Exhibit 10.1
Execution Copy
================================================================================
CREDIT AGREEMENT
AMONG
CUBIC ENERGY, INC.,
AS BORROWER
AND
PETRO CAPITAL V, L.P.,
AS LENDER
================================================================================
DATED AS OF FEBRUARY 6, 2006
TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS.........................................................1
1.01 Certain Defined Terms................................................1
1.02 Other Interpretive Provisions........................................9
1.03 Accounting Principles...............................................10
ARTICLE II. THE CREDIT........................................................10
2.01 Amounts and Terms of the Loans......................................10
2.02 Prepayment..........................................................10
2.03 Repayment...........................................................10
2.04 Fees................................................................11
2.05 Computation of Fees and Interest....................................11
2.06 Payments by Borrower................................................11
2.07 Taxes...............................................................11
ARTICLE III. SECURITY.........................................................12
3.01 The Security........................................................12
3.02 Agreement to Deliver Security Documents.............................12
3.03 Perfection and Protection of Security Interests and Liens...........13
3.04 Offset..............................................................13
3.05 Production Proceeds.................................................13
ARTICLE IV. CONDITIONS PRECEDENT..............................................14
4.01 Conditions Precedent................................................14
ARTICLE V. REPRESENTATIONS AND WARRANTIES.....................................15
5.01 Corporate Existence and Power.......................................15
5.02 Corporate Authorization; No Contravention...........................15
5.03 Governmental Authorization..........................................16
5.04 Binding Effect......................................................16
5.05 SEC Filings; Interim Financial Statements...........................16
5.06 Litigation..........................................................17
5.07 No Default..........................................................17
5.08 ERISA...............................................................17
5.09 Margin Regulations..................................................17
5.10 Title to Properties.................................................17
5.11 Oil and Gas Reserves................................................17
5.12 Initial Reserve Report..............................................17
5.13 Gas Imbalances......................................................18
5.14 Taxes...............................................................18
5.15 Environmental Matters...............................................19
5.16 Regulated Entities..................................................19
5.17 No Burdensome Restrictions..........................................19
5.18 Solvency............................................................19
5.19 Subsidiaries/Investments/Ownership..................................19
5.20 Insurance...........................................................19
5.21 Full Disclosure.....................................................19
5.22 Capitalization......................................................19
5.23 Authorization of Warrants...........................................20
5.24 Reporting Status, Eligibility to Use Form SB-2......................20
5.25 Tauren Purchase Agreement...........................................20
ARTICLE VI. AFFIRMATIVE COVENANTS.............................................21
6.01 Financial Statements................................................21
6.02 Certificates Other Production and Reserve Information...............21
6.03 Notices.............................................................22
6.04 Preservation of Corporate Existence, Etc............................22
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6.05 Maintenance of Property.............................................23
6.06 Insurance...........................................................23
6.07 Payment of Obligations..............................................23
6.08 Compliance with Laws................................................23
6.09 Maintenance of Books and Records....................................23
6.10 Environmental Laws..................................................23
6.11 Use of Proceeds.....................................................23
6.12 Further Assurances..................................................23
6.13 Subsidiary Guaranties...............................................24
6.14 Security Documents..................................................24
6.15 Debt Service Account................................................24
ARTICLE VII. NEGATIVE COVENANTS...............................................24
7.01 Limitation on Liens.................................................24
7.02 Disposition of Assets...............................................25
7.03 Consolidations and Mergers..........................................26
7.04 Loans and Investments...............................................26
7.05 Limitation on Indebtedness..........................................26
7.06 Financial Covenants.................................................27
7.07 Transactions with Affiliates........................................27
7.08 Margin Stock........................................................27
7.09 Contingent Obligations..............................................27
7.10 Restricted Payments.................................................28
7.11 Change in Business, Organization Documents, Name and Address........28
7.12 Accounting Changes..................................................28
7.13 Restrictions of Pledges.............................................28
7.14 Capitalization......................................................28
7.15 Repayment of Certain Indebtedness...................................28
ARTICLE VIII. EVENTS OF DEFAULT...............................................28
8.01 Event of Default....................................................28
8.02 Remedies............................................................30
8.03 Set-off.............................................................30
8.04 Payments Set Aside..................................................30
8.05 Rights Not Exclusive................................................30
ARTICLE IX. MISCELLANEOUS.....................................................30
9.01 Amendments and Waivers..............................................30
9.02 Notices.............................................................31
9.03 No Waiver; Cumulative Remedies......................................31
9.04 Costs and Expenses..................................................31
9.05 Indemnity...........................................................32
9.06 Environmental Indemnification.......................................32
9.07 Successors and Assigns..............................................33
9.08 Interest............................................................33
9.09 Counterparts and Facsimile Signatures...............................34
9.10 Severability........................................................34
9.11 Third Party Beneficiaries...........................................34
9.12 USA PATRIOT Act Notice..............................................34
9.13 Governing Law.......................................................34
9.14 Submission To Jurisdiction..........................................35
9.15 Waiver Of Jury Trial................................................35
9.16 Entire Agreement....................................................35
9.17 NO ORAL AGREEMENTS..................................................36
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APPENDIX
Appendix I Specific Terms, Fees and Conditions
SCHEDULES
Schedule I Security Documents
Schedule 5.14(c) Taxes
Schedule 7.01 Liens
Schedule 7.05 Indebtedness
Schedule 7.07 Transactions with Affiliates
EXHIBITS
Exhibit A Form of Promissory Note
Exhibit B Form of Warrant
Exhibit C Form of Compliance Certificate
Exhibit D Form of Letters-in-Lieu
Exhibit E Form of Supplement to Mortgage
Exhibit F Form of Subordination Agreement
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CREDIT AGREEMENT
----------------
This CREDIT AGREEMENT, dated as of February 6, 2006, is entered into among CUBIC
ENERGY, INC., a Texas corporation ("Borrower") and PETRO CAPITAL V, L.P., a
Texas limited partnership (the "Lender").
In consideration of the mutual agreements, provisions and covenants
contained herein and other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS
1.01 Certain Defined Terms. In addition to the terms defined in the
preamble of this Agreement, the following terms have the following meanings
herein:
"Acquisition" means any transaction or series of related transactions for
the purpose of or resulting, directly or indirectly, in (a) the acquisition of
all or substantially all of the assets of a Person, or of any business or
division of a Person, (b) the acquisition of in excess of 50% of the capital
stock of a corporation (or similar entity), which stock has ordinary voting
power for the election of the members of such entity's board of directors or
persons exercising similar functions (other than stock having such power only by
reason of the happening of a contingency), or the acquisition of in excess of
50% of the partnership interests or equity of any Person not a corporation which
acquisition gives the acquiring Person the power to direct or cause the
direction of the management and policies of such Person, or (c) a merger or
consolidation or any other combination with another Person provided that
Borrower is the surviving entity.
"Affiliate" means, as to any Person, any other Person which, directly or
indirectly, is in control of, is controlled by, or is under common control with,
such Person. A Person shall be deemed to control another Person if the
controlling Person possesses, directly or indirectly, the power to direct or
cause the direction of the management and policies of the other Person, whether
through the ownership of voting securities, by contract, or otherwise.
"Agreement" means this Credit Agreement including all Appendices, Schedules
and Exhibits attached hereto, as same may be amended in writing from time to
time.
"Alternative Financings" has the meaning set forth under Section 7.05(e).
"Asset Purchase Agreement" has the meaning set forth under Section 5.25.
"Assignee" has the meaning specified in Subsection 9.07.
"Bankruptcy Code" means the Federal Bankruptcy Reform Act of 1978 (11
U.S.C. ss.101, et seq.).
"Business Day" means any day other than a Saturday, Sunday or other day on
which commercial banks located in the city of Lender's Payment Office are
authorized or required by law to close.
"Capital Lease" means, when used with respect to any Person, any lease in
respect of which any of the obligations of such Person thereunder constitute
Capitalized Lease Obligations.
"Capitalized Lease Obligations" means, all obligations of such Person to
pay rent or other amounts under any lease of (or other arrangement conveying the
right to use) real or personal property, or a combination thereof, which
obligations shall have been or should be, in accordance with GAAP, capitalized
on the books of such Person.
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"Cash Equivalents" means: (a) securities issued or fully guaranteed or
insured by the United States Government or any agency thereof and backed by the
full faith and credit of the United States having maturities of not more than
twelve (12) months from the date of acquisition; (b) certificates of deposit,
time deposits, Eurodollar time deposits, or bankers' acceptances having in each
case a tenor of not more than three (3) months from the date of acquisition
issued by any U.S. commercial bank or any branch or agency of a non-U.S.
commercial bank licensed to conduct business in the U.S. having combined capital
and surplus of not less than Five Hundred Million Dollars ($500,000,000); (c)
commercial paper of an issuer rated at least A-1 by S&P or P-1 by Moody's at the
time of acquisition, and in either case having a tenor of not more than twelve
(12) months; and (d) money market funds that (i) comply with the criteria set
forth in SEC Rule 2a-7 under the Investment Company Act of 1940, (ii) are rated
AAA by Standard and Poor's Ratings Group, a division of The McGraw Hill
Corporation, and Aaa by Xxxxx'x Investors Services, Inc. and (iii) have
portfolio assets of at least $500,000,000.
"Change of Control" means (a) a purchase or acquisition, directly or
indirectly, by any "person" or "group" within the meaning of Section 13(d)(3)
and 14(d)(2) of the Securities Exchange Act of 1934 (a "Group"), of "beneficial
ownership" (as such term is defined in Rule 13d-3 under the Exchange Act) of
securities of Borrower which, together with any securities owned beneficially by
any "affiliates" or "associates" of such Group (as such terms are defined in
Rule 12b-2 under the Exchange Act), shall represent more than thirty percent
(30%) of the combined voting power of Borrower's securities which are entitled
to vote generally in the election of directors (or managers, in the case of a
limited liability company) and which are outstanding on the date immediately
prior to the date of such purchase or acquisition; or (b) a sale of all or
substantially all of the assets of Borrower taken as a whole to any Person or
Group; or (c) the liquidation or dissolution of Borrower; or (d) the first day
on which a majority of the directors (or managers, in the case of a limited
liability company) of Borrower are not Continuing Directors (as herein defined).
As herein defined, "Continuing Directors" means any Director of Borrower who is
a Director of Borrower as of the date of this Agreement as listed on Appendix I
hereto.
"Closing" means the date on which all conditions precedent set forth in
Section 4.01 are satisfied or waived by the Lender.
"Code" means the Internal Revenue Code of 1986 and regulations promulgated
thereunder.
