculations and computations in all respects reasonably
satisfactory to the Lender) (i) compliance with the financial covenants
set forth in SECTION 8.2.4 and (ii) a comparison between the actions
described in the then current Approved Budget and the actual actions taken
in such period, and also certifying, to such Authorized Officer's best
knowledge, that no Default has occurred and is then outstanding;
(d) commencing December 31, 2001, and thereafter on or prior to
December 31st of each year, an Approved Budget for the Borrower for the
immediately following Fiscal Year, reasonably satisfactory to the Lender,
such budgets to be substantially in the form of EXHIBIT P;
(e) on or prior to the fiftieth (50th) day after the end of each
Fiscal Quarter, a proposed revision to the then current Approved Budget
for the eight (8) Fiscal Quarters next following, in form, scope and
detail reasonably satisfactory to the Lender;
(f) as soon as possible and in any event within five (5) Business
Days after any responsible officer of the Borrower becomes aware of the
occurrence of each Default and any event which has or is reasonably likely
to have a Material Adverse Effect, a statement of Authorized Officer of
the Borrower setting forth details of such Default or event and the action
which the Borrower has taken and proposes to take with respect thereto;
(g) as soon as possible and in any event within five (5) Business
Days after any responsible officer of the Borrower becomes aware of (x)
the occurrence of any adverse development with respect to any litigation,
action, proceeding or labor controversy described in SECTION 7.9 or (y)
the commencement of any litigation, action, proceeding or labor
controversy of the type described in SECTION 7.9, notice thereof and, to
the extent reasonably requested by the Lender, copies of all documentation
relating thereto not subject to the attorney-client privilege;
(h) as soon as possible and in any event within ten (10) days after
any responsible officer of the Borrower or any of its Subsidiaries has
actual knowledge thereof, notice of
(i) any claim by any Person against the Borrower or any of its
Subsidiaries of nonpayment of, or
(ii) any attempt by any Person to collect upon or enforce
any accounts payable (that are more than thirty (30) days past due) of the
Borrower or any of its Subsidiaries, in the case of any single account payable
in excess of $100,000, or in the case of all accounts payable in the aggregate
in excess of $250,000;
64
(i) upon, but in no event later than ten (10) days after, any
responsible officer of the Borrower or any of its Subsidiaries becomes
aware of (i) any and all enforcement, cleanup, removal or other
governmental or regulatory actions instituted, completed or threatened or
other environmental claims against the Borrower or any Subsidiary or any
of its Properties pursuant to any applicable Environmental Laws which
could have a Material Adverse Effect, and (ii) any environmental or
similar condition on any real property adjoining or in the vicinity of the
property of the Borrower or any Subsidiary that could reasonably be
anticipated to cause such property or any part thereof to be subject to
any restrictions on the ownership, occupancy, transferability or use of
such property under any Environmental Laws;
(j) as soon as available and in any event within sixty (60) days
after January 1, 2002 and January 1st of each calendar year, an
Engineering Report from an independent petroleum engineering firm
acceptable to the Lender in its reasonable judgment, and as soon as
available and in any event within sixty (60) days after July 1st of each
calendar year commencing in 2002, an Engineering Report from the
Borrower's internal reserve engineers, unless the Lender, at least sixty
(60) days before the required delivery date of such Engineering Report,
has requested that it be prepared by an independent petroleum engineering
firm reasonably acceptable to the Lender;
(k) promptly after (i) the sending or filing thereof, copies of all
reports which the Borrower sends to any of its security holders, (ii) the
sending or filing thereof, all material reports and registration
statements which the Borrower or any of its Subsidiaries files with the
Securities and Exchange Commission or any national securities exchange,
(iii) the filing thereof, copies of all tariff and rate cases and other
material reports filed with any regulatory authority (other than routine
operating reports), and (iv) receipt thereof, copies of all notices
received from any regulatory authority concerning material noncompliance
by the Borrower or any of its Subsidiaries with any applicable
regulations;
(l) immediately upon becoming aware of the institution of any steps
by the Borrower or any other Person to terminate any Pension Plan, or the
failure to make a required contribution to any Pension Plan if such
failure is sufficient to give rise to a Lien under section 302(f) of
ERISA, or the taking of any action with respect to a Pension Plan which
could result in the requirement that the Borrower furnish a bond or other
security to the PBGC or such Pension Plan, or the occurrence of any event
with respect to any Pension Plan which could result in the incurrence by
the Borrower of any material liability, fine or penalty, or any material
increase in the contingent liability of the Borrower with respect to any
post-retirement Welfare Plan benefit, notice thereof and copies of all
documentation relating thereto;
(m) on or before the thirtieth (30th) day of each month, reports in
forms customarily produced in the oil and gas industry, covering the
subjects identified on EXHIBIT Q hereto, containing operational and
accounting information with
65
respect to the Mortgaged Properties, Borrowing Base Properties and
Development Properties for the immediately preceding month, including
estimated production volumes, revenues, operating costs, drilling costs,
completion costs, geological and geophysical costs, and G&A Expenses,
position under Hedging Agreements and such other information (including
drilling and completion reports and well test data) respecting the
condition or operations, financial or otherwise, of the Borrower or any of
its Subsidiaries as the Lender may from time to time reasonably request.
SECTION 8.1.2. COMPLIANCE WITH LAWS, ETC. The Borrower will, and will
cause each of its Subsidiaries to, comply with all Applicable Laws, except where
failure to so comply would not be reasonably expected to have a Material Adverse
Effect, such compliance to include (without limitation):
(a) the maintenance and preservation of its corporate existence and
qualification as a foreign corporation; and
(b) the payment, before the same become delinquent, of all taxes,
assessments and governmental charges imposed upon it or upon its property
except to the extent being diligently contested in good faith by
appropriate proceedings and for which adequate reserves in accordance with
GAAP shall have been set aside on its books.
SECTION 8.1.3. MAINTENANCE, DEVELOPMENT AND SALE OF PROPERTIES.
(a) The Borrower will, and will cause each of its Subsidiaries to,
maintain (subject to any disposition permitted by SECTION 8.2.9),
preserve, protect and keep its Properties in good repair, working order
and condition (ordinary wear and tear excepted), and make necessary and
proper repairs, renewals and replacements so that its business carried on
in connection therewith may be properly conducted at all times in
accordance with standard industry practices. In particular, the Borrower
will, and will cause each of its Subsidiaries to, operate or cause to be
operated its Oil and Gas Properties as a reasonable and prudent operator.
(b) The Borrower shall use all reasonable efforts promptly to
complete the Approved Development Activities contemplated by the Approved
Budget. In addition, the Borrower shall use all reasonable efforts to
develop and bring into production in a prudent and businesslike manner all
proved developed non-producing reserves and projects that the Lender has
considered in its determination of the Borrowing Base.
(c) The Borrower shall ensure that at all times it has available to
it, either through its employees or through independent contractors,
petroleum engineers with appropriate experience and expertise in the
proper operation and development of properties similar to the Mortgaged
Properties, the Borrowing Base Properties and the Development Properties.
66
(d) From time-to-time, but not less than once each Fiscal Quarter
(at the time described in SECTION 8.1.1(e)) during the time the Tranche B
Loan is outstanding, the Borrower shall deliver to the Lender a written
proposal containing revisions to the Approved Budget then in effect,
showing, among other things, revised projections of Approved Development
Activities for the twenty-four (24) month period following such revision,
which revisions shall in all respects satisfactory to the Lender. Within
ten (10) Business Days after receipt of such proposal for a revised
Approved Budget, the Lender shall either approve the revisions or object
to such revisions. In the event that the Lender has not delivered to the
Borrower an approval or objection within such ten (10) day period, such
revisions shall be deemed approved. In the event that the Lender shall
object to a proposed revision, the Borrower shall discuss such objections
with the Lender and shall further revise and resubmit such proposed
revisions to the Approved Budget until a revised Approved Budget
acceptable to the Lender has been submitted to and approved or deemed
approved by the Lender. Once approved in writing or deemed approved by the
Lender, the then existing Approved Budget shall be amended and the
Approved Budget as revised and amended shall thereafter replace and
supersede the prior Approved Budget.
(e) Promptly after the drilling and completion of each well drilled
on the Oil and Gas Properties that have been considered by the Lender in
the determination or redetermination of the Borrowing Base or the
Collateral Value, the Borrower shall promptly request assignments of any
interests earned by virtue of such drilling and, within fifteen (15) days
after the earlier to occur of the receipt of such assignments or sixty
(60) days after first production from such well, shall deliver to the
Lender:
(i) true and correct copies of any such assignments of record
title of the applicable Oil and Gas Properties into the Borrower or
its Subsidiary, as applicable,
(ii) true and correct copies of all required Consents and
Approvals (including copies of applications to the Mineral Board of
the State of Louisiana for the relevant Approvals) applicable to
such assignments,
(iii) original, executed and acknowledged counterparts of an
Assignment from the Borrower or its Subsidiary, as applicable, to
the Designee (effective not later than the date of first production
from such well),
(iv) original, executed and acknowledged counterparts of a
supplemental Mortgage and related amendments to financing statements
and
(v) a favorable mortgagee's title opinion showing that the
Borrower or its Subsidiary, as applicable, is vested with good and
67
marketable title to interests in the applicable Mortgaged Property
consistent with the working interests and net revenue interest for
such property shown in the most recent Engineering Report and
showing that the interests created by such supplemental Mortgage
constitute valid first Liens thereon, free and clear of all defects
and encumbrances other than as approved by the Lender,
in each case in form and substance reasonably satisfactory to the Lender.
(f) The Borrower and each of its Subsidiaries shall, promptly after
the Effective Date, take all necessary actions and use its reasonable best
efforts to obtain appropriate Consents from the Mineral Board of the State
of Louisiana of the granting of the Assignment and the Mortgage with
respect to any State of Louisiana leases covered by such instruments.
SECTION 8.1.4. INSURANCE. The Borrower will, and will cause each of its
Subsidiaries to, maintain or cause to be maintained with responsible insurance
companies insurance with respect to its properties and business against such
casualties and contingencies and of such types and in such amounts as is
customary in the case of similar businesses (including, where appropriate, well
control, operator's extra expense and remediation insurance) and will furnish to
the Lender at reasonable intervals at the request of the Lender a certificate of
an Authorized Officer of the Borrower setting forth the nature and extent of all
insurance maintained by the Borrower and its Subsidiaries in accordance with
this SECTION 8.1.4. The following shall apply to the insurance required by this
SECTION 8.1.4:
(a) Each policy for property insurance covering the Mortgaged
Property shall show the Lender as loss payee;
(b) Each policy for liability insurance covering the Mortgaged
Property shall show the Lender as additional insured;
(c) Each insurance policy covering the Mortgaged Property shall
provide that at least thirty (30) days prior written notice of
cancellation, reduction in amount or other change in coverage, or of lapse
shall be given to the Lender by the insurer; and
(d) The Borrower shall, if so requested by the Lender, deliver to
the Lender the original or a certified copy of each insurance policy
covering the Mortgaged Property.
SECTION 8.1.5. BOOKS AND RECORDS. The Borrower will, and will cause each
of its Subsidiaries to, keep books and records which accurately reflect all of
its material business affairs and transactions and permit the Lender or any of
its respective representatives, at reasonable times (but in any event, within
three (3) Business Days after notice from the Lender and during all normal
business hours) and at reasonable intervals, to visit all of its offices, to
discuss its financial matters with its officers, directors and, after
forty-eight (48) hours notice to the Borrower and independent public
68
accountant (and the Borrower hereby authorizes such independent public
accountant to discuss the Borrower's and its Subsidiaries' financial matters
with the Lender or its representatives whether or not any representative of the
Borrower is present) and to examine (and, at the expense of the Borrower,
photocopy extracts from) any of its books or other corporate records. The
Borrower shall pay any reasonable fees of such independent public accountant
incurred in connection with the Lender's exercise of its rights pursuant to this
Section. Furthermore, the Borrower will permit the Lender, or its agents, at the
cost and expense of the Borrower, to enter upon the Oil and Gas Properties and
all parts thereof, for the purpose of investigating and inspecting the condition
and operation thereof, and shall permit reasonable access to the field offices
and other offices, including the principal place of business, of the Borrower to
inspect and examine the Oil and Gas Properties.
SECTION 8.1.6. ENVIRONMENTAL COVENANT. The Borrower will, and will cause
each of its Subsidiaries to,
(a) use, operate and maintain all of its facilities and Properties
in compliance with all Environmental Laws, keep all necessary permits,
approvals, certificates, licenses and other authorizations relating to
environmental matters in effect and remain in compliance therewith, and
handle all Hazardous Materials in compliance with all applicable
Environmental Laws where failure to do so would reasonably be expected to
have a Material Adverse Effect;
(b) (i) promptly notify the Lender, and if requested by the Lender,
and provide copies of all written claims, complaints, notices or inquiries
relating to the condition of its facilities and Properties or compliance
with Environmental Laws, (ii) use all reasonable efforts within ninety
(90) days to have dismissed with prejudice any actions or proceedings
relating to compliance with Environmental Laws which would or could in the
reasonable opinion of the Lender have a Material Adverse Effect, and (iii)
diligently pursue cure of any material underlying environmental problem
which forms the basis of any such claim, complaint, notice or inquiry; and
(c) provide such information and certifications which the Lender may
reasonably request from time to time to evidence compliance with this
SECTION 8.1.6.
SECTION 8.1.7. FURTHER ASSURANCES.
(a) The Borrower shall, and shall cause each of its Subsidiaries to,
upon the request of the Lender, take such actions and execute and deliver
such documents and instruments as the Lender shall require to ensure that
the Lender shall, at all times, have received currently effective, duly
executed Loan Documents encumbering Oil and Gas Properties of the Borrower
and its Subsidiaries constituting 90% of value of the Proven Reserves to
which value is given in the determination of the then current Borrowing
Base and Collateral Value (with accompanying letters in lieu of transfer
orders) and satisfactory title
69
evidence in form and substance reasonably acceptable to the Lender in its
reasonable business judgment as to ownership of such Oil and Gas
Properties; PROVIDED that, upon thirty (30) days notice to the Borrower,
the Lender may require, and the Borrower and/or its Subsidiaries, as
applicable, shall execute, acknowledge and deliver to the Lender,
Mortgages effectively encumbering 100% of the Oil and Gas Properties of
the Borrower and its Subsidiaries to which value is given in the
determination of the then current Borrowing Base.
(b) If the Lender shall determine that, as of the date of any
Borrowing Base Redetermination, the Borrower or any of its Subsidiaries
shall have failed to comply with the preceding SUBSECTION 8.1.7(a), the
Lender may notify the Borrower in writing of such failure and, within
thirty (30) days from and after receipt of such written notice by the
Borrower, the Borrower or its Subsidiaries (as applicable) shall execute
and deliver to the Lender supplemental or additional Loan Documents, in
form and substance reasonably satisfactory to the Lender and its counsel,
securing payment of the Notes and the other Obligations and covering
additional assets not then encumbered by any Loan Documents (together with
current valuations, Engineering Reports, and title evidence applicable to
the additional assets collaterally assigned and such other documents as
the Lender may reasonably require, including opinions of counsel, each of
which shall be in form and substance reasonably satisfactory to the
Lender) such that the Lender shall have received currently effective duly
executed Loan Documents encumbering Oil and Gas Properties constituting at
least 90% (or, as provided in SUBSECTION 8.1.7(a), 100%) of the value of
the Proven Reserves of the Borrower and its Subsidiaries to which value is
given in the determination of the then current Borrowing Base (with
accompanying letters in lieu of transfer orders) and satisfactory title
evidence in form and substance acceptable to the Lender in its reasonable
business judgment as to ownership of such Oil and Gas Properties.
(c) From time to time, but not less often that once each Fiscal
Quarter, the Borrower shall, and shall cause each of its Subsidiaries to,
deliver duly executed and acknowledged counterparts of the Assignment as
are necessary to ensure that the Designee shall have received the
overriding royalty interests in all of the Oil and Gas Properties required
by SECTION 3.5.
(d) The Borrower shall ensure that all written information,
exhibits, certificates and reports furnished by or on behalf of the
Borrower to the Lender do not and will not contain any untrue statement of
a material fact and do not and will not omit to state any material fact or
any fact necessary to make the statements contained therein not misleading
in light of the circumstances in which made, and will promptly disclose to
the Lender and correct any defect or error that may be discovered therein
or in any Loan Document or in the execution, acknowledgment or recordation
thereof.
SECTION 8.1.8. HYDROCARBON HEDGING. The Borrower will (i) maintain and
keep in force all Hedging Agreements entered into prior to the Effective Date
(all of
70
which are listed on SCHEDULE IV), and (ii) after the Effective Date,
enter into natural gas Hedging Agreements with counterparties having a S&P
rating or a Xxxxx'x rating of at least AA or Aa2, respectively, and on such
other terms as are satisfactory to the Lender, that will enable the Borrower to
obtain a net realized price of not less than $2.75 per MMBtu of natural gas from
65% of the Incremental Proved Producing Reserves as may from time to time be
established, but in no event later than thirty (30) days after each periodic
redetermination of the Borrowing Base (for the period commencing as of such
redetermination and ending not earlier than the Stated Maturity Date for the
Tranche B Loan). Notwithstanding the foregoing, the Borrower need not enter into
any Hedging Agreement that would result in an average net realized wellhead
price of less than $2.50 per MMBtu.
SECTION 8.1.9. INTEREST RATE PROTECTION. On or before the Effective Date,
the Borrower shall enter into Hedging Agreements, with counterparties having a
S&P rating or a Xxxxx'x rating of at least AA or Aa2, respectively, and on such
other terms as are satisfactory to the Lender, designed to ensure a maximum
interest rate of 10.5% per annum on the notional amount projected to be
outstanding as the Tranche B Loan, for all periods prior to the Tranche B Stated
Maturity Date.
SECTION 8.1.10. MERGER OF CERTAIN SUBSIDIARIES. The Borrower shall, on or
before September 30, 2001, caused Frontier, Inc., Frontier Exploration and
Production Corporation and Frontier Acquisition Corporation to be merged with
and into the Borrower and shall have delivered to the Lender certificates of
merger from the appropriate Government Agencies evidencing such mergers.
SECTION 8.2. NEGATIVE COVENANTS. The Borrower agrees with the Lender and
any Issuer that, until all Commitments have terminated and all Obligations have
been paid and performed in full, the Borrower will perform the obligations set
forth in this SECTION 8.2.
SECTION 8.2.1. BUSINESS ACTIVITIES. The Borrower will not, and will not
permit its Subsidiaries to, engage in any business activity, except those
described in the first recital and such activities as may be incidental or
related thereto. Until the merger of Frontier, Inc., Frontier Exploration and
Production Company and Frontier Acquisition Corporation with and into the
Borrower as described in SECTION 8.1.10, the Borrower will not, and will not
permit any of its Subsidiaries, to conduct any business in such Subsidiaries
other than may be necessary to manage and operate existing properties and to
implement such mergers.
SECTION 8.2.2. INDEBTEDNESS. The Borrower will not, and will not permit
any of its Subsidiaries to, create, incur, assume or suffer to exist or
otherwise become or be liable in respect of any Indebtedness, other than,
without duplication, the following:
(a) Indebtedness in respect of the Loans and other Obligations;
71
(b) Indebtedness in an aggregate principal amount not to exceed
$500,000 at any time outstanding which is incurred by the Borrower or any
of its Subsidiaries to a vendor of any assets to finance its acquisition
of such assets;
(c) unsecured Indebtedness incurred in the ordinary course of
business (including (i) open accounts extended by suppliers on normal
trade terms in connection with purchases of goods and services, and (ii)
gas balancing, but excluding Indebtedness incurred through the borrowing
of money or Contingent Liabilities);
(d) Hedging Obligations incurred pursuant to the Hedging Agreements
permitted under SECTIONS 8.1.8 and 8.1.9; and
(e) Contingent Obligations incurred to satisfy bonding requirements
imposed by any Government Agency not to exceed, in the aggregate,
$250,000;
(f) Indebtedness of its Subsidiaries existing as of the Effective
Date which is identified in ITEM 8.2.2(F) of the Disclosure Schedule;
(g) Indebtedness in respect of Capitalized Lease Obligations in an
amount not to exceed $250,000 at any time outstanding;
(h) Indebtedness owed by the Borrower to any of the Subsidiaries or
by any Subsidiary of the Borrower to the Borrower or any Subsidiary;
(i) endorsements of negotiable instruments for collection in the
ordinary course of business;
(j) Indebtedness of the Borrower and its Subsidiaries which are
Investments to the extent permitted by SECTION 8.2.5(b);
(k) additional Indebtedness not permitted by CLAUSES (a) through (j)
above, PROVIDED, HOWEVER, that the aggregate amount of all Indebtedness
incurred by the Borrower and its consolidated Subsidiaries pursuant to
this CLAUSE (k) shall not exceed $1,000,000 at any one time outstanding;
PROVIDED, HOWEVER, that no Indebtedness otherwise permitted by CLAUSE (b) shall
be permitted if, after giving effect to the incurrence thereof, any Default
shall have occurred and be continuing.
SECTION 8.2.3. LIENS. The Borrower will not, and will not permit any of
the Subsidiaries to create, incur, assume or suffer to exist any Lien upon any
of its Property, revenues or assets, whether now owned or hereafter acquired,
except:
(a) Liens securing payment of the Obligations, granted pursuant to
any Loan Document;
72
(b) Liens granted to secure payment of Indebtedness of the type
permitted and described in CLAUSE (b) of SECTION 8.2.2 and covering only
those assets acquired with the proceeds of such Indebtedness;
(c) Hydrocarbon production sales contracts;
(d) Liens for taxes, assessments or other governmental charges or
levies not at the time delinquent or thereafter payable without penalty or
being diligently contested in good faith by appropriate proceedings and
for which adequate reserves in accordance with GAAP shall have been set
aside on its books;
(e) Liens of carriers, warehousemen, mechanics, materialmen and
landlords incurred in the ordinary course of business for sums not overdue
or being diligently contested in good faith by appropriate proceedings and
for which adequate reserves in accordance with GAAP shall have been set
aside on its books; PROVIDED, that at no time shall such sums exceed in
the aggregate $100,000;
(f) Liens incurred in the ordinary course of business in connection
with workmen's compensation, unemployment insurance or other forms of
governmental insurance or benefits (other than ERISA), or to secure
performance of bonds, licenses, statutory obligations, and performance
bonds, tenders, statutory obligations, leases and contracts (other than
for borrowed money), all other obligations of a like nature entered into
in the ordinary course of business or to secure obligations on surety or
appeal bonds, all other obligations of a like nature;
(g) zoning and similar covenants, restrictions, easements,
servitudes, permits, conditions, exceptions, reservations, minor rights,
minor encumbrances, minor irregularities in title or conventional rights
of reassignment prior to abandonment and similar restrictions and other
similar encumbrances or title defects which do not materially interfere
with the occupation, use and enjoyment by the Borrower of its assets in
the ordinary course of business as presently conducted, or materially
impair the value thereof for the purpose of such business;
(h) judgment Liens in existence less than thirty (30) days after the
entry thereof or with respect to which execution has been stayed or the
payment of which is covered in full (subject to a customary deductible) by
insurance maintained with responsible insurance companies;
(i) deposits of cash to secure insurance in the ordinary course of
business;
(j) banker's liens arising by operation of law securing fees and
costs of such banks, but not liens securing borrowed money;
73
(k) Liens in favor of operators and non-operators under joint
operating agreements or similar contractual arrangements arising in the
ordinary course of the business of the Borrower to secure amounts owing,
which amounts are not yet due or are being contested in good faith by
appropriate proceedings, if such reserve as may be required by GAAP shall
have been made therefor;
(l) production sales agreements, division orders, operating
agreements and other agreements customary in the oil and gas business for
producing, processing, gathering, transporting and selling Hydrocarbons;
(m) the terms any provisions of the leases, unit agreements,
assignments and other transfer of title documents in the chain of title
under which the Borrower acquired the relevant Properties;
(n) any Liens securing Indebtedness, neither assumed nor guaranteed
by the Borrower nor on which it customarily pays interest, existing upon
real estate or rights in or relating to real estate acquired by the
Borrower for substation, metering station, pump station, storage,
gathering line, transmission line, transportation line, distribution line,
or right of way purposes, and any Liens reserved in leases for rent and
compliance with the terms of the leases in the case of leasehold estates,
so long as no default has occurred in the payment or performance thereof,
and to the extent that any such Lien referred to in this clause does not
materially impair the use of the Properties covered by such Lien for the
purposes for which such Properties is held by the Borrower;
(o) the statutory Lien to secure payment of the proceeds of
Hydrocarbon production established by Texas Bus. & Com. Code Section9.319
and similar laws of other jurisdictions;
(p) rights reserved to or vested in any Government Agency by the
terms of any right, power, franchise, grant, license, or permit, or by any
provision of law, to terminate such right, power, franchise, grant,
license, or permit or to purchase, condemn, expropriate, or recapture or
to designate a purchaser of any of the Properties of the Borrower; and
(q) rights of a common owner of any interest in real estate, rights
of way, or easements held by the Borrower and such common owner as tenant
in common or through other common ownership.
SECTION 8.2.4. FINANCIAL CONDITION. The Borrower will not permit:
(a) Tangible Net Worth at any time to be less than $20,000,000, plus
fifty percent (50%) of Consolidated Net Income (excluding the effects of
consolidated net losses) for all Fiscal Quarters beginning after the
Effective Date and treated as a single accounting period;
(b) the Current Ratio at any time to be less than 1.0:1.0;
74
(c) the Debt to Capitalization Ratio at any time to be greater than
60%;
(d) the Debt to EBITDA Ratio (i) at any time prior to March 31,
2002, to be greater than 3.5:1.0, or (ii) at any time on or after March
31, 2002, to be greater than 3.0:1.0;
(e) the Interest Coverage Ratio to be less than 3.0:1.0; or
(f) G&A Expenses, whether capitalized or expensed, to exceed for any
four (4) consecutive Fiscal Quarters, the sum of (i) $7,000,000 and (ii)
the floating amount in accordance with the Bonus Plan.
The Borrower shall not, and shall not suffer or permit any Subsidiary to, make
any significant change in accounting treatment or reporting practices, except as
required by GAAP, or, without the consent of the Lender, such consent not to be
unreasonably withheld, change the fiscal year of the Borrower or of any
Subsidiary.
SECTION 8.2.5. INVESTMENTS. The Borrower will not, and will not permit any
of its Subsidiaries to, make, incur, assume or suffer to exist any Investment in
any other Person, except:
(a) Cash Equivalent Investments;
(b) without duplication, Investments permitted as Indebtedness
pursuant to SECTION 8.2.2;
(c) without duplication, Investments in the nature of Capital
Expenditures;
(d) to the extent the formation or acquisition of any Subsidiary is
permitted hereunder, Investments in such Subsidiary; and
(e) Investments permitted by SECTION 8.2.8;
PROVIDED, HOWEVER, that
(f) any Investment which when made complies with the requirements of
the definition of the term "CASH EQUIVALENT INVESTMENT" may continue to be
held notwithstanding that such Investment if made thereafter would not
comply with such requirements; and
(g) no Investment otherwise permitted by CLAUSE (b) shall be
permitted to be made if, immediately before or after giving effect
thereto, any Default shall have occurred and be continuing.
SECTION 8.2.6. RESTRICTED PAYMENTS, ETC. On and at all times after the
Effective Date:
75
(a) the Borrower will not, and will not permit any of its
Subsidiaries (other than a wholly-owned Subsidiary) to, declare, pay or
make any dividend or distribution (in cash, property or obligations) on
any class of equity (now or hereafter outstanding) of the Borrower or such
Subsidiary or on any options, warrants or other rights with respect to any
interest or shares of any class of capital stock (now or hereafter
outstanding) of the Borrower or such Subsidiary or apply any of its funds,
property or assets to the purchase, redemption, sinking fund or other
retirement of, any class of capital stock (now or hereafter outstanding)
of the Borrower, or options, warrants or other rights with respect to any
interest or shares of or in any class of capital stock (now or hereafter
outstanding) of the Borrower or such Subsidiary (such dividends,
distributions or applications being called "DISTRIBUTION PAYMENTS") other
than Distribution Payments which do not cause the Borrower to be in
violation of the Restricted Payment Tests; and
(b) the Borrower will not permit any Subsidiary to make any
Distribution Payments other than to the Borrower; and
(c) the Borrower will not, and will not permit its Subsidiaries to,
make any deposit for any of the foregoing purposes.
SECTION 8.2.7. RENTAL OBLIGATIONS. The Borrower will not, and will not
permit any of its Subsidiaries to, enter into at any time any arrangement
(excluding oil and gas leases entered into in the ordinary course of business)
which involves the leasing by the Borrower or any Subsidiary from any lessor of
any real or personal property (or any interest therein), except arrangements
which, together with all other such arrangements which shall then be in effect,
will not require the payment of an aggregate amount of rentals by the Borrower
or any Subsidiary in excess of (excluding escalations resulting from a rise in
the consumer price or similar index) $400,000 for any Fiscal Year or $1,500,000
during the full remaining term of such arrangements; PROVIDED, HOWEVER, that any
calculation made for purposes of this SECTION 8.2.7 shall exclude any amounts
(i) required to be expended for maintenance and repairs, insurance, taxes,
assessments, and other similar charges and (ii) any amounts relating to
Capitalized Lease Obligations.