"Collateral" means all tangible and intangible assets of Borrower and any
Subsidiary thereof, now existing or hereafter acquired, including without
limitation, all Oil and Gas Properties, the Oil and Gas attributable thereto,
and the Debt Service Account.
"Common Stock" means common stock of Borrower, par value $0.05 per share.
"Compliance Certificate" means that certain certificate in the form of
Exhibit C.
"Confidential Private Placement Memorandum" means that certain Confidential
Private Placement Memorandum dated November 8, 2005.
"Contingent Obligation" means, as to any Person without duplication, any
direct or indirect liability of that Person with or without recourse, (a) with
respect to any Indebtedness, dividend, letter of credit or other similar
obligation (the "primary obligations") of another Person (the "primary
obligor"), including any Guaranty Obligation of that Person; (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, 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. The amount of any Contingent Obligation
shall, in the case of Guaranty Obligations, be deemed equal to the maximum
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stated or determinable amount of the primary obligation in respect of which such
Guaranty Obligation is made or, if not stated or if indeterminable, the maximum
reasonably anticipated liability in respect thereof, and in the case of other
Contingent Obligations shall be equal to the maximum reasonably anticipated
liability in respect thereof..
"Contract Rate" has the meaning specified in Appendix I.
"Contractual Obligation" means, as to any Person, any provision of any
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument, document or agreement to
which such Person is a party or by which it or any of its property is bound.
"Current Management" means the current executive officers of Borrower as
specified in Appendix I.
"Debt Service Account" has the meaning specified in Section 6.15.
"Debt Service Amount" means the amount set forth under Appendix I.
"Default" means any event or circumstance which, with the giving of notice,
the lapse of time, or both, would (if not cured or otherwise remedied during
such time) constitute an Event of Default.
"Default Rate" is defined on Appendix I.
"Dollars", "dollars" and "$" each mean lawful money of the United States.
"EBITDA" means with respect to Borrower, for any fiscal period, without
duplication (i) Net Income plus (ii) depreciation, depletion, amortization and
other non-cash items reducing Net Income plus (iii) Interest Expense plus (iv)
income tax expense.
"Effective Amount" means on any date, the outstanding principal amount of
the Loans after giving effect to any prepayments or repayments of the Loans
occurring on such date.
"Environmental Claims" means all material claims by any Governmental
Authority or other Person alleging potential liability or responsibility for
violation of any Environmental Law, or for release or injury to the environment.
"Environmental Laws" means all material federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances and codes, together
with all material administrative orders, requests, licenses, authorizations and
permits of, and agreements with, any Governmental Authorities, in each case
relating to environmental, health, and safety matters.
"ERISA" means the Employee Retirement Income Security Act of 1974, and
regulations promulgated thereunder.
"ERISA Affiliate" means any trade or business (whether or not incorporated)
under common control with Borrower within the meaning of Section 414(b), (c),
(m) or (o) of the Code.
"ERISA Event" means (a) a Reportable Event with respect to a Plan; (b) a
withdrawal by Borrower or any ERISA Affiliate from a Plan subject to Section
4063 of ERISA during a plan year in which it was a substantial employer (as
defined in Section 4001(a)(2) of ERISA) or a cessation of operations which is
treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or
partial withdrawal by Borrower or any ERISA Affiliate from a Multiemployer Plan
or notification that a Multiemployer Plan is in reorganization; (d) the filing
of a notice of intent to terminate (other than pursuant to Section 4041(b) of
ERISA), the treatment of a Plan amendment as a termination under Section 4041(c)
or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a
Plan or Multiemployer Plan; (e) an event or condition which might reasonably be
expected to constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Plan or Multiemployer
Plan; or (f) the imposition of any liability under Title IV of ERISA, other than
PBGC premiums due but not delinquent under Section 4007 of ERISA, upon Borrower
or any ERISA Affiliate.
"Event of Default" means any of the events or circumstances specified in
Section 8.01.
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"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time, and regulations promulgated thereunder.
"FRB" means the Board of Governors of the Federal Reserve System, and any
Governmental Authority succeeding to any of its principal functions.
"Fixed Charges" means, with respect to Borrower, for any fiscal period, the
sum of Interest Expense plus scheduled principal payments of any Indebtedness
for borrowed money.
"Fixed Charge Coverage Ratio" means, as of the end of any fiscal quarter,
the ratio of (a) Borrower's EBITDA for the twelve month period then ended to (b)
Borrower's Fixed Charges for the twelve month period then ended.
"GAAP" means generally accepted accounting principles set forth from time
to time in the opinions and pronouncements of the Accounting Principles Board
and the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board.
"Governmental Authority" means any nation or government, any state or other
political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
and any corporation or other entity owned or controlled, through stock or
capital ownership or otherwise, by any of the foregoing.
"Guaranty Obligations" means with respect to any Indebtedness, dividend,
letter of credit or other similar 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.
"Hedge Agreements" means all future contracts, forward contracts, swap, cap
or collar contracts, option contracts, hedging contracts or other derivative
contracts or similar agreements covering Oil and Gas commodities or prices or
financial, monetary or interest rate instruments.
"Highest Lawful Rate" means, as of a particular date, the maximum
nonusurious interest rate that under applicable federal and Texas law may then
be contracted for, charged or received by the Lender in connection with the
Obligations.
"Hydrocarbon Interests" means leasehold and other interests in or under
oil, gas and other liquid or gaseous hydrocarbon leases with respect to Oil and
Gas wherever located, mineral fee interests, overriding royalty and royalty
interests, net profit interests, production payment interests relating to Oil
and Gas wherever located, including any beneficial, reserved or residual
interest of whatever nature.
"Indebtedness" of any Person means, without duplication, (a) all
indebtedness for borrowed money; (b) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (other than trade
payables entered into in the ordinary course of business on ordinary terms); (c)
all non-contingent reimbursement or payment obligations with respect to Surety
Instruments; (d) all obligations evidenced by notes, bonds, debentures or
similar instruments, including obligations so evidenced incurred in connection
with the acquisition of property, assets or businesses; (e) all indebtedness
created or arising under any conditional sale or other title retention
agreement, or incurred as financing, in either case with respect to property
acquired by the Person (even though the rights and remedies of the seller or
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bank under such agreement in the event of default are limited to repossession or
sale of such property) including, without limitation, production payments, net
profit interests and other Hydrocarbon Interests subject to repayment out of
future Oil and Gas production; (f) all obligations with respect to Capital
Leases; (g) all indebtedness referred to in clauses (a) through (f) above
secured by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien upon or in property
(including accounts and contracts rights) owned by such Person, even though such
Person has not assumed or become liable for the payment of such Indebtedness;
and (i) all Guaranty Obligations in respect of indebtedness or obligations of
others of the kinds referred to in clauses (a) through (g) above.
"Indemnified Environmental Liabilities" has the meaning specified in
Section 9.06.
"Indemnified Liabilities" has the meaning specified in Section 9.05.
"Indemnified Person" has the meaning specified in Section 9.05.
"Independent Auditor" means a recognized independent public accounting firm
retained by Borrower and approved by the Lender.
"Initial Loan Amount" means the amount set forth under Appendix I.
"Initial Reserve Report" means the Reserve Report described in Section
4.01(c).
"Insolvency Proceeding" means (a) any case, action or proceeding relating
to bankruptcy, reorganization, insolvency, liquidation, receivership,
dissolution, winding up or relief of debtors, or (b) any general assignment for
the benefit of creditors, composition, marshalling of assets for creditors, or
other, similar arrangement in respect of its creditors generally or any
substantial portion of its creditors; undertaken under U.S. Federal, state or
foreign law, including the Bankruptcy Code.
"Interest Expense" means, with respect to Borrower, for any fiscal period,
the aggregate amount of all costs, fees and expenses paid by Borrower in such
fiscal period which are classified as interest expense on the financial
statements of Borrower.
"Interest Payment Date" means the first Business Day of each calendar
month.
"IRS" means the Internal Revenue Service, and any Governmental Authority
succeeding to any of its principal functions under the Code.
"Knowledge of Borrower" (or similar language to that effect) means to the
knowledge, after due inquiry, of any executive officer of Borrower.
"Lender's Payment Office" means the principal address for the Lender as set
forth on Appendix I hereof or such other address as the Lender may from time to
time specify.
"Lien" means any security interest, mortgage, deed of trust, pledge,
hypothecation, assignment, charge or deposit arrangement, encumbrance, lien
(statutory or other) 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 and 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 collectively, each extension of credit by the Lender to
Borrower under Section 2.01.
"Loan Documents" means this Agreement, the Note, the Warrants, the
Registration Rights Agreement, the Security Documents, the Subordination
Agreement and all other documents delivered to the Lender in connection
herewith.
"Margin Stock" means "margin stock" as such term is defined in Regulation
T, U or X of the FRB.
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"Material Adverse Effect" means (a) a material adverse change in, or a
material adverse effect upon, the operations, business, properties or financial
condition of Borrower; (b) a material impairment of the ability of Borrower to
perform under any Loan Document; or (c) a material adverse effect upon the
legality, validity, binding effect or enforceability against Borrower of any
Loan Document.
"Maximum Loan Amount" means the amount set forth under Appendix I.
"Mortgages" means any "Mortgage, Deed of Trust, Assignment of Production,
Security Agreement and Financing Statement" from Borrower to the Lender (or any
comparable instrument) and all supplements, assignments, amendments and
restatements thereto (or any agreement in substitution therefor) which are
executed and delivered to the Lender pursuant to Article III of this Agreement.
"Mortgage Matching Schedule" means, a schedule maintained by the Lender or
its counsel correlating and reconciling the xxxxx and related working interests
and net revenue interests constituting the Mortgaged Properties against those
for the Oil and Gas Properties covered by Borrower's most recently delivered
Reserve Report.
"Mortgaged Properties" means the Oil and Gas Properties and such other
properties upon which Borrower has purported to xxxxx x Xxxx in favor of the
Lender pursuant to the Mortgages.
"Multiemployer Plan" means a "multiemployer plan," within the meaning of
Section 4001(a)(3) of ERISA, to which Borrower or any ERISA Affiliate makes, is
making, or is obligated to make contributions or, during the preceding seven (7)
calendar years, has made, or been obligated to make, contributions.
"Net Income" means, for any fiscal period, the net income (or net loss) of
such Person for such period.
"Note" means the promissory note specified in Section 2.01, substantially
in the same form as Exhibit A, issued by Borrower hereunder to the Lender,
including any amendment, modification, renewal or replacement of such promissory
note.