SECTION 8.2.8. CONSOLIDATION, MERGER, ETC. The Borrower will not, and will
not permit any of its Subsidiaries to, liquidate or dissolve, consolidate with,
or merge into or with, any other partnership or corporation, unless, in the case
of such consolidation or merger, the Borrower is the surviving entity and
Principal Shareholders retain control over the Borrower. The Borrower will not
create any Subsidiary except with the prior written consent of the Lender.
SECTION 8.2.9. ASSET DISPOSITIONS, ETC. The Borrower will not, and will
not permit any of its Subsidiaries to, sell, transfer, lease, contribute or
otherwise convey, or grant options, warrants or other rights with respect to,
all or substantially all of the assets of the Borrower or any of its
Subsidiaries in any one transaction or in any series of transactions, whether or
not related. The Borrower will not, and will not permit any of
76
its Subsidiaries to, sell, transfer, lease, contribute or otherwise convey, or
grant options, warrants (or other rights with respect to), less than all or any
substantial part of its assets (including accounts receivable and including any
assets sold and then leased pursuant to a "sale/leaseback" transaction) to any
Person other than
(a) farmouts under standard industry terms of Properties not holding
Proven Reserves;
(b) abandonment of Properties not capable of producing Hydrocarbons
in paying quantities after the expiration of their primary terms;
(c) if such assets are not Borrowing Base Properties, such transfer,
lease, contribution or conveyance is for cash or other consideration
having a value at least equal to the fair market value of such assets;
(d) if such assets are in the Borrowing Base, the Borrower complies
with the terms of SECTION 3.1.2 and such sale, transfer, lease,
contribution or conveyance is for cash in an amount at least equal to the
fair market value of such assets; or
(e) as permitted by SECTION 2.7 of the Mortgage.
SECTION 8.2.10. MODIFICATION OF CERTAIN DOCUMENTS. Except with respect to
amendments to Material Contracts that do not directly and materially affect the
rights of Lender under the Loan Documents, the Borrower will not amend its
Organic Documents or the Bonus Plan, or consent to any amendment, supplement or
other modification of any of the terms or provisions contained in, or applicable
to, the Material Contracts, in each case without the prior written consent of
the Lender.
SECTION 8.2.11. TRANSACTIONS WITH AFFILIATES. The Borrower will not, and
will not permit any of its Subsidiaries to, enter into, or cause, suffer or
permit to exist any arrangement or contract with any of its other Affiliates
unless such arrangement or contract is fair and equitable to the Borrower and is
an arrangement or contract of the kind which would be entered into by a prudent
Person in the position of the Borrower or such Subsidiary with a Person which is
not one of its Affiliates.
SECTION 8.2.12. NEGATIVE PLEDGES, RESTRICTIVE AGREEMENTS, ETC. The
Borrower will not, and will not permit any of its Subsidiaries to, enter into
any agreement (excluding this Agreement, any other Loan Document and any
agreement governing any Indebtedness permitted by CLAUSES (b) OR (e) of SECTION
8.2.2 as in effect on the Effective Date as to the assets financed with the
proceeds of such Indebtedness) prohibiting
(a) the creation or assumption of any Lien upon its properties,
revenues or assets, whether now owned or hereafter acquired (other than
those assets subject to Liens permitted by SECTION 8.2.3(b)), or the
ability of the Borrower or any other Obligor to amend or otherwise modify
this Agreement or any other Loan Document; or
77
(b) the ability of any Subsidiary to make any payments, directly or
indirectly, to the Borrower by way of dividends, advances, repayments of
loans or advances, reimbursements of management and other intercompany
charges, expenses and accruals or other returns on investments, or any
other agreement or arrangement which restricts the ability of any such
Subsidiary to make any payment, directly or indirectly, to the Borrower.
SECTION 8.2.13. TAKE OR PAY CONTRACTS. Except as disclosed to the Lender
in ITEM 8.2.13 of the Disclosure Schedule, and except for reservation charges
payable for reservations of capacity in gathering systems and pipelines incurred
in the ordinary course of business on an arm's length basis for volumes
reasonably expected to be produced from the Borrowers' Properties to be
transported through such systems and pipelines, the Borrower will not, and will
not permit any of its Subsidiaries to, enter into or be a party to any
arrangement for the purchase of materials, supplies, other property (including
without limitation Hydrocarbons), or services if such arrangement requires that
payment be made by the Borrower or such Subsidiary regardless of whether such
materials, supplies, other property, or services are delivered or furnished to
it.
ARTICLE IX
EVENTS OF DEFAULT
SECTION 9.1. LISTING OF EVENTS OF DEFAULT. Each of the following events or
occurrences described in this SECTION 9.1 shall constitute an "EVENT OF
DEFAULT".
SECTION 9.1.1. NON-PAYMENT OF OBLIGATIONS. The Borrower shall default in
the payment or prepayment when due of any principal of any Loan; the Borrower
shall default in the payment when due of any Reimbursement Obligation or Hedging
Obligation under a Hedging Agreement in effect between the Borrower and the
Lender or an Affiliate of the Lender; or the Borrower shall default (and such
default shall continue unremedied for a period of five (5) days) in the payment
when due of any interest on any Loan or any fee or of any other Obligation.
SECTION 9.1.2. BREACH OF WARRANTY. Any representation or warranty of the
Borrower or any other Obligor made or deemed to be made hereunder or in any
other Loan Document executed by it or any other writing or certificate furnished
by or on behalf of the Borrower or any other Obligor to the Lender for the
purposes of or in connection with this Agreement or any such other Loan Document
(including any certificates delivered pursuant to ARTICLE VI) is or shall be
incorrect in any material respect when made or deemed made.
SECTION 9.1.3. NON-PERFORMANCE OF CERTAIN COVENANTS AND OBLIGATIONS. The
Borrower shall default in the due performance and observance of any of its
obligations under SECTION 3.1.2, SECTION 8.1 (other than 8.1.2, 8.1.3 and 8.1.6)
or SECTION 8.2.
78
SECTION 9.1.4. NON-PERFORMANCE OF OTHER COVENANTS AND OBLIGATIONS. The
Borrower or any other Obligor shall default in the due performance and
observance of any other agreement contained herein or in any other Loan Document
executed by it, and such default shall continue unremedied for a period of
fifteen (15) days after notice thereof shall have been given to the Borrower by
the Lender.
SECTION 9.1.5. DEFAULT ON OTHER INDEBTEDNESS.
(a) A default shall occur in the payment when due (subject to any
applicable grace period), whether by acceleration or otherwise, of any
Indebtedness (including any subordinated indebtedness permitted by SECTION
8.2.2 and any Hedging Agreements in effect between the Borrower and the
Lender or any Affiliate of the Lender, but excluding Indebtedness
described in SECTION 9.1.1) of the Borrower, any consolidated Subsidiary
or other Obligor having a principal amount, individually or in the
aggregate, in excess of $50,000, or a default shall occur in the
performance or observance of any obligation or condition with respect to
such Indebtedness if the effect of such default is to accelerate the
maturity of any such Indebtedness or such default shall continue
unremedied for any applicable period of time sufficient to permit any
holder of such Indebtedness, or any trustee or agent for such holders, to
cause such Indebtedness to become due and payable prior to its expressed
maturity.
(b) A failure to pay when due any royalty, overriding royalty or
similar interest burdening the Oil and Gas Properties of the Borrower, in
the aggregate, in excess of $50,000.
SECTION 9.1.6. JUDGMENTS. Any judgment, decree, arbitration award or order
for the payment of money in excess of $50,000 in excess of valid and collectible
insurance in respect thereof the payment of which is not being disputed or
contested by the insurer or insurers shall be rendered against the Borrower, any
consolidated Subsidiary, or other Obligor and either
(a) enforcement proceedings shall have been commenced by any
creditor upon such judgment or order; or
(b) there shall be any period of ten (10) consecutive days during
which a stay of enforcement of such judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect.
SECTION 9.1.7. PENSION PLANS. Any of the following events shall occur with
respect to any Pension Plan
(a) the institution of any steps by the Borrower, any member of its
Controlled Group or any other Person to terminate a Pension Plan if, as a
result of such termination, the Borrower or any such member could be
required to make a contribution to such Pension Plan, or could reasonably
expect to incur a liability or obligation to such Pension Plan; or
79
(b) a contribution failure occurs with respect to any Pension Plan
sufficient to give rise to a Lien under Section 302(f) of ERISA.
SECTION 9.1.8. CONTROL OF THE BORROWER. Any Change in Control shall occur.
SECTION 9.1.9. BANKRUPTCY, INSOLVENCY, ETC. The Borrower or any other
Obligor shall
(a) become insolvent or generally fail to pay, or admit in writing
its inability or unwillingness to pay, debts as they become due;
(b) apply for, consent to, or acquiesce in, the appointment of a
trustee, receiver, sequestrator or other custodian for the Borrower or any
other Obligor or any property of any thereof, or make a general assignment
for the benefit of creditors;
(c) in the absence of such application, consent or acquiescence,
permit or suffer to exist the appointment of a trustee, receiver,
sequestrator or other custodian for the Borrower or any other Obligor or
for a substantial part of the property of any thereof, and such trustee,
receiver, sequestrator or other custodian shall not be discharged within
sixty (60) days, PROVIDED that the Borrower and each other Obligor hereby
expressly authorizes the Lender to appear in any court conducting any
relevant proceeding during such 60-day period to preserve, protect and
defend its rights under the Loan Documents;
(d) permit or suffer to exist the commencement of any bankruptcy,
reorganization, debt arrangement or other case or proceeding under any
bankruptcy or insolvency law, or any dissolution, winding up or
liquidation proceeding, in respect of the Borrower or any other Obligor,
and, if any such case or proceeding is not commenced by the Borrower or
such other Obligor, such case or proceeding shall be consented to or
acquiesced in by the Borrower or such other Obligor or shall result in the
entry of an order for relief or shall remain for sixty (60) days
undismissed, PROVIDED that the Borrower and each other Obligor hereby
expressly authorizes the Lender to appear in any court conducting any such
case or proceeding during such 60-day period to preserve, protect and
defend its rights under the Loan Documents; or
(e) take any action authorizing, or in furtherance of, any of the
foregoing.
SECTION 9.1.10. IMPAIRMENT OF SECURITY, ETC. Any Loan Document, or any
Lien granted thereunder, shall (except in accordance with its terms), in whole
or in part, terminate, cease to be effective or cease to be the legally valid,
binding and enforceable obligation of any Obligor party thereto; the Borrower,
any other Obligor or any other party shall, directly or indirectly, contest in
any manner such effectiveness, validity, binding nature or enforceability; or
any Lien securing any Obligation shall, in
80
whole or in part, cease to be a perfected first priority Lien, subject only to
those exceptions expressly permitted by such Loan Document.
SECTION 9.1.11. MATERIAL ADVERSE EFFECT. Any Material Adverse Effect shall
occur.
SECTION 9.2. ACTION IF BANKRUPTCY. If any Event of Default described in
CLAUSES (a) through (d) of SECTION 9.1.9 shall occur with respect to the
Borrower or any other Obligor, the Commitments (if not theretofore terminated)
shall automatically terminate and the outstanding principal amount of all
outstanding Loans and all other Obligations shall automatically be and become
immediately due and payable, without notice or demand.
SECTION 9.3. ACTION IF OTHER EVENT OF DEFAULT. If any Event of Default
(other than any Event of Default described in CLAUSES (a) through (d) of SECTION
9.1.9 with respect to the Borrower or any other Obligor) shall occur for any
reason, whether voluntary or involuntary, and be continuing, the Lender, may by
notice to the Borrower declare all or any portion of the outstanding principal
amount of the Loans and other Obligations to be due and payable and/or the
Commitments (if not theretofore terminated) to be terminated, whereupon the full
unpaid amount of such Loans and other Obligations which shall be so declared due
and payable shall be and become immediately due and payable, without further
notice, demand or presentment, and/or, as the case may be, the Commitments shall
terminate.
SECTION 9.4. RIGHTS NOT EXCLUSIVE. The rights provided for in this
Agreement and the other Loan Documents are cumulative and are not exclusive of
any other rights, powers, privileges or remedies provided by Applicable Law or
in equity, or under any other instrument, document or agreement now existing or
hereafter arising.
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.1. WAIVERS, AMENDMENTS, ETC.
(a) The provisions of this Agreement and of each other Loan Document
may from time to time be amended, modified or waived, if such amendment,
modification or waiver is in writing and consented to by the Borrower and
the Lender. No failure or delay on the part of the Lender in exercising
any power or right under this Agreement or any other Loan Document shall
operate as a waiver thereof, nor shall any single or partial exercise of
any such power or right preclude any other or further exercise thereof or
the exercise of any other power or right. No notice to or demand on the
Borrower in any case shall entitle it to any notice or demand in similar
or other circumstances. No waiver or approval by the Lender under this
Agreement or any other Loan Document shall, except as may be otherwise
stated in such waiver or approval, be applicable to subsequent
transactions. No waiver or approval hereunder shall
81
require any similar or dissimilar waiver or approval thereafter to be
granted hereunder.
(b) This Agreement is an amendment and restatement of, and replaces
and supersedes the Existing Credit Agreement; PROVIDED, HOWEVER, that no
right, interest, claim or cause of action of any kind of the respective
lender which may have existed under such the Existing Credit Agreement or
the Existing Security Documents shall in any way be released, modified,
compromised or waived by virtue of this Agreement superseding and
replacing such documents and agreements.
SECTION 10.2. NOTICES.
(a) All notices and other communications provided to any party
hereto under this Agreement or any other Loan Document shall be in writing
and shall be hand delivered or sent by overnight courier, certified mail
(return receipt requested), or telecopy to such party at its address or
telecopy number set forth on the signature pages hereof or set forth in
the Lender Assignment Notice or at such other address or telecopy number
as may be designated by such party in a notice to the other parties.
Without limiting any other means by which a party may be able to provide
that a notice has been received by the other party, a notice shall be
deemed to be duly received (a) if sent by hand, on the date when left with
a responsible person at the address of the recipient; (b) if sent by
telefax, on the date of receipt by the sender of an acknowledgment or
transmission reports generated by the machine from which the telefax was
sent indicating that the telefax was sent in its entirety to the
recipient's telefax number.
(b) All such notices, requests and communications shall, when
transmitted by overnight delivery, or faxed, be effective when delivered
for overnight (next-day) delivery, or transmitted in legible form by
facsimile machine, respectively, or if mailed, upon the third Business Day
after the date deposited into the U.S. mail, or if delivered, upon
delivery.
(c) Any agreement of the Lender herein to receive certain notices by
telephone or facsimile is solely for the convenience and at the request of
the Borrower. The Lender shall be entitled to rely on the authority of any
Person purporting to be a Person authorized by the Borrower to give such
notice and the Lender shall not have any liability to the Borrower or
other Person on account of any action taken or not taken by the Lender in
reliance upon such telephonic or facsimile notice. The obligation of the
Borrower to repay the Loans shall not be affected in any way or to any
extent by any failure by the Lender to receive written confirmation of any
telephonic or facsimile notice or the receipt by the Lender of a
confirmation which is at variance with the terms understood by the Lender
to be contained in the telephonic or facsimile notice.
SECTION 10.3. PAYMENT OF COSTS AND EXPENSES. The Borrower agrees to pay
within thirty (30) days after written demand all reasonable expenses of the
Lender
82
(including the reasonable fees and out-of-pocket expenses of internal and
external counsel to the Lender and of local counsel, if any, who may be retained
by counsel to the Lender) in connection with
(a) the negotiation, preparation, execution and delivery of this
Agreement and of each other Loan Document, including schedules and
exhibits, and any amendments, waivers, consents, supplements or other
modifications to this Agreement or any other Loan Document as may from
time to time hereafter be required, whether or not the transactions
contemplated hereby are consummated,
(b) the filing, recording, refiling or rerecording of the Mortgages,
the Security Agreements, the Pledge Agreements and/or any Uniform
Commercial Code financing statements relating thereto and all amendments,
supplements and modifications to, and all releases and terminations of,
any thereof and any and all other documents or instruments of further
assurance required to be filed or recorded or refiled or rerecorded by the
terms hereof or of the Mortgages, the Security Agreements and the Pledge
Agreements, and
(c) the preparation and review of the form of any document or
instrument relevant to this Agreement or any other Loan Document.
The Borrower further agrees to pay, and to save the Lender harmless from all
liability for, any stamp or other taxes (other than any income or franchise tax
of the Lender) which may be payable in connection with the execution or delivery
of this Agreement, the Borrowings hereunder, the issuance of the Notes, the
issuance of the Letters of Credit, or any other Loan Documents. The Borrower
also agrees to reimburse the Lender within thirty (30) days after written demand
for all reasonable out-of-pocket expenses (including attorneys' fees and legal
expenses of internal and external attorneys, and the expenses of any accountant,
engineer or other expert retained or utilized in connection therewith) incurred
by the Lender in connection with (x) the negotiation of any restructuring or
"work-out", whether or not consummated, of any Obligations and (y) the
enforcement of any Obligations. All requests for payment under this SECTION 10.3
shall be accompanied by invoices containing reasonable details.
SECTION 10.4. INDEMNIFICATION. In consideration of the execution and
delivery of this Agreement by the Lender and the extension of the Commitments,
the Borrower hereby indemnifies, exonerates and holds Deutsche Bank Securities
Inc., the Lender, any Issuer and each of their respective affiliates and each of
their respective officers, directors, employees and agents (collectively, the
"INDEMNIFIED PARTIES") free and harmless from and against any and all actions,
causes of action, suits, losses, costs, liabilities and damages, and expenses
incurred in connection therewith (irrespective of whether any such Indemnified
Party is a party to the action for which indemnification hereunder is sought),
including reasonable attorneys' fees and disbursements (collectively, the
"INDEMNIFIED LIABILITIES"), incurred by the Indemnified Parties or any of them
as a result of, or arising out of, or relating to
83
(a) this Agreement, any Loan Document or any document contemplated
by or referred to herein;
(b) any transaction financed or to be financed in whole or in part,
directly or indirectly, with the proceeds of any Loan, including any
Acquisition, or the use of any Letter of Credit;
(c) any investigation, litigation or proceeding related to any
acquisition or proposed acquisition by the Borrower or any of its
Subsidiaries of all or any portion of the stock or assets of any Person,
whether or not the Lender is party thereto;
(d) any investigation, litigation or proceeding related to any
environmental cleanup, audit, compliance or other matter relating to any
Environmental Law or the condition of any facility or Property owned,
leased or operated by the Borrower or any of its Subsidiaries;
(e) the presence on or under, or the escape, seepage, leakage,
spillage, discharge, emission, discharging or releases from, any facility
or Property owned, leased or operated by the Borrower or any of its
Subsidiaries thereof of any Hazardous Material (including any losses,
liabilities, damages, injuries, costs, expenses or claims asserted or
arising under any Environmental Law), regardless of whether caused by, or
within the control of, the Borrower or any of its Subsidiaries; or
(f) any misrepresentation, inaccuracy or breach in or of SECTION
7.17 or SECTION 8.1.6,
except for any such Indemnified Liabilities arising for the account of a
particular Indemnified Party by reason of the relevant Indemnified Party's gross
negligence or wilful misconduct. If and to the extent that the foregoing
undertaking may be unenforceable for any reason, the Borrower hereby agrees to
make the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under Applicable Law. The
obligations in this SECTION 10.4 shall survive payment of all other Obligations.
At the election of any Indemnified Party, the Borrower shall defend such
Indemnified Party using legal counsel satisfactory to such Indemnified Party in
such Person's sole discretion, at the sole cost and expense of the Borrower. All
amounts owing under this SECTION 10.4 shall be paid within thirty (30) days
after written demand.
SECTION 10.5. SURVIVAL. The obligations of the Borrower under SECTIONS
10.3 and 10.4 shall in each case survive any termination of this Agreement, the
payment in full of all Obligations and the termination of all Commitments. The
representations and warranties made by each Obligor in this Agreement and in
each other Loan Document shall survive the execution and delivery of this
Agreement and each such other Loan Document.
84
SECTION 10.6. SEVERABILITY. Any provision of this Agreement or any other
Loan Document which is prohibited or unenforceable in any jurisdiction shall, as
to such provision and such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions of
this Agreement or such Loan Document or affecting the validity or enforceability
of such provision in any other jurisdiction.
SECTION 10.7. HEADINGS. The various headings of this Agreement and of each
other Loan Document are inserted for convenience only and shall not affect the
meaning or interpretation of this Agreement or such other Loan Document or any
provisions hereof or thereof.
SECTION 10.8. EXECUTION IN COUNTERPARTS, EFFECTIVENESS, ETC. This
Agreement may be executed by the parties hereto in several counterparts, each of
which shall be executed by the Borrower and the Lender and be deemed to be an
original and all of which shall constitute together but one and the same
agreement. This Agreement shall become effective when counterparts hereof are
executed on behalf of the Borrower and the Lender. This Agreement is made and
entered into for the sole protection and legal benefit of the Borrower, the
Lender, the Issuer and Persons indemnified hereunder, and their permitted
successors and assigns, and no other Person shall be a direct or indirect legal
beneficiary of, or have any direct or indirect cause of action or claim in
connection with, this Agreement or any of the other Loan Documents.
SECTION 10.9. GOVERNING LAW; ENTIRE AGREEMENT. THIS AGREEMENT, THE NOTES
AND EACH OTHER LOAN DOCUMENT (OTHER THAN THE MORTGAGES OR AS EXPRESSLY PROVIDED
IN ANY SUCH DOCUMENT) SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER AND
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK. This Agreement, the
Notes and the other Loan Documents constitute the entire understanding among the
parties hereto with respect to the subject matter hereof and supersede any prior
agreements, written or oral, with respect thereto.
SECTION 10.10. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns; PROVIDED, HOWEVER, that:
(a) the Borrower may not assign or transfer its rights or
obligations hereunder without the prior written consent of the Lender; and
(b) the rights of sale, assignment and transfer of the Lender are
subject to SECTION 10.11.
SECTION 10.11. SALE AND TRANSFER OF LOANS AND NOTES; PARTICIPATIONS IN
LOANS AND NOTES. The Lender may assign, or sell participations in, its Loans and
Commitments to one or more other Persons in accordance with this SECTION 10.11.
85
SECTION 10.11.1. ASSIGNMENTS. The Lender may at any time assign and
delegate to one or more Persons, including without limitation, commercial banks
or other financial institutions (each Person to whom such assignment and
delegation is to be made, being hereinafter referred to as an "ASSIGNEE
LENDER"), all or any fraction of the Lender's total Loans and Commitments (which
assignment and delegation shall be of a constant, and not a varying, percentage
of all the Lender's Loans and Commitments) in a minimum aggregate amount of
$1,000,000 (or the entire remaining amount of the Lender's Loans and
Commitments); PROVIDED, HOWEVER, that the Lender is required at all times to
maintain Loans, Letter of Credit Outstandings and Commitments hereunder in an
aggregate amount of $1,000,000 (unless the Lender shall have reduced its Loans,
Letter of Credit Outstandings and Commitments to zero); PROVIDED, FURTHER,
HOWEVER, that the Borrower and each other Obligor shall be entitled to continue
to deal solely and directly with the Lender in connection with the interests so
assigned and delegated to an Assignee Lender until
(a) written notice of such assignment and delegation, together with
payment instructions, addresses and related information with respect to
such Assignee Lender, shall have been given to the Borrower by the Lender
and such Assignee Lender,
(b) such Assignee Lender shall have executed and delivered to the
Borrower and the Lender a Lender Assignment Notice, accepted by the
Lender, and
(c) the processing fees described below shall have been paid.
From and after the date that the Assignee Lender delivers such Lender Assignment
Notice, (x) the Assignee Lender thereunder shall be deemed automatically to have
become a party hereto and to the extent that rights and obligations hereunder
have been assigned and delegated to such Assignee Lender in connection with such
Lender Assignment Notice, shall have the rights and obligations of a Lender
hereunder and under the other Loan Documents, and (y) the assignor Lender, to
the extent that rights and obligations hereunder have been assigned and
delegated by it in connection with such Lender Assignment Notice, shall be
released from its obligations hereunder and under the other Loan Documents.
Within five (5) Business Days after its receipt of notice that the Lender has
received an executed Lender Assignment Notice and the Borrower has received from
the Lender execution copies of appropriate Notes, the Borrower shall execute and
deliver to the relevant Assignee Lender new Notes evidencing such Assignee
Lender's assigned Loans and Commitments and, if the assignor Lender has retained
Loans and Commitments hereunder, replacement Notes in the principal amount of
the Loans and Commitments retained by the assignor Lender hereunder (each such
Note to be in exchange for, but not in payment of, the corresponding Note then
held by such assignor Lender). The assignor Lender shall xxxx the predecessor
Note "exchanged" and deliver it to the Borrower. Accrued interest on that part
of the predecessor Note evidenced by the new Notes, and accrued fees, shall be
paid as provided in the Lender Assignment Notice. Accrued interest on that part
of the predecessor Note evidenced by the replacement Notes shall be paid to
86
the assignor Lender. Accrued interest and accrued fees shall be paid at the same
time or times provided in the predecessor Notes and in this Agreement. Such
assignor Lender or such Assignee Lender must also pay a processing fee to the
Lender upon delivery of any Lender Assignment Notice in the amount of $2,500.
Any attempted assignment and delegation not made in accordance with this SECTION
10.11.1 shall be null and void. Nothing contained in this Agreement shall
prohibit any Lender from pledging or assigning any Note to any Federal Reserve
Bank in accordance with Applicable Law.
SECTION 10.11.2. PARTICIPATIONS. The Lender may at any time sell to one or
more Persons, including without limitation, commercial banks or other financial
institutions (each of such Persons being herein called a "PARTICIPANT")
participating interests in any of the Loans, Commitments, or other interests of
the Lender hereunder; PROVIDED, HOWEVER, that
(a) no participation contemplated in this SECTION 10.11.2 shall
relieve the Lender from its Commitments or its other obligations hereunder
or under any other Loan Document,
(b) the Lender shall remain solely responsible for the performance
of its Commitments and such other obligations,
(c) the Borrower and each other Obligor shall continue to deal
solely and directly with the Lender in connection with the Lender's rights
and obligations under this Agreement and each of the other Loan Documents,
and
(d) the Borrower shall not be required to pay any amount under
SECTION 5.2 or SECTION 10.3 that is greater than the amount which it would
have been required to pay had no participating interest been sold.
The Borrower acknowledges and agrees that each Participant, for purposes
of SECTIONS 5.1 and 5.2 (except as provided in SECTION 10.11.2(d)), 10.3 and
10.4, shall be considered a Lender.
SECTION 10.11.3. MODIFICATIONS FOR OTHER LENDERS. In the event that the
Lender assigns an interest pursuant to this SECTION 10.11, the Lender and the
Borrower agree to enter into such modifications and amendments to this Agreement
and the other Loan Documents as are necessary or advisable to confirm that the
Lender shall act as agent for itself and the Assignee Lenders.
SECTION 10.12. FORUM SELECTION AND CONSENT TO JURISDICTION. ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE LENDER OR THE BORROWER SHALL BE
BROUGHT AND MAINTAINED IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED
STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED, HOWEVER,
THAT ANY SUIT SEEKING
87
ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT THE
LENDER'S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR
OTHER PROPERTY MAY BE FOUND. THE BORROWER AND THE LENDER EACH HEREBY EXPRESSLY
AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW
YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW
YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY
AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH
LITIGATION. THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS
BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT
THE STATE OF NEW YORK. THE BORROWER AND THE LENDER EACH HEREBY EXPRESSLY AND
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION
BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH
LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE EXTENT THAT THE
BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM JURISDICTION OF ANY
COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT
PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO
ITSELF OR ITS PROPERTY, THE BORROWER HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN
RESPECT OF ITS OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
SECTION 10.13. WAIVER OF JURY TRIAL. THE LENDER AND THE BORROWER HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR
ACTIONS OF THE LENDER OR THE BORROWER. THE BORROWER ACKNOWLEDGES AND AGREES THAT
IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND EACH
OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND THAT
THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDER ENTERING INTO THIS
AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT.
SECTION 10.14. NOTICE. THIS WRITTEN AGREEMENT TOGETHER WITH THE OTHER LOAN
DOCUMENTS REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES.