"Obligations" means the aggregate amount of all advances, debts,
liabilities, obligations, covenants and duties of Borrower arising under any
Loan Document or owing by Borrower to the Lender or any Indemnified Person,
whether direct or indirect (including those acquired by assignment), absolute or
contingent, due or to become due, now existing or hereafter arising.
"Oil and Gas" means petroleum, natural gas and other related hydrocarbons
or minerals or any of them and all other substances produced or extracted in
association therewith.
"Oil and Gas Properties" means Hydrocarbon Interests now owned or hereafter
acquired by Borrower, or any Subsidiary thereof, and contracts executed in
connection therewith and all tenements, hereditaments, appurtenances, and
properties belonging, affixed or incidental to such Hydrocarbon Interests,
including, without limitation, any and all property, real or personal, now owned
or hereafter acquired by Borrower and situated upon or to be situated upon, and
used, built for use, or useful in connection with the operating, working or
developing of such Hydrocarbon Interests, including, without limitation, any and
all petroleum and/or natural gas xxxxx, structures, field separators, liquid
extractors, plant compressors, pumps, pumping units, field gathering systems,
tank and tank batteries, fixtures, valves, fittings, machinery and parts,
engines, boilers, liters, apparatus, equipment, appliances, tools, implements,
cables, wires, towers, tubing and rods, surface leases, rights-of-way, easements
and servitudes, and all additions, substitutions, replacements for, fixtures and
attachments to any and all of the foregoing owned directly or indirectly by
Borrower and its Subsidiaries.
"Operating Lease" means an operating lease determined in accordance with
GAAP.
"Organization Documents" means, for any corporation: the articles of
incorporation, the bylaws, any certificate of determination or instrument
relating to the rights of the shareholders of such corporation, any shareholder
rights agreement, and all applicable resolutions of the board of directors (or
6
any committee thereof) of such corporation; for any limited liability company:
the articles of organization, the regulations or operating agreement,
certificate of organization and all applicable resolutions of the members of
such company; and for any limited partnership: the certificate of limited
partnership, the limited partnership agreement and all Organization Documents
for its general partner as any of the foregoing have been amended or
supplemented from time to time.
"Other Taxes" means any present or future mortgage tax, stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies which arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement or any
other Loan Documents.
"Partners" means each general and limited partner of Petro Capital V, L.P.
"PBGC" means the Pension Benefit Guaranty Corporation, or any Governmental
Authority succeeding to any of its principal functions under ERISA.
"Pension Plan" means a pension plan (as defined in Section 3(2) of ERISA)
subject to Title IV of ERISA, other than a Multiemployer Plan, which Borrower
sponsors, maintains, or to which it makes, is making, or is obligated to make
contributions, or in the case of a Multiemployer Plan (as described in Section
4064(a) of ERISA) has made contributions at any time during the immediately
preceding five (5) plan years.
"Permitted Liens" has the meaning set forth in Section 7.01.
"Person" means an individual, partnership, limited partnership,
corporation, limited liability company, business trust, joint stock company,
trust, unincorporated association, joint venture or Governmental Authority.
"Plan" means an employee benefit plan (as defined in Section 3(3) of ERISA)
which is subject to ERISA, other than a Multiemployer Plan, and which Borrower
sponsors or maintains or to which Borrower makes, is making, or is obligated to
make contributions and includes any Pension Plan.
"Principal Business" means the business of the exploration for, development
of, and the acquisition, production, gathering and upstream marketing of Oil and
Gas.
"Production Sales Contracts" mean those agreements now or hereafter
executed in connection with the sale by Borrower of Oil and Gas attributable to
the Oil and Gas Properties as same may be amended from time to time.
"Quarterly Principal Payment Amount" means the amount set forth under
Appendix I.
"Quarterly Principal Payment Date" means on or before the last day of each
calendar quarter, commencing on the date set forth under Appendix I.
"Registration Rights Agreement" means that certain Registration Rights
Agreement of even date herewith between Borrower and the Lender.
"Regulation U" and "Regulation X" means Regulation U and Regulation X,
respectively, of the FRB.
"Requirement of Law" means, as to any Person, any law (statutory or
common), treaty, rule or regulation or determination of an arbitrator or of a
Governmental Authority, in each case applicable to or binding upon such Person
or any of its property or to which such Person or any of its property is
subject.
"Reserves" means those quantities of Oil and Gas which are anticipated to
be commercially recovered from known accumulations from a given date forward
including "Proved Reserves," "Probable Reserves" and "Possible Reserves" as
those reserves are denominated and determined in accordance with the methods
commonly accepted by the Society of Petroleum Engineers for evaluating Oil and
Gas reserves.
7
"Reserve Report" means a report, acceptable to the Lender, covering proved
developed, proved undeveloped and probable Oil and Gas reserves attributable to
the Oil and Gas Properties and setting forth (i) the total quantity of proved
developed and proved undeveloped reserves (separately classified as producing,
shut-in, behind pipe, and undeveloped), (ii) the estimated future net revenues
and future net income and cumulative estimated future net revenues and future
net income, (iii) the discounted present value of future net income, and (iv)
such other information and data with respect to the Oil and Gas Properties as
the Lender may reasonably request.
"Responsible Officer" means the chief executive officer, chief financial
officer or president of Borrower or such other Person designated as a
Responsible Officer by Borrower.
"SEC" means the Securities and Exchange Commission.
"SEC Filings" means all forms, reports, schedules, statements and other
documents required to be filed by Borrower under the Securities Act, Exchange
Act, and the rules and regulations promulgated thereunder.
"Securities Act" means the Securities Act of 1933, as amended.
"Security Documents" means the Mortgages, collateral assignments, security
agreements, pledges, assignments, control agreements, and related financing
statements listed on Schedule I as same may be amended, supplemented or modified
from time to time and any and all other instruments now or hereafter executed in
connection with or as security for the payment of the Obligations.
"Solvent" means, as to any Person at any time, that (a) the fair value of
all of the property of such Person is greater than the amount of such Person's
liabilities (including disputed, contingent and unliquidated liabilities) as
such value is established and liabilities evaluated for purposes of Section
101(32) of the Bankruptcy Code; (b) the present fair saleable value of all of
the property of such Person is not less than the amount that will be required to
pay the probable liability of such Person on its debts as they become absolute
and matured; (c) such Person does not intend to, and does not believe that it
will, incur debts or liabilities beyond such Person's ability to pay as such
debts and liabilities mature; and (d) such Person is not engaged in business or
a transaction, and is not about to engage in business or a transaction, for
which such Person's property would constitute unreasonably small capital.
"Stated Maturity Date" means the date set forth on Appendix I stated to be
the maturity date for the Note.
"Status Report" means a status report prepared periodically (as specified
on Appendix I) by Borrower in form, scope and content acceptable to the Lender,
setting forth as of such period then ended (i) detailed production data from the
Oil and Gas Properties by property, including, the volumes of Oil and Gas
produced and saved, the volumes of Oil and Gas sold, gross revenue, Net Income
of Borrower, related leasehold operating expenses, severance taxes, capital
costs and any production imbalances incurred during such period (ii) all new Oil
and Gas Properties acquired by Borrower since the date of Borrower's last Status
Report, (iii) the current list of purchasers of production including mailing
address and the xxxxx covered by such Production Sales Contracts, and (iv) such
additional information with respect to any of the Oil and Gas Properties as may
be reasonably requested by the Lender.
"Subordination Agreement" means a Subordination Agreement in the form of
Exhibit F hereto, by and among Borrower, Lender and Tauren.
"Subsidiary" of a Person means any corporation, association, partnership,
joint venture or other business entity of which more than 50% of the voting
stock or other equity interests (in the case of Persons other than
corporations), is owned or controlled directly or indirectly by the Person, or
one or more of the Subsidiaries of the Person, or a combination thereof. Unless
the context otherwise clearly requires, references herein to a "Subsidiary"
refer to a Subsidiary of Borrower.
8
"Surety Instruments" means all letters of credit (including standby),
banker's acceptances, bank guaranties, shipside bonds, surety bonds and similar
instruments.
"Tangible Net Worth" means, at any date, the net worth of Borrower after
subtracting therefrom the aggregate amount of treasury stock, goodwill, deferred
development costs, franchises, licenses, patents, trademarks, trade names,
copyrights, service marks and brand names and all other intangible assets (other
than Oil and Gas leases to the extent classified as intangible assets) of
Borrower classified as such under GAAP.
"Tauren" means Tauren Exploration, Inc., an affiliate of the chief
executive officer of Borrower.
"Taxes" means any and all present or future taxes, levies, imposts,
deductions, charges or withholdings, and all liabilities with respect thereto,
excluding such taxes (including income taxes or franchise taxes) as are imposed
on or measured by the Lender's Net Income by the jurisdiction (or any political
subdivision thereof) under the laws of which the Lender is organized or
maintains a lending office.
"Tax Return" means any return, report, information return or other document
(including any related or supporting information) relating to Taxes, including
without limitation all information returns, any claims for refunds of Taxes and
any amendments or supplements to any of the foregoing.
"Termination Date" means the earlier of (a) the Stated Maturity Date, or
(b) the date on which the Loans are due and payable in accordance with the
provisions of this Agreement.
"United States" and "U.S." each means the United States of America.
"Warrants" means 5-year detachable warrants to acquire unregistered shares
of Common Stock of Borrower substantially in the same form as attached as
Exhibit D.
"Warrant Shares" means the shares of Common Stock or other securities
issuable upon the exercise of the Warrants
"West Texas Properties" means currently owned Oil and Gas Properties
located in Xxxxxxxx, Eastland and Palo Pinto Counties, Texas.
1.02 Other Interpretive Provisions. The meanings of defined terms are
equally applicable to the singular and plural forms of the defined terms. Unless
otherwise specified or the context clearly requires otherwise, 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. The term
"documents" includes any and all instruments, documents, agreements,
certificates, indentures, notices and other writings, however evidenced. The
term "including" is not limiting and means "including without limitation." 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."
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. The captions and headings of this Agreement are for convenience of
reference only and shall not affect the interpretation of this Agreement. This
Agreement and the other Loan Documents are the result of negotiations among and
have been reviewed by counsel to the Lender and Borrower, and are the products
of all parties. Accordingly, they shall not be construed against Borrower, or
the Lender merely because of the Lender's involvement in the preparation
thereof.
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1.03 Accounting Principles.
(a) Unless the context otherwise clearly requires, all accounting terms
not expressly defined herein shall be construed, and all financial computations
required under this Agreement shall be made in accordance with GAAP,
consistently applied.