88
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
ESENJAY EXPLORATION, INC.,
a Delaware corporation
By
-----------------------------------
Name: Xxxxx X. Xxxxxxxxxxxxxx
Title: Senior Vice President
All notices should be sent to:
One Xxxxx Center
000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Fax: (000) 000-0000
1100 CCNB Center South
000 X. Xxxxx Xxxxxx,
Xxxxx 0000
Xxxxxx Xxxxxxx, Xxxxx 00000
Fax: (000) 000-0000
89
DEUTSCHE BANK AG New York Branch
By:
-----------------------------------
Name:
----------------------------------
Title:
--------------------------------
By:
-----------------------------------
Name:
----------------------------------
Title:
--------------------------------
Address: Deutsche Bank AG
New York Branch
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
All notices should be sent to:
Deutsche Bank AG
c/o Deutsche Banc Alex. Xxxxx, Inc.
Attn: Xxxx X. Xxxxxx
000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Fax: (000) 000-0000
90
SCHEDULE I
to
Second Amended and Restated Credit Agreement
DISCLOSURE SCHEDULE
Item 7.9 LITIGATION
None
Item 7.10 OWNERSHIP OF PROPERTIES
Claim by Xxx Xxxxxx Oil and Gas for an 8.8% proportionally reduced
interest in the Holzheauser - Dincans G.U. #1 well in Victoria
County, Texas.
Item 7.12 EMPLOYEE BENEFIT PLANS
None
Item 7.14 CLAIMS AND LIABILITIES
None
Item 7.17 ENVIRONMENTAL MATTERS
Claims and obligations for clean up, damages, and/or remediation
incurred pursuant to May, 2001 blow-out of the Runnell's 5 well,
Matagorda County, Texas. Any such claims and obligations are
believed adequately insured. Total costs of such claims and
obligations are not currently anticipated to exceed $500,000 to
the 8/8th account, or $170,000 net to the Borrower, prior to
anticipated insurance reimbursement.
Item 8.2.2(f) EXISTING INDEBTEDNESS
None
Item 8.2.13 TAKE OR PAY CONTRACTS
None
91
SCHEDULE II
to
Second Amended and Restated Credit Agreement
CERTAIN OIL AND GAS PROPERTIES
[See attached.]
SCHEDULE III
to
Second Amended and Restated Credit Agreement
SUBSIDIARIES
Frontier Acquisition Corporation
Frontier Inc.
Frontier Exploration and Production Corporation
SCHEDULE IV
to
Second Amended and Restated Credit Agreement
MINIMUM HEDGING VOLUMES
SCHEDULE V
to
Second Amended and Restated Credit Agreement
EXISTING MORTGAGES TO BE AMENDED/RATIFIED
[See attached.]
SCHEDULE VI
to
Second Amended and Restated Credit Agreement
CONSENTS AND MORTGAGE CONSENTS
[See attached.]
SCHEDULE VII
to
Second Amended and Restated Credit Agreement
INCREMENTAL PROVED PRODUCING RESERVES
13,883 MMcfs of Gas
SCHEDULE VIII
to
Second Amended and Restated Credit Agreement
BORROWER'S BONUS PLAN
[See attached.]
EXHIBIT A
SECOND AMENDED AND RESTATED SECURED PROMISSORY NOTE
$40,000,000.00 August 13, 2001
FOR VALUE RECEIVED, the undersigned, ESENJAY EXPLORATION, INC., a Delaware
corporation (the "BORROWER"), promises to pay to the order of DEUTSCHE BANK AG
New York Branch (the "LENDER") on August 13, 2006, the principal sum of FORTY
MILLION DOLLARS ($40,000,000.00) or, if less, the aggregate unpaid principal
amount of all Loans shown on the schedule attached hereto (and any continuation
thereof) made by the Lender pursuant to that certain Second Amended and Restated
Credit Agreement, dated as of August 13, 2001 (together with all amendments and
other modifications, if any, from time to time thereafter made thereto, the
"CREDIT AGREEMENT"), among the Borrower and the Lender.
The Borrower also promises to pay interest on the unpaid principal amount
hereof from time to time outstanding from the date hereof until maturity
(whether by acceleration or otherwise) and, after maturity, until paid, at the
rates per annum and on the dates specified in the Credit Agreement.
Payments of both principal and interest are to be made in lawful money of
the United States of America in same day or immediately available funds to the
account designated by the Lender pursuant to the Credit Agreement.
This Note amends and restates a certain Amended and Restated Secured
Promissory Note dated as of January 25, 2000, which, in turn, restated and
consolidated in their entirety (i) a certain Amended and Restated Secured
Promissory Note of the undersigned dated as of October 13, 1998, in the
principal amount of $20,000,000 and payable to the order of Bank of America
National Trust and Savings Association (predecessor-in-interest to Bank of
America, N.A.), and (ii) a certain Promissory Note dated as of January 28, 1999,
in the principal amount of $9,000,000 and payable to the order of Duke Energy
Financial Services, Inc. (collectively, the "PRIOR NOTES"). The indebtedness
evidenced by the Prior Notes is a continuing indebtedness and nothing contained
herein shall be construed to constitute a novation of the Prior Notes or to deem
paid the Prior Notes.
This Note is one of the Notes referred to in, and evidences Indebtedness
incurred under, the Credit Agreement, to which reference is made for a
description of the security for this Note and for a statement of the terms and
conditions on which the Borrower is permitted and required to make prepayments
and repayments of principal of the Indebtedness evidenced by this Note and on
which such Indebtedness may be declared to be immediately due and payable.
Unless otherwise defined, terms used herein have the meanings provided in the
Credit Agreement.
Except for notices to the Borrower as required by SECTION 10.3 of the
Credit Agreement, all parties hereto, whether as makers, endorsers, or
otherwise, severally waive presentment for payment, demand, protest and notice
of dishonor.
THIS NOTE HAS BEEN DELIVERED IN NEW YORK, NEW YORK AND SHALL BE DEEMED TO
BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW
YORK.
ESENJAY EXPLORATION, INC.,
a Delaware corporation
By:
------------------------------------
Name:
Title:
LOANS AND PRINCIPAL PAYMENTS
TRANCHE A
------------ -------------- -------------- ----------------------------- --------------------------- ------------ --------------
AMOUNT
OF LOAN AMOUNT OF
MADE RATE PRINCIPAL REPAID UNPAID PRINCIPAL BALANCE
------------ -------------- -------------- -------------- -------------- ------------- ------------- --------------
DATE INTEREST BASE LIBO BASE LIBO NOTATION
PERIOD RATE RATE RATE RATE TOTAL MADE BY
------------ -------------- -------------- -------------- -------------- ------------- ------------- ------------ --------------
------------ -------------- -------------- -------------- -------------- ------------- ------------- ------------ --------------
------------ -------------- -------------- -------------- -------------- ------------- ------------- ------------ --------------
------------ -------------- -------------- -------------- -------------- ------------- ------------- ------------ --------------
------------ -------------- -------------- -------------- -------------- ------------- ------------- ------------ --------------
------------ -------------- -------------- -------------- -------------- ------------- ------------- ------------ --------------
------------ -------------- -------------- -------------- -------------- ------------- ------------- ------------ --------------
------------ -------------- -------------- -------------- -------------- ------------- ------------- ------------ --------------
LOANS AND PRINCIPAL PAYMENTS
TRANCHE B
------------ -------------- -------------- ----------------------------- --------------------------- ------------ --------------
AMOUNT
OF LOAN AMOUNT OF
MADE RATE PRINCIPAL REPAID UNPAID PRINCIPAL BALANCE
------------ -------------- -------------- -------------- -------------- ------------- ------------- --------------
DATE INTEREST BASE LIBO BASE LIBO NOTATION
PERIOD RATE RATE RATE RATE TOTAL MADE BY
------------ -------------- -------------- -------------- -------------- ------------- ------------- ------------ --------------
------------ -------------- -------------- -------------- -------------- ------------- ------------- ------------ --------------
------------ -------------- -------------- -------------- -------------- ------------- ------------- ------------ --------------
------------ -------------- -------------- -------------- -------------- ------------- ------------- ------------ --------------
------------ -------------- -------------- -------------- -------------- ------------- ------------- ------------ --------------
------------ -------------- -------------- -------------- -------------- ------------- ------------- ------------ --------------
------------ -------------- -------------- -------------- -------------- ------------- ------------- ------------ --------------
------------ -------------- -------------- -------------- -------------- ------------- ------------- ------------ --------------
EXHIBIT B-1
FORM OF
BORROWING REQUEST
Deutsche Bank AG New York Branch
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telecopy: ____________
Attention:
[Name]
[Title]
Re: ESENJAY EXPLORATION, INC.
Ladies and Gentlemen:
This Borrowing Request is delivered to you pursuant to SECTION 2.3 of the
Second Amended and Restated Credit Agreement dated as of August 13, 2001
(together with all amendments, restatements, supplements and other
modifications, if any, from time to time made thereto, the "CREDIT AGREEMENT"),
between Esenjay Exploration, Inc., a Delaware corporation (the "BORROWER") and
Deutsche Bank AG New York Branch (the "LENDER"). Unless otherwise defined herein
or the context otherwise requires, terms used herein have the meanings provided
in the Credit Agreement.
The Borrower hereby requests that a Loan be made in the aggregate
principal amount of $__________ on __________, 20__.
The Borrower hereby acknowledges that, pursuant to SECTION 6.3.2 of the
Credit Agreement each of the delivery of this Borrowing Request and the
acceptance by the Borrower of the proceeds of the Loans requested hereby
constitute a representation and warranty by the Borrower that, on the date of
such Loans, and before and after giving effect thereto and to the application of
the proceeds therefrom, all statements set forth in SECTION 6.3.1 are true and
correct in all material respects (unless stated to relate solely to an earlier
date, in which case such statements shall be true and correct as of such earlier
date).
The Borrower agrees that if prior to the time of the borrowing requested
hereby any matter certified to herein by it will not be true and correct at such
time as if then made, it will immediately so notify the Lender. Except to the
extent, if any, that prior to the time of the borrowing requested hereby the
Lender shall receive written notice to the contrary from the Borrower, each
matter certified to herein shall be deemed once again to be certified as true
and correct at the date of such borrowing as if then made.
1
Please wire transfer the proceeds of the borrowing to the following
accounts ______________________________ .
IN WITNESS WHEREOF, the Borrower has caused this request to be executed
and delivered by its duly Authorized Officer as of __________ __, 20__.
ESENJAY EXPLORATION, INC.,
a Delaware corporation
By:
-----------------------------------
Name:
Title:
2
EXHIBIT B-2
FORM OF
CONTINUATION/CONVERSION NOTICE
Deutsche Bank AG New York Branch
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telecopy: ____________
Attention: [Name]
[Title]
Re: ESENJAY EXPLORATION, INC.
Ladies and Gentlemen:
This Continuation/Conversion Notice is delivered to you pursuant to
SECTION 2.4 of the Second Amended and Restated Credit Agreement dated as of
August 13, 2001 (together with all amendments, restatements, supplements and
other modifications, if any, from time to time made thereto, the "CREDIT
AGREEMENT"), among Esenjay Exploration, Inc. (the "BORROWER") and Deutsche Bank
AG New York Branch (the "LENDER"). Unless otherwise defined herein or the
context otherwise requires, terms used herein have the meanings provided in the
Credit Agreement.
The Borrower hereby requests that on ____________, 20__,
(1) $_____________ of the presently outstanding principal amount of
the Loans originally made on ____________, 20__,
(2) be converted into,
(3) LIBO Rate Loans having an Interest Period of [one] month(s).
The Borrower hereby:
(a) certifies and warrants that no Default has occurred and is
continuing; and
(b) agrees that if prior to the time of such continuation or
conversion any matter certified to herein by it will not be true and
correct at such time as if then made, it will immediately notify the
Lender.
Except to the extent, if any, that prior to the time of the continuation or
conversion requested hereby the Lender shall receive written notice to the
contrary from the Borrower, each matter certified to herein shall be deemed to
be certified at the date of such continuation or conversion as if then made.
1
IN WITNESS WHEREOF, the Borrower has caused this request to be executed
and delivered by its duly Authorized Officer as of _______________, 20__.
ESENJAY EXPLORATION, INC.,
a Delaware corporation
By:
-----------------------------------
Name:
Title:
2
EXHIBIT C
FORM OF SECOND AMENDED AND RESTATED SECURITY AGREEMENT
1
EXHIBIT D
FORM OF MORTGAGE
2
EXHIBIT E
FORM OF AMENDED AND RESTATED GUARANTY
3
EXHIBIT F-1
FORM OF AMENDED AND RESTATED PLEDGE AGREEMENT (STOCK)
4
EXHIBIT F-2
FORM OF PLEDGE AGREEMENT (PARTNERSHIP INTEREST)
5
EXHIBIT G
LENDER ASSIGNMENT NOTICE
Deutsche Bank AG New York Branch
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telecopy: ____________
Attention: [Name]
[Title]
Re: ESENJAY EXPLORATION, INC.
Ladies and Gentlemen:
We refer to CLAUSE (b) of SECTION 10.11.1 of the Second Amended and
Restated Credit Agreement dated as of August 13, 2001 (together with all
amendments, restatements, supplements and other modifications, if any, from time
to time made thereto, the "CREDIT AGREEMENT"), among Esenjay Exploration, Inc.
(the "BORROWER") and Deutsche Bank AG New York Branch (the "LENDER"). Unless
otherwise defined herein or the context otherwise requires, terms used herein
have the meanings provided in the Credit Agreement.
This notice is delivered to you pursuant to CLAUSE (b) of SECTION 10.11.1
of the Credit Agreement and also constitutes notice to each of you, pursuant to
clause (a) of SECTION 10.11.1 of the Credit Agreement, of the assignment and
delegation to _______________ (the "ASSIGNEE") of ___% (and the Assignor hereby
assigns and delegates to the Assignee __%_) of the Loans and Commitments of
_____________ (the "ASSIGNOR") outstanding under the Credit Agreement on the
date hereof. After giving effect to the foregoing assignment and delegation, the
Assignor's and the Assignee's Percentages for the purposes of the Credit
Agreement are set forth on SCHEDULE I hereto. The Assignor makes such assignment
and delegation without any representations, warranties or recourse whatsoever
except that the Assignor is the legal and beneficial owner of the interest being
assigned by it hereunder and that such interest is free and clear of any adverse
claim.
[Add paragraph dealing with accrued interest with respect to Loans
assigned.]
The Assignee hereby acknowledges and confirms that it has received a copy
of the Credit Agreement and the other Loan Documents and the exhibits related
thereto, together with copies of the documents which were required to be
delivered under the Credit Agreement as a condition to the making of the Credit
Extensions thereunder.
6
Except as otherwise provided in the Credit Agreement, effective as of the
date of delivery hereof
(A) the Assignee
(1) shall be deemed automatically to have become a party to
the Credit Agreement, have all the rights and obligations of a
"Lender" under the Credit Agreement and the other Loan Documents as
if it were an original signatory thereto to the extent specified in
the second paragraph hereof; and
(2) agrees to be bound by the terms and conditions set forth
in the Credit Agreement and the other Loan Documents as if it were
an original signatory thereto; and
(B) the Assignor shall be released from its obligations under the
Credit Agreement and the other Loan Documents to the extent specified in
the second paragraph hereof.
The Assignor and the Assignee hereby agree that the [Assignor] [Assignee]
will pay to the Lender the processing fee referred to in SECTION 10.11.1 of the
Credit Agreement upon the delivery hereof.
Administrative information for the Assignee is set forth in SCHEDULE II
hereto.
7
This notice may be executed by the Assignor and Assignee in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute one and the same
instrument.
[ASSIGNOR]
By:
-----------------------
Title:
[ASSIGNEE]
By:
-----------------------
Title:
8
SCHEDULE I
TO LENDER
ASSIGNMENT NOTICE
ASSIGNOR'S ADJUSTED PERCENTAGES:
Commitment and Loans: ___%
Letters of Credit: ___%
ASSIGNEE'S PERCENTAGES:
Commitment and Loans: ___%
Letters of Credit: ___%
1
SCHEDULE II
TO LENDER
ASSIGNMENT NOTICE
ADDRESS FOR NOTICES:
Name of Assignee:_________________
1
Deutsche Bank AG New York Branch
_____________, 200__
Page 1
EXHIBIT H
FORM OF OPINIONS OF COUNSEL TO BORROWER
1
Deutsche Bank AG New York Branch
_____________, 200__
Page 2
EXHIBIT I-1
FORM OF PRE-CLOSING TITLE OPINIONS OF SPECIAL
TITLE COUNSEL TO THE BORROWER
FORM OF PRE-CLOSING TITLE OPINION
[Letterhead of Title Counsel]
_________________, 2001
DEUTSCHE BANK AG NEW YORK BRANCH
-and-
GERMAN AMERICAN CAPITAL CORPORATION(1)
c/o Mayer, Xxxxx & Xxxxx
000 Xxxxxxxxx
00xx Xxxxx
Xxxxxxx, XX 00000
Attention: Xxxxx X. Xxxx
PRE-CLOSING TITLE OPINION
Interests of [Operating Subsidiary] and
German American Capital Corporation,
______________ County, ___________
Gentlemen:
This opinion is given in connection with the Second Amended and Restated
Credit Agreement ("CREDIT AGREEMENT") dated as of August 13, 2001, between
ESENJAY EXPLORATION, INC., as the borrower ("BORROWER") and Deutsche Bank AG New
York Branch, as the lender ("MORTGAGEE"). Capitalized terms used in this opinion
but not expressly defined herein shall have the respective meanings given to
them in the Credit Agreement.
Please refer to our [Preliminary Title Opinion] ("TITLE OPINION") dated
__________, 199__, covering lands more particularly described therein
(collectively, the _________________________
------------------------------
(1) Name of Designee may change
2
Deutsche Bank AG New York Branch
_____________, 200__
Page 3
"LANDS"). In addition to the title materials examined as listed in the Title
Opinion, we have examined copies of the following documents:
[HERE LIST DOCUMENTS EXAMINED]
We are of the opinion that:
A. Fully executed originals of items _____________________ should be filed
for record in the office of the [Clerk] of _____________ County of the State of
______________. Upon the accomplishment of such recordation and filings, the
Mortgage will constitute, as security for (i) the loans made and to be made
pursuant to the Credit Agreement and to be evidenced by the Notes, and (ii) the
obligations of ___________ ("MORTGAGOR") and its Affiliates to Deutsche Bank AG
New York Branch and its Affiliates under Hedging Agreements to which they are or
may become parties, a legally valid and enforceable first mortgage lien on the
interests of Mortgagor in the Lands and a first perfected security interest in
the interest of Mortgagor in all accounts and proceeds resulting from the sale
at the wellhead of minerals to be severed from the aforesaid interests of
Mortgagor. No other or further filings or recordings will be required to
establish, perfect and maintain such lien and security interest, except as
expressly set forth herein, subject to our comments and requirements set forth
hereinbelow.
B. Following execution of the documents listed as items ____
_____________________ and recordation of the documents listed as
______________________________________ (in the order listed, and assuming that
no intervening adverse instruments are recorded), the interests of Mortgagor and
covered by your Mortgage and the interests acquired by German American Capital
Corporation ("GACC"), will be as follows:
1. [Tract 1:] OPERATING NET REVENUE
INTEREST INTEREST
---------- ---------- -----------
GACC N/A -----------
[HERE LIST INTERESTS IN EACH TRACT]
C. The instrument listed as item __ above is sufficient to vest GACC with
the interests in the Lands set forth in Paragraph B above, and, when properly
executed, acknowledged and recorded, will be legally enforceable in accordance
with its terms.
3
Deutsche Bank AG New York Branch
_____________, 200__
Page 4
D. Under the applicable laws of the State of _____________, including
applicable recording, filing and registration laws and regulations, no mortgage,
documentary, stamp or similar taxes are payable in connection with the
execution, delivery or recording of the Mortgage or the transactions
contemplated thereby, insofar as the Mortgage and the transactions relate to
property located in or subject to the laws of the State of _______________,
other than statutory recording and filing fees to be paid upon the recording and
filing of the Mortgage and UCC 1.
E. Under the laws of the State of _______________, the priority of the
Mortgage, to the extent the Mortgage secures obligatory future advances and is a
conveyance of or creates a lien against a real property interest, is determined
by the date on which the Mortgage is recorded.
F. Under the laws of the State of _______________ and local jurisdictions
therein, there is no statutory or regulatory lien in favor of any governmental
entity for (a) liability under _________ environmental laws or regulations, or
(b) damages (including natural resources damages) arising from or costs incurred
by such governmental entity in response to the release of a hazardous or toxic
waste, substance, pollutant, constituent, or other substance into the
environment which, if not of record in the mortgage records in the County where
such lands are located, would have priority over the Mortgage [HERE STATE
EXCEPTIONS, AS APPLICABLE].
G. Under the laws of the State of _____________ and local jurisdictions
therein, there are no statutory and regulatory requirements relating to the
transfer of ownership or operation or sale of premises upon which there are
hazardous or toxic wastes, or upon which there are certain facilities which
indicate a likelihood of such wastes (except for various requirements that
regulatory bodies receive notification when an environmental permittee,
licensee, or notifier changes) which require (i) notification of the State or of
the local jurisdiction of such transfer, or sale, (ii) certification that there
has been no discharge of toxic or hazardous waste or other substances, or (iii)
in the event of a discharge, the assumption prior to such transfer of ownership,
or operation, or sale, of responsibility by the lender for the undertaking of
remedial measures to alleviate environmental contamination resulting from such
discharge.
H. It is necessary that a continuation statement be filed regarding the
Financing Statement within six (6) months prior to the end of each five (5) year
period.
This finding of title in GACC, and mortgaged interests of Mortgagor in
your favor, is subject to all unsatisfied (in whole or in part) Requirement of
the Title Opinion, as well as all limitations, comments and remarks set forth
therein and herein.
After the proper execution and recordation of the documents listed as
______________________________________, as required above, it will be necessary
to examine the Public Records of ______________________ County, _______________,
to insure that there have been no adverse alienations, liens or
4
Deutsche Bank AG New York Branch
_____________, 200__
Page 5
encumbrances recorded or filed, or suffered to be recorded or filed, since the
certification dates of the Abstracts examined in connection with the rendition
of the Title Opinion. We will furnish you a Post-Closing Title Opinion after
execution of the documents listed above as
_________________________________________ and recordation of the documents
listed above as _________________________________, completion of the records
search set forth above, and our examination of the documentation in connection
with same, such opinion to be substantially in the form of that attached hereto.
Very truly yours,
---------------------------
5
Deutsche Bank AG New York Branch
_____________, 200__
Page 1
EXHIBIT I-2
FORM OF POST-CLOSING
TITLE OPINIONS OF SPECIAL
TITLE COUNSEL TO THE BORROWER
FORM OF POST-CLOSING TITLE OPINION
[Letterhead of Title Counsel]
_______________, 20__
DEUTSCHE BANK AG NEW YORK BRANCH
-and-
GERMAN AMERICAN CAPITAL CORPORATION
c/o Mayer, Xxxxx & Xxxxx
000 Xxxxxxxxx
00xx Xxxxx
Xxxxxxx, XX 00000
Attention: Xxxxx X. Xxxx
POST-CLOSING TITLE OPINION
Interests of [Operating Subsidiary] and
German American Capital Corporation,
_____________ County, ___________
Gentlemen:
This opinion is rendered in connection with the closing under that
certain Second Amended and Restated Credit Agreement dated as of August 13, 2001
(the "CREDIT AGREEMENT"), between DEUTSCHE BANK AG New York Branch, as the
lender (the "LENDER") and ESENJAY EXPLORATION, INC., as the borrower (the
"BORROWER"). Capitalized terms used in this opinion but not expressly defined
herein shall have the respective meanings given to them in the Credit Agreement.
Please refer to our [here list prior Title Opinion] ("TITLE OPINION")
dated __________, 199__, covering lands more particularly described therein
(collectively the "LANDS"). In addition to the title materials examined as
listed in the Title Opinion, we have examined executed originals of the
following documents:
1
Deutsche Bank AG New York Branch
_____________, 200__
Page 2
[HERE LIST DOCUMENTS EXAMINED]
We are of the opinion that:
A. The Mortgage constitutes, as security for (i) the loans made and to be
made by the Lender pursuant to the Credit Agreement and evidenced by the Notes,
and (ii) the obligations of the Borrower and its Affiliates to the Lender or its
Affiliates under Hedging Agreements between the Borrower and any such Affiliates
of the Lender, a legally valid and enforceable first mortgage lien on the
interests of ____________ ("MORTGAGOR") in the Lands, and a first perfected
security interest in the interests of Mortgagor in all accounts and proceeds
resulting from the sale at the wellhead of minerals to be severed from the
aforesaid interests of Mortgagor. No other or further filings or recordings are
required to establish, perfect and maintain such lien and security interest,
except as expressly set forth herein, subject to our comments and requirements
set forth hereinbelow.
B. It is our opinion that the interests of Mortgagor, and covered by your
Mortgage, and the interests of German American Capital Corporation ("GACC"), are
as follows:
1. [Tract 1:] OPERATING NET REVENUE
INTEREST INTEREST
Mortgagor ---------- -----------
GACC N/A -----------
[HERE LIST INTERESTS IN EACH TRACT]
C. The instrument listed as item __ above is sufficient to vest, and has
vested, GACC with the interests in the Lands set forth in Paragraph B above, and
is enforceable in accordance with its terms.
D. Under the applicable laws of the State of _____________, including
applicable recording, filing and registration laws and regulations, no mortgage,
documentary, stamp or similar taxes are payable in connection with the
execution, delivery or recording of the Mortgage or the transactions
contemplated thereby, insofar as the Mortgage and the transactions relate to
property located in or subject to the laws of the State of ________________,
other than statutory recording and filing fees which were paid upon the
recording and filing of the Mortgage and UCC 1.
E. Under the laws of the State of ________________, the priority of the
Mortgage, to the extent the Mortgage secures obligatory future advances and is a
2
Deutsche Bank AG New York Branch
_____________, 200__
Page 3
conveyance of or creates a lien against a real property interest, was
established as of ___________, 199__.
F. Under the laws of the State of ________________ and local jurisdictions
therein, there is no statutory regulatory lien in favor of any governmental
entity for (a) liability under ______ environmental laws or regulations, or (b)
damages (including natural resources damages) arising from or costs incurred by
such governmental entity in response to the release of a hazardous or toxic
waste, substance, pollutant, constituent, or other substance into the
environment which, if not of record in the mortgage records in the County where
such lands are located, would have priority over the Mortgage [HERE LIST
EXCEPTIONS, AS APPLICABLE].
G. Under the laws of the State of ________________ and local jurisdictions
therein, there are no statutory and regulatory requirements relating to the
transfer of ownership or operation or sale of premises upon which there are
hazardous or toxic wastes, or upon which there are certain facilities which
indicate a likelihood of such wastes (except for various requirements that
regulatory bodies receive notification when an environmental permittee,
licensee, or notifier changes) which require (i) notification of the State or of
the local jurisdiction of such transfer, or sale, (ii) certification that there
has been no discharge of toxic or hazardous waste or other substances, or (iii)
in the event of a discharge, the assumption prior to such transfer of ownership,
or operation, or sale, of responsibility by the lender for the undertaking of
remedial measures to alleviate environmental contamination resulting from such
discharge.
H. The Mortgage contains the terms and provisions necessary to enable the
Lender, following a default under the Mortgage, to exercise remedies which are
customarily available to mortgagees under mortgages encumbering real property
under the laws of the State of ________________.
I. The form of financing statement described in item ___ of this opinion
("FINANCING STATEMENT") is sufficient in form to perfect the security interest
in Mortgagor's interest in the Mortgaged Property not considered real property
or fixtures, to the extent that such Mortgaged Property is deemed to be located
in the State of ________________, and a security interest in such Mortgaged
Property can be perfected by the filing of a financing statement. To the extent
that the Mortgaged Property owned by Mortgagor not considered real property or
fixtures is deemed to be located in the State of ________________ and security
interests in the various types of such Mortgaged Property described in the
Financing Statement can be perfected by filing in the State of ________________
under the provisions of ARTICLE 9 of the Uniform Commercial Code, such security
interests have been perfected by filing of the Financing Statement in the Office
of the ________________ Secretary of State.
J. The Lender is not required, solely as a result of the transactions
contemplated by the Loan Documents, to qualify to do business in the State of
________________ in order to exercise its rights under the Mortgage. Solely as a
3
Deutsche Bank AG New York Branch
_____________, 200__
Page 4
result of the transactions contemplated by the Loan Documents, the Lender will
not become subject to any taxes or fees of any kind under the laws of the State
of ________________.
K. The payment by the Borrower and receipt by the Lender of the aggregate
principal, interest and fees to be paid, and the method of calculation and
payment thereof, pursuant to the Loan Documents is not usurious under, or
otherwise in violation of, the laws of the State of ________________.
L. Certain rights, remedies and waivers contained in the Loan Documents
which relate to the Mortgaged Property may be rendered ineffective, or limited
by applicable State of ________________ laws or judicial decisions (other than
those reflected in the qualifications and assumptions set forth herein)
governing such provisions, but in our opinion such laws and judicial decisions
do not make the Loan Documents invalid as a whole, and there exist, in the Loan
Documents or pursuant to applicable law, legally adequate remedies for a
realization of the principal benefits and/or security reasonably intended to be
provided by the Loan Documents.