(b) References herein to "fiscal year" and "fiscal quarter" refer to
such fiscal periods of Borrower.
(c) References herein to Borrower's financial statements or balance
sheets shall mean, respectively, the consolidated financial statements or
consolidated balance sheets of Borrower and its Subsidiaries, if any.
ARTICLE II.
THE CREDIT
2.01 Amounts and Terms of the Loans. The Lender agrees, on the terms
and conditions set forth herein, to lend to Borrower the Initial Loan Amount,
which shall be funded to Borrower at Closing, except for the Debt Service
Amount, which shall be funded into the Debt Service Account. The Lender shall
have the option, exercisable in its sole discretion within sixty (60) days from
Closing and upon Borrower's written request, to lend to Borrower an amount up to
the amount equal to the difference between the Maximum Loan Amount and the
Initial Loan Amount. The obligation of Borrower to repay the Loans made by the
Lender, together with interest accruing thereon, shall be evidenced by the Note.
If Borrower pays or prepays any portion of the Loans under this Agreement, then
such portion may not be reborrowed.
2.02 Prepayment. In addition to mandatory repayments of the Note under
Section 2.03, Borrower may, at any time prepay the Loans in full, or in minimum
amounts of $100,000.00 or integral multiples thereof, upon irrevocable notice to
the Lender of not less than five (5) Business Days; provided that a notice of
prepayment delivered by the Borrower may state that such notice is conditioned
upon the effectiveness of other credit facilities, in which case such notice may
be revoked by Borrower (by notice to Lender on or prior to the specified
effective date) if such condition is not satisfied.
2.03 Repayment.
(a) Principal. Borrower shall repay the outstanding principal under the
Note as follows:
(i) Subject to the Quarterly Principal Payment Deferral Option
set forth on Appendix I, on each Quarterly Principal Payment Date, an
amount equal to the Quarterly Principal Payment Amount (each such
payment a "Quarterly Principal Payment"); and
(ii) On the Termination Date, an amount equal to any
outstanding principal under the Note remaining on such date, together
with all accrued but unpaid interest and outstanding expenses hereunder
or under the Loan Documents.
(b) Interest.
(i) Principal outstanding under the Note shall bear interest
from Closing at a rate per annum equal to the lesser of (a) the
Contract Rate, or (b) the Highest Lawful Rate.
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(ii) Interest shall accrue at the Contract Rate on principal
outstanding under the Note and shall be paid in arrears on each
Interest Payment Date and any accrued but unpaid interest shall be due
and payable in full on the Termination Date.
(iii) Notwithstanding Subsection 2.03(b)(i), (A) immediately
while any Default under Section 7.06 or Event of Default under 8.01(a)
exists and (B) following thirty (30) days written notice from the
Lender while any other Event of Default exists; Borrower shall pay
interest (after as well as before entry of judgment thereon to the
extent permitted by law) on the outstanding principal amount of the
Loans, at a rate per annum equal to the Default Rate until paid,
regardless whether payment is made before or after entry of a judgment.
2.04 Fees.
(a) Commitment Fee. Borrower shall pay to the Lender at Closing a
Commitment Fee in the amount set forth on Appendix I hereto. Borrower shall pay
to the Lender at the time of any additional Loan made pursuant to Lender's
option in Section 2.01, a Commitment Fee in the amount set forth on Appendix I
hereto.
(b) Warrants. Borrower shall deliver to the Lender at Closing, in
connection with the Initial Loan, Warrants for the number of shares of
Borrower's Common Stock set forth on Appendix I. Borrower shall deliver to the
Lender at the time of any additional Loan made pursuant to Lender's option in
Section 2.01, Warrants for the number of shares equal to 33.34% of the amount of
such Loan.
(c) Other Fees. Borrower shall pay such other fees at Closing as
required under Section 4.01(d) and as Borrower shall be required to pay pursuant
to any separate agreement executed by Borrower and Administrative Agent or any
of its Affiliates setting forth the compensation to be paid to Administrative
Agent and/or its Affiliates in consideration of providing services in connection
with this Agreement.
(d) Fees Fully Earned. Borrower agrees that as of Closing all such fees
and Warrants as provided under this Section 2.04 shall be fully earned.
2.05 Computation of Fees and Interest. All computations of interest for
the Loans and all other computations of fees shall be made on the basis of
actual days elapsed (including the first day but excluding the last day) but
computed as if each month consisted of 30 days and each calendar year consisted
of 360 days.
2.06 Payments by Borrower.
(a) All payments to be made by Borrower shall be made to the Lender,
without set-off, recoupment or counterclaim. Except as otherwise expressly
provided herein, all payments by Borrower shall be made to the Lender at
Lender's Payment Office, and shall be made in dollars and in immediately
available funds, no later than 11:00 a.m. (Central time) on the date due. Any
payment received by the Lender later than 11:00 a.m. (Central time) shall be
deemed to have been received on the following Business Day and any applicable
interest or fee shall continue to accrue.
(b) Whenever any payment is due on a day other than a Business Day,
such payment shall be made on the following Business Day, and such extension of
time shall in such case be included in the computation of interest or fees, as
the case may be.
2.07 Taxes.
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(a) Any and all payments by Borrower hereunder or under the Note shall
be made free and clear of and without deduction for any and all present or
future Taxes. If Borrower shall be required by law to deduct any Taxes from or
in respect of any sum payable hereunder or under the Note to the Lender, then
(i) the sum payable shall be increased as may be necessary so that after making
all required deductions (including deductions applicable to additional sums
payable under this Section 2.07) the Lender receives an amount equal to the sum
they would have received had no such deductions been made, (ii) Borrower shall
make such deductions, and (iii) Borrower shall pay the full amount deducted to
the relevant taxation authority or other authority in accordance with applicable
law.
(b) In addition, Borrower agrees to pay any Other Taxes.
(c) Borrower will indemnify the Lender for the full amount of Taxes or
Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by
any jurisdiction on amounts payable under this Section 2.07) paid by the Lender
or any liability (including penalties and interest) arising therefrom or with
respect thereto, whether or not such Taxes or Other Taxes were correctly or
legally asserted. This indemnification shall be made within five (5) days from
the date the Lender makes written demand therefor.
(d) Within 30 days after the date of any payment of Taxes, Borrower
will furnish to the Lender, at its principal address set forth in Appendix I,
the original or a certified copy of a receipt evidencing payment thereof.
(e) Without prejudice to the survival of any other agreement of
Borrower hereunder, the agreements and obligations of Borrower contained in this
Section 2.07 shall survive the termination of the commitments under this
Agreement and the payment in full of the Obligations.
ARTICLE III.
SECURITY
3.01 The Security. The Obligations will be secured by a Lien on all of
the Collateral, now or hereafter acquired, including without limitation the
Collateral described in Schedule I under the Security Documents.
3.02 Agreement to Deliver Security Documents. Borrower agrees to notify
the Lender of any additional interests acquired by Borrower or any Subsidiary in
Oil and Gas Properties or other Collateral and to deliver to the Lender to
further secure the Obligations, deeds of trust, mortgages, chattel mortgages,
security agreements, financing statements, letters in lieu of production, and
other Security Documents in form and substance satisfactory to the Lender
covering all of the Collateral, for the purpose of granting, confirming, and
perfecting first and prior Liens or security interests. Borrower also agrees to
deliver, whenever requested by the Lender, favorable title opinions from legal
counsel acceptable to the Lender or such other evidence of title satisfactory to
the Lender with respect to the Oil and Gas Properties designated by the Lender,
based upon abstract or record examinations to dates acceptable to the Lender,
(a) evidencing that Borrower has good and defensible title to such Oil and Gas
Properties, free and clear of all Liens except Permitted Liens, (b) confirming
that such Oil and Gas Properties are subject to Liens granted under Security
Documents securing the Obligations and such Security Documents constitute and
create legal, valid and duly perfected first deed of trust or mortgage Liens in
such Oil and Gas Properties and first priority assignments of and security
interests in the Oil and Gas attributable to such Oil and Gas Properties and the
proceeds thereof, and (c) covering such other matters as the Lender may
reasonably request.
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3.03 Perfection and Protection of Security Interests and Liens.
Borrower will from time to time deliver to the Lender any financing statements,
amendments, assignments and continuation statements, extension agreements and
other documents, properly completed (and executed and/or acknowledged when
required) by Borrower in form and substance satisfactory to the Lender, which
the Lender requests for the purpose of perfecting, confirming, or protecting any
Liens or other rights in Collateral securing any Obligations. Borrower hereby
authorizes the Lender to file, in any applicable jurisdiction where the Lender
deems it necessary, a financing statement or statements, and at the request of
the Lender, Borrower will join Lender in executing one or more financing
statements pursuant to the applicable Uniform Commercial Code in form
satisfactory to the Lender, and will pay the cost of filing or recording such
instrument, as a financing statement, in all public offices at any time and from
time to time whenever filing or recording of any financing statement is deemed
by the Lender to be necessary or reasonable.
3.04 Offset. To secure the repayment of the Obligations, Borrower
hereby grants the Lender a security interest, Lien, and right of offset, each of
which shall be in addition to all other interests, Liens, and rights of the
Lender at common law, under the Loan Documents or otherwise, and each of which
shall be upon and against (a) any and all moneys, securities or other property
(and the proceeds therefrom) of Borrower now or hereafter held or received by or
in transit to the Lender from or for the account of Borrower, whether for
safekeeping, custody, pledge, transmission, collection or otherwise, and (b) any
other credits and claims of Borrower at any time existing against the Lender.
Upon the occurrence of any Event of Default, the Lender is hereby authorized to
foreclose upon, offset, appropriate, and apply, at any time and from time to
time, without notice to Borrower, any and all items hereinabove referred to
against the Obligations then due and payable.
3.05 Production Proceeds.
(a) Borrower shall provide to the Lender undated letters, in the form
of Exhibit D attached hereto, in blank to each purchaser of production and
disburser of proceeds of production from or attributable to the Mortgaged
Properties, with the addressees left blank, authorizing and directing the
addressees to make future payments attributable to Borrower's share of
production from the Mortgaged Properties directly to the Lender.