M. It is necessary that a continuation statement be filed regarding the
Financing Statement within six (6) months prior to the end of each five (5) year
period.
N. This finding of title in GACC and the interests of Mortgagor mortgaged
in your favor is subject to all unsatisfied (in whole or in part) Requirements
of the Title Opinion, as well as all limitations, comments and remarks set forth
therein and herein.
Very truly yours,
---------------------------
4
EXHIBIT J
FORM OF ASSIGNMENT AND CONVEYANCE OF
OVERRIDING ROYALTY INTERESTS
1
EXHIBIT K-1
FORM OF AGREEMENT CONCERNING
OVERRIDING ROYALTY INTERESTS
1
EXHIBIT K-2
FORM OF CERTIFICATE AS TO
OVERRIDING ROYALTY INTERESTS
1
EXHIBIT L
[INTENTIONALLY OMITTED]
1
EXHIBIT M
ISSUANCE REQUEST
Deutsche Bank AG New York Branch
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telecopy: ____________
Attention: [Name]
[Title]
ESENJAY EXPLORATION, INC.
Ladies and Gentlemen:
This Issuance Request is delivered to you pursuant to SECTION 4.1 of the
Second Amended and Restated Credit Agreement dated as of August 13, 2001
(together with all amendments, restatements, supplements and other
modifications, if any, from time to time made thereto, the "CREDIT AGREEMENT"),
among Esenjay Exploration, Inc. (the "BORROWER") and Deutsche Bank AG New York
Branch (the "LENDER"). Unless otherwise defined herein or the context otherwise
requires, terms used herein have the meanings provided in the Credit Agreement.
The Borrower hereby requests that on _________, 20__ (the "DATE OF
ISSUANCE") you(1) [issue a Letter of Credit on ______________, 20__ in the
initial Stated Amount of $_______________ with a Stated Expiry Date (as defined
therein) of ______________, 20__] [extend the Stated Expiry Date (as defined
under Irrevocable Standby Letter of Credit No.__, issued on
__________________________, 20 __, in the initial Stated Amount of
$______________) to a revised Stated Expiry Date (as defined therein) of
_________________, 20__].
The beneficiary of the requested Letter of Credit will be(2)
_______________________________, and such Letter of Credit will be in support
of(3) ________________________________.
------------------------------
(1) Insert as appropriate.
(2) Insert name and address of beneficiary.
(3) Insert description of supported indebtedness or other obligations and
name of agreement to which it relates.
1
The Borrower hereby acknowledges that, pursuant to SECTION 6.3.2 of the
Credit Agreement, each of the delivery of this Issuance Request and the
[issuance][extension] of the Letter of Credit requested hereby constitutes a
representation and warranty by the Borrower that, on such date of [issuance]
[extension] all statements set forth in SECTION 6.3.2 are true and correct in
all material respects (unless such statements relate solely to an earlier date,
in which case such statements shall be true and correct as of such earlier
date).
The Borrower agrees that if, prior to the time of the(1) [issuance]
[extension] of the Letter of Credit requested hereby, any matter certified to
herein by it will not be true and correct at such time as if then made, it will
immediately so notify the Lender. Except to the extent, if any, that prior to
the time of the issuance or extension requested hereby the Lender shall receive
written notice to the contrary from the Borrower, each matter certified to
herein shall be deemed to be certified at the date of such issuance or
extension.
IN WITNESS WHEREOF, the Borrower has caused this request to be executed
and delivered by its duly Authorized Officer as of __________ __, 20__.
ESENJAY EXPLORATION, INC.,
a Delaware corporation
By
-------------------------------------
Name:
Title:
------------------------------
(1) Complete as appropriate.
2
EXHIBIT N
FORM OF IRREVOCABLE STANDBY LETTER OF CREDIT
DEUTSCHE BANK AG NEW YORK BRANCH
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Irrevocable Standby Letter of Credit No. _______(1)
_____________________________________________________
_____________________________________________________
_____________________________________________________
Attention: __________________________________________
__________________________________________
Ladies and Gentlemen:
At the request and on the instructions of our customer, ESENJAY
EXPLORATION, INC., a Delaware corporation (the "ACCOUNT PARTY"), we hereby
establish in your favor this irrevocable, standby, non-transferable Letter of
Credit in the original amount of(2) $__________.
SECTION 1. DEFINITIONS. The following terms when used in this Letter of
Credit shall have the following meanings:
"ACCOUNT PARTY" is defined in the FIRST PARAGRAPH.
"AUTHORIZED OFFICER" shall mean any of your ____________ whose signatures
shall have been satisfactorily certified to us.
"BUSINESS DAY" shall mean any day on which we are open for the purpose of
conducting commercial banking business at our Payment Office.
"CREDIT AGREEMENT" means the Second Amended and Restated Credit Agreement
dated as of August 13, 2001 (as amended, supplemented, amended and
------------------------------
(1) Letter of credit may be issued in this form or, in such other form as
may be mutually agreed by the Borrower and the Issuer.
(2) Insert appropriate Dollar amount.
1
restated or otherwise modified from time to time thereafter), between the
Account Party and Deutsche Bank AG New York Branch (the "LENDER").
"PAYMENT OFFICE" is defined in SECTION 2.
"STATED AMOUNT" means, at any time, the original amount of this Letter of
Credit set forth in the FIRST PARAGRAPH, as such amount has at such time been
reduced in accordance with SECTION 4.
"STATED EXPIRY DATE" means ________, 20__, or such later date of which we
advise you as being the date to which this Letter of Credit has been extended.
SECTION 2. PRESENTATION. Funds under this Letter of Credit will be made
available to you, in lawful currency of the United States of America, against
receipt by us of your written certificate in the form of ATTACHMENT 1 hereto,
appropriately completed and signed by an Authorized Officer accompanied by the
original of this Letter of Credit. Presentation of each such certificate shall
be made in person at our office located at , Attention: _____________________
(our "PAYMENT OFFICE").
SECTION 3. PAYMENTS. Demands for payment in lawful money of the United
States of America may be made by you under this Letter of Credit before 4:00
p.m. during our business hours at our Payment Office on any Business Day;
PROVIDED, HOWEVER, that at no time shall the number of demands exceed [ ]. If
demand for payment is made by you hereunder at or prior to 11:00 a.m. ([New
York] time) on a Business Day, and provided that such demand for payment and the
documents presented in connection therewith conform to the terms and conditions
hereof, payment will be made to you, or to your designee, of the amount
demanded, in same day funds, at our Payment Office not later than 10:00 a.m.
([New York] time) on the third succeeding Business Day. If demand for payment is
made by you hereunder after 11:00 a.m. ([New York] time) on a Business Day, and
provided that such demand for payment and the documents presented in connection
therewith conform to the terms and conditions hereof, payment shall be made to
you, or to your designee, of the amount demanded, in same day funds, at our
Payment Office not later than 10:00 a.m. ([New York] time), on the fourth
succeeding Business Day. If requested by you, payment under this Letter of
Credit will be made by wire transfer of same day funds to the account specified
in your demand for payment. If a demand for payment made by you hereunder does
not, in any instance, conform to the terms and conditions of this Letter of
Credit, we shall give you prompt notice that the demand for payment was not
effected in accordance with the terms and conditions of this Letter of Credit,
stating the reasons therefor, and that we will (subject to your further
instructions) hold any documents at your risk and disposal which have been
delivered to us by you. Upon being notified that the demand for payment was not
effected in conformity with this Letter of Credit, you may attempt to correct
any such non-conforming demand for payment to the extent that you are then
entitled and able to do so.
SECTION 4. REDUCTION OF STATED AMOUNT. Each payment made by us hereunder
shall permanently reduce the Stated Amount by the amount of such
2
payment, and no demand for payment hereunder shall exceed the Stated Amount in
effect at such time. The Stated Amount of this Letter of Credit shall also be
permanently reduced from time to time upon our receipt of your certification in
the form of ATTACHMENT 2 hereto, appropriately completed and signed by an
Authorized Officer.
SECTION 5. DISCHARGE. Only you may make a demand for payment under this
Letter of Credit. Upon the payment to you, to your designee, or to your account
of the amount demanded hereunder, we shall be fully discharged of our obligation
under this Letter of Credit to the extent of such demand for payment, and, to
the extent of such payment, we shall not thereafter be obligated to make any
further payments under this Letter of Credit. By paying to you, to your
designee, or to your account any amount demanded in accordance herewith, we make
no representation as to the correctness of the amount demanded.
SECTION 6. TERMINATION. Upon the earliest of:
(a) the making by us of the final payment available to be made
hereunder;
(b) the close of business at our Payment Office on the Stated Expiry
Date;
(c) the close of business at our Payment Office on the day occurring
30 days after we have given you written notice, at your address specified
above, that an Event of Default (as defined in the Credit Agreement) has
occurred and is continuing; or
(d) receipt by us of a certificate signed by an Authorized Officer
stating that all obligations to which this Letter of Credit relates have
been terminated, paid, or otherwise satisfied in full,
this Letter of Credit shall automatically terminate. Upon its termination, you
shall promptly deliver the original counterpart of this Letter of Credit to us
for cancellation.
SECTION 7. NOTICES, ETC. Communications with respect to this Letter of
Credit shall be in writing and shall be addressed to us at our Payment Office,
Attention: ________________________, specifically referring thereon to this
Letter of Credit by number, followed by a copy to the Account Party at the
address set forth in SECTION 2.
SECTION 8. GOVERNING LAW. THIS LETTER OF CREDIT SHALL BE DEEMED TO BE A
CONTRACT MADE UNDER, AND SHALL BE GOVERNED BY, THE INTERNAL LAWS OF THE STATE OF
NEW YORK, AND ALSO SUBJECT TO UCP 1993 REVISION ICC PUBLICATION NO. 500 AS IN
EFFECT; PROVIDED, HOWEVER, that, to the extent of any inconsistency between the
terms of this Letter of Credit and the UCP, the terms of this Letter of Credit
shall govern.
SECTION 9. MISCELLANEOUS. This Letter of Credit may not be transferred or
assigned, either in whole or in part. This Letter of Credit sets forth in full
our
3
undertaking, and such undertaking shall not in any way be modified, amended,
amplified, or limited by reference to any document, instrument, or agreement
referred to herein.
Very truly yours,
DEUTSCHE BANK AG NEW YORK BRANCH
By
-----------------------------
Title:
4
ATTACHMENT 1
CERTIFICATE OF DEMAND FOR PAYMENT
_____________, 20__
Deutsche Bank AG New York Branch
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telecopy: ____________
Attention: [Name]
[Title]
Re: IRREVOCABLE STANDBY LETTER OF CREDIT NO. -
The undersigned, a duly Authorized Officer of _____________ (the
"Beneficiary"), hereby certifies to Deutsche Bank AG New York Branch (the
"Issuer") that:
(a) Unless otherwise defined, all capitalized terms used herein have
the meanings assigned thereto in the Irrevocable Standby Letter of Credit
No.__ (the "LETTER OF CREDIT"), dated ____________, 20__, issued by the
Issuer on the application of ESENJAY EXPLORATION, INC. (the "ACCOUNT
PARTY").
(1)[(b) The Beneficiary is making a demand for payment in lawful
money of the United States of America under the Letter of Credit in the
amount of $_________, which will be applied to payment of the obligations
of the Account Party in connection with _________ under the __________
Agreement (the "AGREEMENT"). The amount being demanded hereunder is now
due and owing under the Agreement and payment of the amount being demanded
hereunder was demanded of the Account Party on _____________ (which is not
less than five Business Days prior to the date hereof), and has not yet
been paid. The amount demanded hereby does not on the date hereof, and
will not on the date payment hereunder is required to be made after giving
effect to all other amounts demanded under the Letter of Credit, exceed
the Stated Amount of the Letter of Credit.]
[(b) The Beneficiary is making a demand for payment in lawful money
of the United States of America under the Letter of Credit in the amount
of $__________, which is the entire Stated Amount of the Letter of Credit
as in effect on the date hereof, following its receipt of a written notice
from you stating
------------------------------
(1) Select appropriate alternative and complete appropriately.
1
that an Event of Default has occurred and is continuing
and, as a result thereof, the Letter of Credit will be terminated.]
(c) Upon its receipt of the amount demanded under the Letter of
Credit, the Beneficiary will
(i) apply such amount directly to the payment of the Account
Party's obligations under the _________ Agreement; and
(ii) if after the application of proceeds described in CLAUSE
(i) such obligations will be paid in full, deliver to you the
original copy of the Letter of Credit, all releases as you may
reasonably request, [and all security, if any, held in respect of
such obligations].
(d) [Insert disbursement instructions.]
IN WITNESS WHEREOF, the Beneficiary has caused its Authorized Officer
to execute and deliver this Certificate as of _________ __, 20__.
[Name of Beneficiary]
By
-------------------------
Title:
2
ATTACHMENT 2
CERTIFICATE OF REDUCTION
Deutsche Bank AG New York Branch
00 Xxxx 00xx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telecopy: ____________
Attention: [Name]
[Title]
Re: Irrevocable Standby Letter of Credit No.-
The undersigned, a duly Authorized Officer of ____________ (the
"BENEFICIARY"), hereby requests Deutsche Bank AG New York Branch (the "ISSUER"),
to reduce the Stated Amount of the Irrevocable Standby Letter of Credit No. ___
(the "LETTER OF CREDIT"), dated _____________, 20__, issued on the application
of ESENJAY EXPLORATION, INC.,(1) from __________ to __________.
Unless otherwise defined herein, all capitalized terms used herein and
defined in the Letter of Credit shall be used herein as so defined.
IN WITNESS WHEREOF, the Beneficiary has caused its Authorized Officer to
execute and deliver this Certificate as of ___________, 20__.
Name of Beneficiary]
By
------------------------
Title:
------------------------------
(1) Insert appropriate amounts.
1
EXHIBIT O-1
FORM OF WARRANT AGREEMENT
2
EXHIBIT O-2
FORM OF WARRANT
3
EXHIBIT O-3
FORM OF REGISTRATION RIGHTS AGREEMENT
4
EXHIBIT Q
AREAS TO BE COVERED IN
MONTHLY REPORT DELIVERED PURSUANT TO SECTION 8.1.1(m)
MONTHLY REPORTING
Budget actual and variance
Net production actual and variance
IRR calculation under the Performance Agreement
Current calculation of the projected status of the Reduction Event
under the Assignment and Conveyance of Overriding Royalty Interests and
the Agreement concerning Overriding Royalty Interests
[Borrower's G&A Expenses].