(b) Borrower hereby designates the Lender as its agent and
attorney-in-fact, to act in its name, place, and stead for the purpose of
completing and delivering any and all of the letters in lieu of transfer orders
delivered by Borrower, as applicable, to the Lender, including, without
limitation, completing any blanks contained in such letters and attaching
exhibits thereto describing the relevant Collateral. Borrower hereby ratifies
and confirms all that the Lender shall lawfully do or cause to be done by virtue
of this power of attorney and the rights granted with respect to such power of
attorney. This power of attorney is coupled with the interest of the Lender in
the Collateral, shall commence and be in full force and effect as of Closing and
shall remain in full force and effect and shall be irrevocable so long as any
Obligation remains outstanding or unpaid. The powers conferred on the Lender by
this appointment are solely to protect the interests of the secured parties
under the Loan Documents and shall not impose any duty upon the Lender to
exercise any such powers. THE LENDER SHALL BE ACCOUNTABLE ONLY FOR AMOUNTS THAT
IT ACTUALLY RECEIVES AS A RESULT OF THE EXERCISE OF SUCH POWERS AND SHALL NOT BE
RESPONSIBLE TO BORROWER OR ANY OTHER PERSON FOR ANY ACT OR FAILURE TO ACT WITH
RESPECT TO SUCH POWERS, EXCEPT FOR THE LENDER'S GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT.
(c) Notwithstanding that under the Mortgages, Borrower has assigned to
the Lender all of the proceeds of production accruing to Borrower's share of
production from the Mortgaged Properties covered thereby, until such time as an
Event of Default shall have occurred and be continuing, Borrower shall be
13
entitled to receive from the purchasers or disbursers of its production all such
proceeds, subject however to the Liens created under the Mortgages. Upon the
occurrence and during the continuance of an Event of Default, the Lender may
deliver to the addressees the letters-in-lieu described in Section 3.05 above
and may exercise all rights and remedies granted under the Mortgages, including
the right to obtain possession of all proceeds of runs then held by Borrower or
to receive directly from the purchaser or disburser of production such proceeds
of production.
(d) In no case shall any failure, whether intentional or inadvertent,
by the Lender to collect directly any such proceeds of runs constitute in any
way a waiver, rescission or release of any of its rights under the Mortgages,
nor shall any release of any other proceeds of runs or of any rights of the
Lender to collect other proceeds of runs thereafter.
ARTICLE IV.
CONDITIONS PRECEDENT
4.01 Conditions Precedent. The obligation of the Lender to make the
initial Loan is subject to the condition that the Lender shall have received the
following, in form and substance satisfactory to the Lender:
(a) Credit Agreement and Other Loan Documents. This Agreement, the
Note, the Warrants, the Registration Rights Agreement, the Security Documents,
the Subordination Agreement and such other Loan Documents made a part hereof to
be executed and delivered at Closing, executed by each party thereto, and where
appropriate, properly acknowledged and notarized;
(b) Secretary's Certificate. A certificate of the Secretary or
Assistant Secretary of Borrower, certifying as of the date of Closing: (i)
resolutions of the board of directors of Borrower authorizing the transactions
contemplated hereby; (ii) the names and genuine signatures of the Responsible
Officers of Borrower authorized to execute, deliver and perform, as applicable,
this Agreement, the Security Documents, and all other Loan Documents to be
delivered hereunder; (iii) the Organization Documents of Borrower as in effect
on the date of Closing; (iv) the good standing certificate for Borrower from its
state of incorporation, formation or organization, as applicable, evidencing its
qualification to do business in such state as of a date no more than thirty (30)
days prior to Closing; (v) as applicable, certificate(s) of authority for
Borrower from foreign states wherein Borrower conducts business, evidencing
Borrower's qualification to do business in such state as of a date no more than
thirty (30) days prior to Closing; (vi) resolutions of the Special Committee;
and (vii) the fairness opinion from the Financial Advisor.
(c) Reserve Report. Receipt and satisfactory review of the current
Reserve Report prepared by Netherland, Xxxxxx and Associates, Inc. dated as of
June 30, 2005, covering the Oil and Gas Properties (the "Initial Reserve
Report");
(d) Payment of Lender's Fees. Payment by Borrower of all accrued and
unpaid fees, costs and expenses owed pursuant to this Agreement to the extent
then due and payable at Closing including such fees set forth on Appendix I,
together with attorney costs of the Lender to the extent invoiced prior to or at
Closing, plus such additional amounts of attorney costs and filing fees as shall
constitute the Lender's estimate of same incurred or to be incurred by it
through Closing (provided that such estimate shall not thereafter preclude final
settling of accounts between Borrower and the Lender); including any such costs,
fees and expenses arising under or referenced in Sections 2.04 and 9.04;
(e) Other Documents. Each additional document, instrument, or item of
information requested by the Lender, including without limitation:
14
(i) satisfactory title information acceptable to the Lender in
its sole discretion, verifying Borrower's good and defensible title to
the Oil and Gas Properties free and clear of all Liens other than
Permitted Liens;
(ii) copies of all environmental assessments, reports and
other information with contents and findings reasonably satisfactory to
the Lender with respect to the Oil and Gas Properties;
(iii) copies of all Joint Operating Agreements, Farmout
Agreements, long term marketing or Production Sales Contracts, and
other material contracts entered into by Borrower to the extent
requested by Lender to the extent not already provided to Lender prior
to Closing;
(iv) certificates of insurance for Borrower as required under
Section 6.06 of this Agreement;
(v) opinion of Borrower's Texas counsel in form satisfactory
to the Lender including, among other matters, the due formation,
standing and authorization of Borrower and as to the enforceability of
the Loan Documents (other than any Mortgage to be recorded in a state
other than the State of Texas), issuance of the Warrants and perfection
of the Security Documents;
(vi) opinion of Borrower's Louisiana counsel in form
satisfactory to Lender as to the enforceability and perfection of the
Mortgages to be filed in various parishes in Louisiana; and
(f) Additional Conditions Precedent. Borrower shall deliver or
cause to be delivered such additional documentation and such other
conditions shall be satisfied as set forth on Appendix I hereto.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to the Lender that:
5.01 Corporate Existence and Power. Borrower: (a) is validly existing
and in good standing under the laws of the State of Texas; (b) has the power and
authority and all material governmental licenses, authorizations, consents and
approvals to own its assets, carry on its business as currently conducted and to
execute, deliver, and perform its obligations under the Loan Documents, (c) is
duly qualified as a foreign company and is licensed and in good standing under
the laws of each jurisdiction where its ownership, lease or operation of
property or the conduct of its business requires such qualification or license;
and (d) is in compliance in all material respects with all Requirements of Law.
5.02 Corporate Authorization; No Contravention. The execution, delivery
and performance by Borrower of this Agreement and each other Loan Document to
which it is a party, have been duly authorized by all necessary corporate
action, and do not and will not: (a) contravene the terms of any of its
Organization Documents; (b) conflict with or result in any breach or
contravention of, or the creation of any Lien under, any document evidencing any
Contractual Obligation to which it is a party or any order, injunction, writ or
decree of any Governmental Authority to which it or its property is subject; or
(c) violate any Requirement of Law.
15
5.03 Governmental Authorization. No approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority is necessary or required in connection with the
execution, delivery or performance by, or enforcement against, Borrower of this
Agreement or any other Loan Document to which it is a party.
5.04 Binding Effect. This Agreement and each other Loan Document to
which Borrower is a party constitute the legal, valid and binding obligations of
Borrower, enforceable against Borrower in accordance with their respective
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws affecting the enforcement of creditors' rights
generally or by equitable principles relating to enforceability.
5.05 SEC Filings; Interim Financial Statements.
(a) Since June 30, 2002, Borrower and its Subsidiaries have filed with
the SEC all forms, reports, schedules, statements, and other documents required
to be filed by it under the Securities Act and the Exchange Act. Each SEC Filing
was prepared in accordance with, and at the time of filing complied in all
material respects with, the requirements of the Securities Act, the Exchange Act
or other applicable federal securities laws and the rules and regulations
promulgated thereunder, as applicable to such SEC Filing. None of the SEC
Filings, including, without limitation, any financial statements or schedules
included therein, at the time filed, contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements contained therein, in light
of the circumstances under which they were made, not misleading. The
consolidated financial statements (including, in each case, any related notes
thereto) contained in the SEC Filings (i) have been prepared in conformity with
GAAP applied on a consistent basis (except as described therein or the notes
thereto), (ii) comply in all material respects as to form with applicable
requirements and rules and regulations of the SEC with respect thereto and (iii)
present fairly the consolidated financial position of Borrower and its
consolidated Subsidiaries at the respective dates thereof and the consolidated
results of its operations and changes in cash flows for the period indicated
(subject to normal year-end audit adjustments in the case of any unaudited
interim financial statements).
(b) Xxxxxx Xxxxx & Co. P.C., Borrower's current public accounting firm,
is an independent public accounting firm with respect to Borrower and has not
resigned or been dismissed as independent public accountants of Borrower as a
result of or in connection with any disagreement with Borrower on a matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure.
(c) Borrower is in compliance with any and all applicable requirements
of the Xxxxxxxx-Xxxxx Act of 2002 that are effective as of the date hereof, and
any and all applicable rules and regulations promulgated by the SEC thereunder
that are effective as of the date hereof, except where such noncompliance would
not have, individually or in the aggregate, a Material Adverse Effect.
(d) The information included in or incorporation by reference in the
Confidential Private Placement Memorandum in connection with the securities
offering does not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they are made, not
misleading. If, at any time prior to Closing, any event with respect to Borrower
shall occur which is required to be described in the Confidential Private
Placement Memorandum in order for the Confidential Private Placement Memorandum
not to contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they are made, not
misleading, such event shall be so described, and an appropriate amendment or
supplement shall be prepared by Borrower.
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5.06 Litigation. Except to the extent expressly disclosed in the SEC
Filings there are no actions, suits, proceedings, claims or disputes pending or,
to the Knowledge of Borrower, threatened against or involving Borrower or any
Subsidiary (or any of their respective directors or officers in connection with
the business or affairs of Borrower or any Subsidiary) that are reasonably
likely to have a Material Adverse Effect. As of the date hereof, there are no
actions, suits, proceedings, claims or disputes pending or, to the Knowledge of
Borrower, threatened seeking to restrain, prohibit, or obtain damages in
connection with this Agreement or the transactions contemplated hereby.
5.07 No Default. No Default or Event of Default exists or would be
reasonably expected to result from the incurring of any Obligations by Borrower.
As of the date on which Closing occurs, Borrower is not in default under or with
respect to any Contractual Obligation in any respect which, individually or
together with all such defaults, would reasonably be expected to have a Material
Adverse Effect.
5.08 ERISA.
(a) Borrower has not had and currently does not have or maintain a
Plan.
(b) Borrower does not sponsor, maintain or contribute to, or has at any
time in the preceding six calendar years, sponsored, maintained or contributed
to, any Multiemployer Plan.
5.09 Margin Regulations. The proceeds of the Loans shall be used solely
for the purposes set forth in and permitted by Section 6.11. Borrower is not
generally engaged in the business of purchasing or selling Margin Stock or
extending credit for the purpose of purchasing or carrying Margin Stock.
5.10 Title to Properties. Borrower has good and defensible title to the
Oil and Gas Properties and all other real property necessary or used in the
ordinary conduct of its business. As of Closing, the Collateral is subject to no
Liens, other than Permitted Liens.
5.11 Oil and Gas Reserves. Borrower is and will hereafter be the owner
of the Oil and Gas that it purports to own from time to time in and under the
Oil and Gas Properties, together with the right to produce the same. Such Oil
and Gas Properties are not subject to any Lien other than Permitted Liens. All
Oil and Gas has been and will hereafter be produced, sold and delivered in
accordance with all applicable laws and regulations of Governmental Authority;
Borrower has complied and will comply with all material terms of each oil, gas
and mineral lease comprising the Oil and Gas Properties and all other
Contractual Obligations related thereto; and all such oil, gas and mineral
leases have been and will hereafter be maintained in full force and effect.
Provided, however that nothing in this Section 5.11 shall prevent Borrower from
abandoning any well or forfeiting, surrendering, releasing or defaulting under
any lease in the ordinary course of business which is not disadvantageous in any
way to the Lender and which, in the opinion of Borrower, is in the best interest
of Borrower, and Borrower is and will hereafter be in compliance with all
obligations hereunder.
5.12 Initial Reserve Report. To the knowledge of Borrower (i) the
assumptions stated or used in the preparation of the Initial Reserve Report are
reasonable, (ii) all information furnished in the preparation of the Initial
Reserve Report was accurate in all material respects, (iii) there has been no
material adverse change in the amount of the estimated Oil and Gas shown in the
Initial Reserve Report since the date thereof, except for changes which have
occurred as a result of production from and after the effective date thereof in
the ordinary course of business, and (iv) the Initial Reserve Report does not
omit any statement or information necessary to cause the same not to be
misleading to the Lender.
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5.13 Gas Imbalances. Except as disclosed to the Lender in writing prior
to the date of this Agreement, there are no gas imbalances in excess of two
percent (2%) of monthly projected deliveries from the Oil and Gas Properties in
the aggregate, and no take or pay or other prepayments with respect to the Oil
and Gas Properties which would require Borrower to deliver Oil and Gas produced
from any of the Oil and Gas Properties at some future time without receiving
full payment therefor within sixty (60) days of such production.
5.14 Taxes. Since January 1, 2002, except as specifically identified in
the SEC Filings:
(a) Borrower and each of its Subsidiaries (hereinafter sometimes
referred to collectively as the "Taxpayers" or individually as a "Taxpayer")
have timely filed with the appropriate Tax authorities all Tax Returns required
to be filed by each of them, and such Tax Returns are true, complete, and
correct in all material respects.
(b) The Taxpayers have duly paid in full all material Taxes that are
payable by each such Taxpayer on or prior to Closing, and have accrued Taxes for
any period that begins prior to Closing and ends after Closing in the Taxpayers'
financial records and in the financial statements contained in the SEC Filings
to the extent that such Taxes are not required to be paid on or prior to
Closing.
(c) There is no audit or other matter in controversy with respect to
any Taxes due and owing by any Taxpayer, and there is no Tax deficiency or claim
assessed or, to the Knowledge of Borrower, proposed or threatened in writing
against any Taxpayer, other than in respect of any such audits, controversies,
deficiencies, assessments, or proposed assessments that are being contested in
good faith and, if the amount in controversy exceeds $100,000, are disclosed in
Schedule 5.14.
(d) The Taxpayers each have withheld all material Taxes required to
have been withheld and paid by them on their behalf in connection with amounts
paid or owing to any employee, independent contractor, creditor, shareholder, or
other third party, and such withheld Taxes have either been duly paid to the
proper Governmental Authority or set aside in accounts for such purpose.
(e) None of the Taxpayers (i) has waived any statutory period of
limitations for the assessment of any Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency other than in the case of any
such waivers or extensions in respect of an assessment or deficiency of Tax the
liability of which has been satisfied or settled or has expired, (ii) has filed
a consent under Internal Revenue Code Section 341(f) concerning collapsible
corporations, or (iii) has any liability for the Taxes of any other person as
defined in Section 7701(a)(1) of the Internal Revenue Code under Treasury
Regulation ss. 1.1502-6 (or any similar provision of state, local, or foreign
law), as a transferee, successor or by contract other than with respect to the
other Taxpayers.
(f) No claim has been made in any taxable year which remains open by an
authority in a jurisdiction where a Taxpayer does not file Tax Returns that such
Taxpayer is or may be subject to taxation by that jurisdiction.
(g) None of the Taxpayers has agreed to or is required to make any
adjustment pursuant to Internal Revenue Code Section 481(a) by reason of a
change in accounting method initiated by such Taxpayer, and to the Knowledge of
Borrower, the IRS has not proposed any such adjustment or change in accounting
method.
(h) None of the Taxpayers has any obligation under any Tax allocation
or sharing agreement, and after Closing, no Taxpayer shall be a party to, bound
by or have any obligation under any Tax allocation or sharing agreement or have
any liability thereunder for amounts due in respect of periods prior to and
including Closing.
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(i) None of the Taxpayers (i) has made any payments, (ii) is obligated
to make any payments (whether as a result of the transactions contemplated
hereby or otherwise), and (iii) is a party to any agreement as of Closing that
could obligate it to make any payments, in each case, that will not be
deductible under Internal Revenue Code Section 280G.
5.15 Environmental Matters. Borrower conducts in the ordinary course of
business a review of the effect of existing Environmental Laws and Environmental
Claims, if any, on its business, operations and properties, and such properties
which it is acquiring or planning to acquire. Borrower is in compliance in all
material respects with all Environmental Laws and does not have any liability
for any Environmental Claim.
5.16 Regulated Entities. None of Borrower or any Person controlling
Borrower, is an "Investment Company" within the meaning of the Investment
Company Act of 1940. Borrower is not subject to regulation under the Public
Utility Holding Company Act of 1935, the Federal Power Act, the Interstate
Commerce Act, any state public utilities code, or any other Federal or state
statute or regulation limiting its ability to incur Indebtedness.
5.17 No Burdensome Restrictions. Borrower is not a party to or bound by any
Contractual Obligation, or subject to any restriction in any Organization
Document, or any Requirement of Law, which would reasonably be expected to have
a Material Adverse Effect.
5.18 Solvency. As of the date of Closing, Borrower is Solvent.
5.19 Subsidiaries/Investments/Ownership. As of the date of Closing,
Borrower has no Subsidiaries and no material equity investments in any other
corporation or entity.
5.20 Insurance. The Oil and Gas Properties and all other properties of
Borrower are insured with financially sound and reputable insurance companies
not Affiliates of Borrower, in such amounts, with such deductibles and covering
such risks as are customarily carried by companies engaged in similar businesses
and owning similar properties in localities where the Oil and Gas Properties are
located.
5.21 Full Disclosure. None of the representations or warranties made by
Borrower in the Loan Documents as of the date such representations and
warranties are made or deemed made, and none of the statements contained in any
exhibit, report, written statement or certificate furnished by or on behalf of
Borrower in connection with the Loan Documents contains any untrue statement of
a material fact or omits any material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances
under which they are made, not misleading as of the time when made or delivered.
5.22 Capitalization.
(a) The authorized capital stock of Borrower as of the date hereof,
consists solely of 100,000,000 shares of Common Stock, $0.05 par value per
share, and 10,000,000 shares of preferred stock, $0.01 par value per share. As
of Closing, (i) 39,771,771 shares of Common Stock were issued and outstanding,
(ii) 2,581,000 shares of Common Stock were reserved for issuance upon exercise
of Awards (whether vested or unvested as of the date hereof), and (iii)
3,635,000 shares of Common Stock were reserved for issuance upon exercise of
outstanding warrants. All outstanding shares of Common Stock have been validly
issued and are fully paid and non-assessable, conform in all material respects
19
to the description thereof contained in the Confidential Private Placement
Memorandum and were issued in compliance with the Securities Act and applicable
state securities laws, and no shares of capital stock of Borrower are subject
to, nor have any been issued in violation of, any preemptive or similar rights.
(b) Except as set forth in Section 5.22(a) or as otherwise contemplated
by this Agreement, there are outstanding (i) no shares of capital stock or other
voting securities of Borrower; (ii) no securities of Borrower convertible into
or exchangeable for shares of capital stock or other voting securities of
Borrower; or (iii) no subscriptions, options, warrants, calls, commitments,
preemptive rights or other rights of any kind to acquire from Borrower, and no
obligation of Borrower to issue or sell any shares of capital stock or other
voting securities of Borrower or any securities of Borrower convertible into or
exchangeable for such capital stock or voting securities. There are no
outstanding contractual obligations of Borrower to repurchase, redeem or
otherwise acquire any shares of Common Stock or any other securities of the type
described in clauses (i) - (iii) of the preceding sentence. Except as provided
in this Agreement, there are no restrictions upon the voting or transfer of any
share of the capital stock or other voting securities of Borrower pursuant to
the Organization Documents of Borrower or any agreement or other instrument to
which Borrower is a party, other than restricted stock held by certain
employees.
5.23 Authorization of Warrants. When acquired by the Lender as provided
in this Agreement, the Warrant Shares will be duly authorized and reserved for
issuance, and, upon issuance thereof upon the exercise of the Warrants in
accordance with their terms will be validly issued, fully paid and
non-assessable and not subject to, or issued in violation of, any preemptive or
similar rights.
5.24 Reporting Status, Eligibility to Use Form SB-2. The Common Stock
is registered under Section 12(g) of the Exchange Act. Borrower currently meets
the "registrant eligibility" requirements set forth in the general instructions
to Form SB-2 to enable the registration of the resale of the Registrable
Securities (as defined in the Registration Rights Agreement).