QUARTERLY REPORTING
Financial Statements (Borrower and consolidated Subsidiaries)
Compliance certificate
10Q's filed with Securities and Exchange Commission
Updates/revised budget
Accounts payable agings
Capital expenditure updates
Drilling updates
Payment reconciliation between Borrower and consolidated Subsidiaries
[Borrower's G&A Expenses].
ANNUAL REPORTING
Approved Budget (Borrower and consolidated Subsidiaries)
10K filed with the Securities and Exchange Commission.
ON THE EFFECTIVE DATE AND UPDATED AS NEEDED
Summary lease operating statements
Bank and investment accounts
Reserve Adds and capital expenditure schedule
Executed AFE's and engineering description of all development draws both
before and after the Availability Termination Date.
5
EXHIBIT R
FORM OF CONSENT TO ASSIGNMENT
6
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS................................................................3
SECTION 1.1. Defined Terms.........................................................................3
SECTION 1.2. Use of Defined Terms.................................................................27
SECTION 1.3. Cross-References.....................................................................27
SECTION 1.4. Accounting and Financial Determinations..............................................28
ARTICLE II COMMITMENTS, BORROWING PROCEDURES AND NOTES....................................................28
SECTION 2.1. Commitments..........................................................................28
SECTION 2.1.1. Tranche A Commitment............................................................29
SECTION 2.1.2. Tranche B Commitment............................................................29
SECTION 2.1.3. Letters of Credit...............................................................29
SECTION 2.1.4. Lender Not Required To Make Loans, etc. Under Certain Circumstances.............29
SECTION 2.2. Reduction of Commitment Amounts......................................................30
SECTION 2.2.1. Optional........................................................................30
SECTION 2.2.2. Mandatory.......................................................................30
SECTION 2.3. Borrowing Procedure..................................................................30
SECTION 2.4. Continuation and Conversion Elections................................................31
SECTION 2.5. Loan Accounts and Notes..............................................................31
SECTION 2.6. Borrowing Base Redetermination and Collateral Value Redetermination..................32
SECTION 2.7. Purposes.............................................................................32
ARTICLE III REPAYMENTS, PREPAYMENTS, INTEREST AND FEES.....................................................33
SECTION 3.1. Repayments and Prepayments and Certain Borrowing Base Matters.......................33
SECTION 3.1.1. Repayments and Prepayments......................................................33
SECTION 3.1.2. Borrowing Base Deficiencies, Collateral Value Deficiencies and Asset Sales......34
SECTION 3.2. Interest Provisions..................................................................36
SECTION 3.2.1. Rate............................................................................36
SECTION 3.2.2. Post-Maturity Rates.............................................................36
SECTION 3.2.3. Payment Dates...................................................................37
-i-
TABLE OF CONTENTS
(continued)
PAGE
SECTION 3.2.4. Maximum Interest................................................................37
SECTION 3.3. Fees.................................................................................38
SECTION 3.3.1. Confidential Fee Letter.........................................................39
SECTION 3.3.2. Unused Fee......................................................................39
SECTION 3.3.3. Letter of Credit Stated Amount Fee..............................................39
SECTION 3.3.4. Letter of Credit Issuance Fee...................................................39
SECTION 3.3.5. Letter of Credit Administrative Fees............................................39
SECTION 3.4. Proceeds Account.....................................................................39
SECTION 3.5. Overriding Royalty Interest and Warrants; Assignment and Warrants are Not
Collateral Security..................................................................40
ARTICLE IV LETTERS OF CREDIT..............................................................................40
SECTION 4.1. Issuance Requests....................................................................40
SECTION 4.2. Issuances and Extensions.............................................................41
SECTION 4.3. Expenses.............................................................................42
SECTION 4.4. Disbursements........................................................................43
SECTION 4.5. Reimbursement........................................................................43
SECTION 4.6. Deemed Disbursements.................................................................44
SECTION 4.7. Nature of Reimbursement Obligations..................................................44
SECTION 4.8. Increased Costs; Indemnity...........................................................46
ARTICLE V CERTAIN INTEREST RATE AND OTHER PROVISIONS.....................................................47
SECTION 5.1. LIBO Rate Lending Unlawful...........................................................47
SECTION 5.2. Deposits Unavailable.................................................................47
SECTION 5.3. Increased Loan Costs, etc............................................................47
SECTION 5.4. Funding Losses.......................................................................48
SECTION 5.5. Increased Capital Costs..............................................................49
SECTION 5.6. Taxes................................................................................49
SECTION 5.7. Payments, Computations, etc..........................................................50
SECTION 5.8. Setoff...............................................................................51
SECTION 5.9. Use of Proceeds......................................................................51
ARTICLE VI CONDITIONS PRECEDENT...........................................................................51
-ii-
TABLE OF CONTENTS
(continued)
PAGE
SECTION 6.1. Initial Credit Extension.............................................................51
SECTION 6.1.1. Resolutions, etc................................................................51
SECTION 6.1.2. Delivery of Notes...............................................................52
SECTION 6.1.3. Guaranties......................................................................52
SECTION 6.1.4. Pledge Agreements...............................................................52
SECTION 6.1.5. Security Agreement..............................................................53
SECTION 6.1.6. Consents, Mortgage Consents and Approvals.......................................53
SECTION 6.1.7. Mortgage........................................................................53
SECTION 6.1.8. Opinions of Counsel.............................................................54
SECTION 6.1.9. UCC-11s.........................................................................54
SECTION 6.1.10. Evidence of Insurance...........................................................54
SECTION 6.1.11. Engineering Reports.............................................................54
SECTION 6.1.12. Environmental Report............................................................55
SECTION 6.1.13. Approved Budget.................................................................55
SECTION 6.1.14. Amendment and Restatement of Existing Credit Documents..........................55
SECTION 6.1.15. ORRI Agreement and Certificate, etc.............................................55
SECTION 6.1.16. Assignment......................................................................55
SECTION 6.1.17. Hedging Agreements..............................................................55
SECTION 6.1.18. Warrants, etc...................................................................56
SECTION 6.1.19. Closing Fees, Expenses, etc.....................................................56
SECTION 6.1.20. Merger of Certain Subsidiaries..................................................56
SECTION 6.1.21. Other Documents.................................................................56
SECTION 6.2. Inclusion of Hydrocarbon Interests in the Borrowing Base.............................56
SECTION 6.2.1. Environmental Report............................................................56
SECTION 6.2.2. Mortgage........................................................................56
SECTION 6.2.3. UCC-11s.........................................................................57
SECTION 6.2.4. Evidence of Insurance...........................................................57
SECTION 6.2.5. Engineering Reports.............................................................57
-iii-
TABLE OF CONTENTS
(continued)
PAGE
SECTION 6.2.6. Material Contracts and Related Consents; Security Agreement.....................57
SECTION 6.2.7. Guaranties......................................................................58
SECTION 6.2.8. Additional Stock or Partnership Pledge..........................................58
SECTION 6.2.9. Overriding Royalty Interests....................................................58
SECTION 6.2.10. Other Documents.................................................................58
SECTION 6.3. All Credit Extensions................................................................58
SECTION 6.3.1. Compliance with Warranties, No Default, etc.....................................59
SECTION 6.3.2. Credit Request..................................................................59
SECTION 6.3.3. Satisfactory Legal Form.........................................................59
ARTICLE VII REPRESENTATIONS AND WARRANTIES.................................................................60
SECTION 7.1. Organization, etc....................................................................60
SECTION 7.2. Due Authorization, Non-Contravention, etc............................................60
SECTION 7.3. Government Approval, Regulation, etc.................................................61
SECTION 7.4. Investment Company Act...............................................................61
SECTION 7.5. Public Utility Holding Company Act...................................................61
SECTION 7.6. Validity, etc........................................................................61
SECTION 7.7. Financial Information................................................................61
SECTION 7.8. No Material Adverse Change...........................................................62
SECTION 7.9. Litigation, Labor Controversies, etc.................................................62
SECTION 7.10. Ownership of Properties..............................................................62
SECTION 7.11. Taxes................................................................................62
SECTION 7.12. Pension and Welfare Plans............................................................62
SECTION 7.13. Compliance with Law..................................................................63
SECTION 7.14. Claims and Liabilities...............................................................63
SECTION 7.15. No Prohibition on Perfection of Security Documents...................................63
SECTION 7.16. Solvency.............................................................................63
SECTION 7.17. Environmental Warranties.............................................................63
SECTION 7.18. Regulations T, U and X...............................................................65
SECTION 7.19. Insurance............................................................................65
-iv-
TABLE OF CONTENTS
(continued)
PAGE
SECTION 7.20. Accuracy of Information..............................................................66
SECTION 7.21. Title Warranty.......................................................................66
ARTICLE VIII COVENANTS......................................................................................66
SECTION 8.1. Affirmative Covenants................................................................66
SECTION 8.1.1. Financial Information, Reports, Notices, etc....................................66
SECTION 8.1.2. Compliance with Laws, etc.......................................................69
SECTION 8.1.3. Maintenance, Development and Sale of Properties.................................70
SECTION 8.1.4. Insurance.......................................................................71
SECTION 8.1.5. Books and Records...............................................................72
SECTION 8.1.6. Environmental Covenant..........................................................72
SECTION 8.1.7. Further Assurances..............................................................73
SECTION 8.1.8. Hydrocarbon Hedging.............................................................74
SECTION 8.1.9. Interest Rate Protection........................................................75
SECTION 8.2. Negative Covenants...................................................................75
SECTION 8.2.1. Business Activities.............................................................75
SECTION 8.2.2. Indebtedness....................................................................75
SECTION 8.2.3. Liens...........................................................................76
SECTION 8.2.4. Financial Condition.............................................................78
SECTION 8.2.5. Investments.....................................................................79
SECTION 8.2.6. Restricted Payments, etc........................................................79
SECTION 8.2.7. Rental Obligations..............................................................80
SECTION 8.2.8. Consolidation, Merger, etc......................................................80
SECTION 8.2.9. Asset Dispositions, etc.........................................................80
SECTION 8.2.10. Modification of Certain Documents...............................................81
SECTION 8.2.11. Transactions with Affiliates....................................................81
SECTION 8.2.12. Negative Pledges, Restrictive Agreements, etc...................................81
SECTION 8.2.13. Take or Pay Contracts...........................................................82
ARTICLE IX EVENTS OF DEFAULT..............................................................................82
SECTION 9.1. Listing of Events of Default.........................................................82
-v-
TABLE OF CONTENTS
(continued)
PAGE
SECTION 9.1.1. Non-Payment of Obligations......................................................82
SECTION 9.1.2. Breach of Warranty..............................................................82
SECTION 9.1.3. Non-Performance of Certain Covenants and Obligations............................82
SECTION 9.1.4. Non-Performance of Other Covenants and Obligations..............................82
SECTION 9.1.5. Default on Other Indebtedness...................................................83
SECTION 9.1.6. Judgments.......................................................................83
SECTION 9.1.7. Pension Plans...................................................................83
SECTION 9.1.8. Control of the Borrower.........................................................84
SECTION 9.1.9. Bankruptcy, Insolvency, etc.....................................................84
SECTION 9.1.10. Impairment of Security, etc.....................................................84
SECTION 9.1.11. Material Adverse Effect.........................................................85
SECTION 9.2. Action if Bankruptcy.................................................................85
SECTION 9.3. Action if Other Event of Default.....................................................85
SECTION 9.4. Rights Not Exclusive.................................................................85
ARTICLE X MISCELLANEOUS PROVISIONS.......................................................................85
SECTION 10.1. Waivers, Amendments, etc.............................................................85
SECTION 10.2. Notices..............................................................................86
SECTION 10.3. Payment of Costs and Expenses........................................................87
SECTION 10.4. Indemnification......................................................................87
SECTION 10.5. Survival.............................................................................89
SECTION 10.6. Severability.........................................................................89
SECTION 10.7. Headings.............................................................................89
SECTION 10.8. Execution in Counterparts, Effectiveness, etc........................................89
SECTION 10.9. Governing Law; Entire Agreement......................................................89
SECTION 10.10. Successors and Assigns...............................................................89
SECTION 10.11. Sale and Transfer of Loans and Notes; Participations in Loans and Notes..............90
SECTION 10.11.1. Assignments.....................................................................90
SECTION 10.11.2. Participations..................................................................91
-vi-
TABLE OF CONTENTS
(continued)
PAGE
SECTION 10.11.3. Modifications for Other Lenders.................................................92
SECTION 10.12. Forum Selection and Consent to Jurisdiction..........................................92
SECTION 10.13. Waiver of Jury Trial.................................................................92
SECTION 10.14. Notice...............................................................................93
SCHEDULE I Disclosure Schedule
SCHEDULE II Certain Oil and Gas Properties
SCHEDULE III Subsidiaries
SCHEDULE IV Minimum Hedging Volumes
SCHEDULE V Existing Mortgages
SCHEDULE VI Certain Consents and Mortgage Consents
SCHEDULE VII Incremental Proved Producing Reserves
SCHEDULE VIII Borrower's Bonus Plan
EXHIBIT A - Form of Note
EXHIBIT B-1 - Form of Borrowing Request
EXHIBIT B-2 - Form of Continuation/Conversion Notice
EXHIBIT C - Form of Amended and Restated Security Agreement
EXHIBIT D - Form of Amended and Restated Mortgage
EXHIBIT E - Form of Amended and Restated Secured Guaranty
EXHIBIT F-1 - Form of Amended and Restated Pledge Agreement (Stock)
EXHIBIT F-2 - Form of Pledge Agreement (Partnership Agreement)
EXHIBIT G - Form of Lender Assignment Notice
EXHIBIT H - Form of Opinions of Counsel to the Borrower and the other
Obligors
EXHIBIT I-1 - Form of Pre-Closing Title Opinion of Special Title
Counsel to the Borrower
EXHIBIT I-2 - Form of Post-Closing Title Opinion of Special Title
Counsel to the Borrower
EXHIBIT J - Form of Assignment and Conveyance of Overriding Royalty
Interest
EXHIBIT K-1 - Form of Agreement Concerning Overriding Royalty Interests
EXHIBIT K-2 - Form of Certificate as to Overriding Royalty Interests
EXHIBIT L - [Intentionally Omitted]
EXHIBIT M - Form of Issuance Request
EXHIBIT N - Form of Irrevocable Standby Letter of Credit
EXHIBIT O-1 - Form of Warrant Agreement
EXHIBIT O-2 - Form of Warrants
EXHIBIT O-3 - Form of Registration Rights Agreement
EXHIBIT P - Form of Approved Budget
-vii-
TABLE OF CONTENTS
(continued)
PAGE
EXHIBIT Q - Additional Required Reporting
EXHIBIT R Form of Consent to Assignment
-viii-