5.25 Tauren Purchase Agreement. Borrower has entered into an asset
purchase agreement (the "Asset Purchase Agreement") with Tauren, an affiliate of
the chief executive officer of Borrower. The Board of Directors of Borrower has
formed a special committee (the "Special Committee") composed solely of
directors who are "independent" (as such term is defined in Section 303A of the
New York Stock Exchange Listed Company Manual), with the exception of Xxx Xxxxxx
Xxxx, who is both a director and officer of Borrower. The Special Committee has
retained Wood & Xxxxxxx, LLP, as legal counsel (the "Legal Counsel"), and Xxxxxx
Xxxxxxx Xxxxxx Xxxxxx, Inc., as financial advisor (the "Financial Advisor"), in
connection with the transactions described in the Asset Purchase Agreement. The
Legal Counsel has not performed any legal services for Tauren or Borrower or
their respective affiliates for the last three years, and the Financial Advisor
has not performed any financial advisory or other services for Tauren or
Borrower or their respective affiliates for the last three years. Borrower and
Tauren have provided the Special Committee, the Legal Counsel and the Financial
Advisor access to all material information pertaining to the transactions
contemplated by the Asset Purchase Agreement. No restrictions were placed in the
information provided to, or the scope of work to be performed by, the Legal
Counsel or the Financial Advisor. The Special Committee has received a written
opinion from the Financial Advisor (the "Fairness Opinion") to the effect that,
as of the date of such opinion, the Asset Purchase Agreement is fair, from a
financial point of view, to Borrower's common shareholders, and such opinion is
in full force and effect as of the date hereof and as of Closing. A true and
complete copy of the Fairness Opinion has been provided to the Lender. The
Special Committee has unanimously approved the Asset Purchase Agreement and the
transactions contemplated thereby and recommended approval by the full Board of
Directors of Borrower. True and correct execution copies of the Asset Purchase
20
Agreement and all related documents have been provided to the Lender. Such
execution copies have not been amended or supplemented. No party to the Asset
Purchase Agreement or any related document has breached or failed to fully
comply with its obligations under the Asset Purchase Agreement or any such
related document.
ARTICLE VI.
AFFIRMATIVE COVENANTS
So long as the Loans or other Obligations shall remain unpaid or
unsatisfied, unless the Lender waives compliance in writing:
6.01 Financial Statements. Borrower shall maintain a system of
accounting established and administered in accordance with GAAP and deliver to
the Lender:
(a) as soon as available, but not later than the date provided on
Appendix I, commencing with the first fiscal year ending after Closing, a copy
of the annual financial statements of Borrower as of the end of such year
including the related balance sheet and statements of income, shareholder's
equity and cash flows for such year, setting forth in each case in comparative
form the figures for the previous fiscal year, audited by an Independent Auditor
and certified by a Responsible Officer as presenting fairly the financial
position of Borrower, for the periods indicated in conformity with GAAP;
(b) as soon as available, but not later than the date provided on
Appendix I, after the close of each of the first three quarterly periods of
Borrower's fiscal year commencing with the first such quarter ending after
Closing, a copy of the unaudited balance sheets of Borrower as of the end of
such quarter including the related statements of income, shareholder's equity
and cash flows for the period commencing on the first day and ending on the last
day of such quarter, in comparative form the figures for the same period of the
previous fiscal year, and certified by a Responsible Officer as fairly
presenting the financial position of Borrower for the period indicated, in
accordance with GAAP; and
(c) promptly upon its becoming available, each financial statement,
report, notice or proxy statement sent by Borrower to its shareholders generally
and each regular or periodic report and any registration statement, prospectus
or written communication (other than transmittal letters) in respect thereof
filed by Borrower with or received by Borrower in connection therewith from any
securities exchange or the SEC or any successor agency.
6.02 Certificates Other Production and Reserve Information. Borrower
shall furnish to the Lender:
(a) as soon as available on a monthly basis, but not later than the
dates provided in Appendix I, Status Reports executed by a Responsible Officer
in form reasonably acceptable to the Lender, as of the last day of the reported
periods;
(b) concurrently with the delivery of each of the statements and
reports referred to in Subsections 6.01(a) - (b), a Compliance Certificate
executed by a Responsible Officer;
(c) a Reserve Report prepared by Borrower's in-house petroleum
engineer(s) or at Borrower's discretion, an independent petroleum engineer
retained by Borrower and acceptable to Lender covering the Oil and Gas
Properties on or before and as of each date provided on Appendix I, (the
"In-house Reserve Report Due Date") and a Reserve Report prepared by an
independent petroleum engineer retained by Borrower and acceptable to the Lender
covering the Oil and Gas Properties (all foregoing Reserve Reports being
acceptable to Lender) on or before and as of each date provided on Appendix I
(the "Third Party Reserve Report Due Date");
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(d) Concurrently with the delivery of each Reserve Report provided
under Subsection 6.02(c) above, Borrower shall provide updated information to
the Lender's counsel for the Mortgage Matching Schedule identifying (i) any
additional xxxxx covered by the new Reserve Report which were not covered by the
immediately preceding Reserve Report and (ii) any xxxxx covered by the
immediately preceding Reserve Report which are not covered by the new Reserve
Report;
(e) promptly upon the request of the Lender, such copies of all
geological, engineering and related data contained in Borrower' files or readily
accessible to Borrower relating to the Oil and Gas Properties;
(f) promptly upon the request by the Lender, title and mortgage Lien
evidence satisfactory to the Lender covering such Oil and Gas Properties as may
be designated by the Lender, covering the Borrower' title thereto and certifying
that the Obligations are secured by Liens and security interests as provided in
this Agreement and the Security Documents; and
(g) promptly upon the request of the Lender, such additional
information regarding the business, operations, financial or corporate affairs
of Borrower as the Lender may from time to time reasonably request.
6.03 Notices. Borrower shall promptly notify the Lender:
(a) of the occurrence of any Default or Event of Default, and of the
occurrence or existence of any event or circumstance that would reasonably be
expected to become a Default or Event of Default;
(b) of any matter that has resulted or may reasonably be expected to
result in a Material Adverse Effect, including (i) breach or non-performance of,
or any default under, any Contractual Obligation of Borrower; (ii) any dispute,
litigation, investigation, proceeding or suspension between Borrower and any
Governmental Authority; or (iii) the commencement of, or any material
development in, any litigation or proceeding affecting Borrower (including
pursuant to any applicable Environmental Laws);
(c) of any material change in accounting policies or financial
reporting practices by Borrower; and
(d) of the formation or acquisition by Borrower of any Subsidiary. Each
notice under this Section shall be accompanied by a written statement by a
Responsible Officer setting forth details of the occurrence referred to therein,
and with respect to clauses (a) and (b), stating what action Borrower proposes
to take with respect thereto and at what time.
6.04 Preservation of Corporate Existence, Etc. Borrower shall:
(a) preserve and maintain in full force and effect its separate, legal
existence, and maintain its good standing under the laws of its state or
jurisdiction of incorporation or organization, as applicable;
(b) preserve and maintain in full force and effect all governmental
rights, privileges, qualifications, permits, licenses and franchises necessary
for the normal conduct of its business; and
(c) maintain the trading of its capital stock on an exchange acceptable
to the Lender.
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6.05 Maintenance of Property. Borrower shall maintain and preserve all
its property which is used or useful in its business in good working order and
condition, ordinary wear and tear excepted, and shall use, and use commercially
reasonable efforts to cause third Persons conducting operations on the Oil and
Gas Properties to use, the reasonably prudent standard of care typical in the
industry in the operation and maintenance of its Oil and Gas Properties.
6.06 Insurance. Borrower shall maintain, with financially sound and
reputable independent insurers, insurance with respect to its operations and its
Oil and Gas Properties and other properties and business against loss or damage
of the kinds customarily insured against by Persons engaged in the same or
similar business, of such types and in such amounts as are customarily carried
under similar circumstances which insurance shall name the Lender as "additional
insured" and as a "loss payee," as applicable.
6.07 Payment of Obligations. Borrower shall pay and discharge as the
same shall become due and payable, all of its obligations and liabilities,
including: (a) all tax liabilities, assessments and governmental charges or
levies upon it or its properties or assets, unless the same are being contested
in good faith by appropriate proceedings and adequate reserves in accordance
with GAAP are being maintained; (b) all lawful claims which, if unpaid, would by
law become a Lien upon its property; and (c) all Indebtedness, as and when due
and payable, but subject to any subordination provisions contained in any
instrument or agreement evidencing such indebtedness.
6.08 Compliance with Laws. Borrower shall comply in all material
respects with all Requirements of Law of any Governmental Authority having
jurisdiction over it or its business except such as may be contested in good
faith or as to which a bona fide dispute may exist.
6.09 Maintenance of Books and Records. Borrower shall maintain proper
books of record and account, in which full, true and correct entries in
conformity with GAAP consistently applied shall be made of all of its financial
transactions and matters involving its assets and business.
6.10 Environmental Laws. Borrower shall conduct its operations and keep
and maintain and use commercially reasonable efforts to cause third Persons
conducting operations on its Oil and Gas Properties to keep and maintain such
Oil and Gas Properties in compliance in all material respects with all
Environmental Laws.
6.11 Use of Proceeds. Borrower shall use the proceeds of the Loans as
provided on Appendix I.
6.12 Further Assurances. Borrower shall promptly cure any defects in
the creation and issuance of the Note and the execution and delivery of this
Agreement, the Security Documents, the Warrant, the Registration Rights
Agreement, the other Loan Documents or any other instruments referred to or
mentioned herein or therein to which Borrower is a party. Borrower at its
expense will promptly do all acts and things, and will execute and file or
record, all instruments reasonably requested by the Lender, to establish,
perfect, maintain and continue the perfected security interests of the Lender in
or the Lien of the Lender on the Collateral. Borrower will pay the reasonable
costs and expenses of all filings and recordings and all searches deemed
necessary by the Lender to establish and determine the validity and the priority
of the Liens created or intended to be created by the Security Documents; and
Borrower shall satisfy all other claims and charges which in the reasonable
opinion of the Lender might prejudice, impair or otherwise affect any of the
Collateral or any Lien thereon in favor of the Lender.
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6.13 Subsidiary Guaranties. If at any time after the date of this
Agreement, Borrower shall create or acquire any other Subsidiary, Borrower shall
cause each such Subsidiary to execute and deliver to the Lender a guaranty in a
form reasonably acceptable to the Lender.
6.14 Security Documents. Borrower shall promptly execute and deliver to
the Lender such Security Documents as may be required pursuant to Section 3.02
to ensure that all of the Oil and Gas Properties are covered by a Lien and
security interest in favor of the Lender for the benefit of the Lender at all
times.
6.15 Debt Service Account. Until the ratio of EBITDA to Interest
Expense equals 2.00 to 1.00 for three consecutive months (the "Debt Service
Release Date"), Borrower shall maintain a reserve for debt service on the Loans
at a bank mutually acceptable to Borrower and the Lender (the "Debt Service
Account"). The Debt Service Amount shall be funded from the Initial Loan Amount
into the Debt Service Account at Closing. To the extent that Borrower reasonably
determines that it is unable to pay interest due to Lender on any Interest
Payment Date, so long as no Default or Event of Default is then in existence,
Borrower may request that the Lender release, and the Lender may agree to so
release, a portion of the Debt Service Amount so that such amount can be applied
on such Interest Payment Date against interest accrued on the Note through such
date. In the event that any amount has been released from the Debt Service
Account prior to the Debt Service Release Date and Borrower's EBITDA for any
month is less than $55,000 for such month, Borrower shall promptly deposit
sufficient funds into the Debt Service Account to restore it to the Debt Service
Amount. Notwithstanding anything contained herein to the contrary, Borrower
shall remain fully liable for payment of interest under the Note regardless of
whether or not sufficient funds are maintained in the Debt Service Account. The
Debt Service Account shall be maintained as provided on Appendix I and pledged
to the Lender under the Security Documents.
ARTICLE VII.
NEGATIVE COVENANTS
So long as the Loans or any other Obligation shall remain unpaid or
unsatisfied, unless the Lender waives compliance in writing:
7.01 Limitation on Liens. Borrower agrees that it shall not directly or
indirectly, make, create, incur, assume or suffer to exist any Lien upon or with
respect to any part of its property, whether now owned or hereafter acquired,
other than the following ("Permitted Liens"):
(a) any Lien created under any Loan Document;
(b) Liens scheduled on Schedule 7.01;
(c) Liens for taxes, fees, assessments or other governmental charges
which are not delinquent or remain payable without penalty, or to the extent
that nonpayment thereof is permitted by Section 6.07;
(d) carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's or other similar Liens and contractual Liens granted to operators
and non-operators under oil and gas operating agreements arising in the ordinary
course of business securing obligations which are not delinquent or remain
payable without penalty or which are being contested in good faith and by
appropriate proceedings, which proceedings have the effect of preventing the
forfeiture or sale of the property subject thereto;
24
(e) Liens consisting of pledges or deposits required in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other social security legislation;
(f) Liens securing (i) the non-delinquent performance of bids, trade
contracts (other than for borrowed money), statutory obligations, (ii)
contingent obligations, Surety Instruments (other than those providing credit
support for borrowed money), and (iii) other non-delinquent obligations of a
like nature; in each case, incurred in the ordinary course of business;
(g) easements, rights-of-way, restrictions, defects or other exceptions
to title and other similar encumbrances incurred in the ordinary course of
business which, in the aggregate, are not substantial in amount, are not
incurred to secure Indebtedness, and which do not in any case materially detract
from the value of the property subject thereto or interfere with the ordinary
conduct of Borrower's business;
(h) Liens arising solely by virtue of any statutory or common law
provision relating to banker's liens, rights of set-off or similar rights and
remedies as to deposit accounts or other funds maintained with a creditor
depository institution; provided that (i) such deposit account is not a
dedicated cash collateral account and is not subject to restrictions against
access by Borrower, and (ii) Borrower maintains (subject to such right of set
off) dominion and control over such account(s);
(i) Judgment liens in respect of judgments that do not constitute and
Event of Default under Section 8.01(h); and
(j) royalties, overriding royalties, reversionary interests and similar
burdens with respect to the Oil and Gas Properties which are in existence as of
the date hereof with respect to currently owned Oil and Gas Properties or on the
date on which a Mortgage is executed with respect to subsequently acquired Oil
and Gas Properties.
7.02 Disposition of Assets. Borrower shall not directly or indirectly,
sell, assign, lease, convey, transfer or otherwise dispose of (whether in one or
a series of transactions) (collectively, "Dispositions") any property (including
accounts and notes receivable, with or without recourse) or enter into any
agreement to do any of the foregoing, except, so long as no Default or Event of
Default results therefrom:
(a) Dispositions of inventory including produced Oil and Gas in the
ordinary course of business for cash on a current basis;
(b) Dispositions of surplus, unused, obsolete or worn-out equipment in
the ordinary course of business, provided Borrower shall give the Lender notice
prior to any sale thereof;
(c) Dispositions of Oil and Gas Properties in an amount not to exceed
$10,000 in any fiscal year;
(d) Dispositions of Oil and Gas Properties to third parties not
Affiliates of Borrower, with prior written notice to the Lender of any such
Dispositions and provided Borrower receives, in exchange for such Dispositions,
Oil and Gas Properties of like kind and greater or equal fair market value,
which upon acquisition shall be covered by a either a new Mortgage or supplement
to Mortgage substantially in the form of Exhibit E hereto, as applicable;
25
(e) Dispositions of the West Texas Properties for fair market value,
with prior written notice to the Lender of any such Dispositions, and provided
that upon the Lender's request, 50% of the proceeds from any such Dispositions
shall be used to repay the Loans; and
(f) In the event the Purchase Note is not paid in full or refinanced by
Lender on or before its maturity either by an additional Loan pursuant to
Section 2.01 or additional equity capital arranged by Lender or its Affiliates
or a combination thereof, then Borrower may make Dispositions of Oil and Gas
Properties at market value upon fair and reasonable terms on an arm's length
basis, satisfactory to Lender, to the extent necessary to repay the Purchase
Note in full.
7.03 Consolidations and Mergers. Borrower shall not merge, consolidate
with or into, or convey, transfer, lease or otherwise dispose of (whether in one
transaction or in a series of transactions) all or substantially all of its
assets (whether now owned or hereafter acquired) to or in favor of any Person.
Notwithstanding the foregoing, nothing in this Section 7.03 shall (i) limit the
Dispositions permitted under Section 7.02 or (ii) prohibit Borrower from merging
or consolidating with one or more other Person, provided that Borrower shall be
the surviving entity; and further, provided, that no such merger or
consolidation shall affect the Liens or security interests of the Lender in and
to the Collateral.
7.04 Loans and Investments. Borrower shall not purchase or acquire or
make any commitment therefor, any capital stock, equity interest, or any
obligations or other securities of, or any interest in, any Person, or make or
commit to make any Acquisitions, or make or commit to make any advance, loan,
extension of credit or capital contribution to or any other investment in, any
Person including any Affiliate of Borrower, except for: (a) investments in Cash
Equivalents; (b) extensions of credit in the nature of accounts receivable or
notes receivable arising from the sale or lease of goods or services in the
ordinary course of business; and (c) extensions of credit or other advances in
an amount not to exceed $10,000 in the aggregate in the estimation of
anticipated travel or other reimbursable expenses to any employees, officers,
directors or the Lender.
7.05 Limitation on Indebtedness. Borrower shall not create, incur,
assume, suffer to exist, or otherwise become or remain directly or indirectly
liable with respect to any Indebtedness, except:
(a) Indebtedness incurred pursuant to the Loan Documents,
(b) Indebtedness scheduled on Schedule 7.05 and to the extent any such
Indebtedness is a Capital Lease, extensions, renewals and replacements thereof
that do not increase the outstanding principal amount thereof;
(c) Indebtedness consisting of Contingent Obligations permitted
pursuant to Section 7.09;
(d) current liabilities, taxes and assessments incurred in the ordinary
course of business;
(e) Indebtedness in favor of third parties (i) on terms and conditions
first offered to the Lender which the Lender has declined to provide to
Borrower, (ii) the Lender has consented to such Indebtedness from such third
party lender, which consent shall not be unreasonably withheld, (iii) at the
time of incurring such Indebtedness, no Default shall exist or would result from
the incurrence of such Indebtedness after giving effect to the incurrence of
such Indebtedness when included with Borrower's existing Indebtedness, (iv) such
Indebtedness does not have any scheduled amortization prior to two years after
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the Termination Date and (v) such Indebtedness shall be subject to an
intercreditor agreement between the Lender and any such third party lender on
terms and conditions reasonably satisfactory to the Lender ("Alternative
Financings"). For the avoidance of doubt, Borrower may obtain Indebtedness in
favor of third parties to prepay the Indebtedness incurred pursuant to the Loan
Documents without first offering such Indebtedness to the Lender;
(f) Indebtedness incurred pursuant to that certain promissory note of
even date herewith in favor of Tauren in the original principal amount of
$1,300,000.00 (the "Purchase Note"), executed in connection with the Asset
Purchase Agreement, provided however, Borrower shall not pay any amount owing
under such note with funds other than (i) funds made available to Borrower by
Lender pursuant to the option contemplated under Section 2.01, (ii) funds made
available to Borrower by equity investments in Borrower arranged by Lender, or
(iii) Dispositions permitted pursuant to Section 7.02(f);
(g) in the event (i) the sixty (60) day option set forth in Section 1.1
of the Asset Purchase Agreement is exercised by Cubic and the transactions
contemplated thereby are consummated by Cubic and Tauren, and (ii) all amounts
owing in connection with the note referenced in clause (f) above have been paid
in full, Indebtedness incurred pursuant to a note to be executed in favor of
Tauren in the original principal amount of $1,500,000.00, in the form of Exhibit
__ to the Asset Purchase Agreement, provided such Indebtedness is at all time
subject to the terms and conditions of the Subordination Agreement; and
(h) Indebtedness other than as described under the preceding clauses
(a) - (g) in the aggregate amount not to exceed $25,000.
7.06 Financial Covenants.
(a) Minimum Tangible Net Worth. Borrower will not permit its Tangible
Net Worth at any time to be less than the sum of $3,000,000.00.
(b) Fixed Charge Coverage Ratio. Borrower shall not permit the Fixed
Charge Coverage Ratio as measured at the end of any four consecutive fiscal
quarters, and being first measured on June 30, 2007, to be less than 1.30 to
1.00.
7.07 Transactions with Affiliates. Except for transactions (a)
contemplated by the Confidential Private Placement Memorandum, (b) otherwise
disclosed in an SEC Filing, or (c) set forth on Schedule 7.07, Borrower shall
document and promptly disclose to the Lender any transaction with an Affiliate
where the consideration, in cash or other tangible or intangible benefit to
Borrower, exceeds $10,000, or which otherwise must be disclosed pursuant to the
Securities Act, the Exchange Act or the rules and regulations promulgated
thereunder.
7.08 Margin Stock. Borrower shall not use any portion of the proceeds
of the Loans, directly or indirectly, (a) to purchase or carry Margin Stock, (b)
to repay or otherwise refinance indebtedness of Borrower or others incurred to
purchase or carry Margin Stock, (c) to extend credit for the purpose of
purchasing or carrying any Margin Stock, or (d) to acquire any security in any
transaction that is subject to Section 13 or 14 of the Exchange Act.
7.09 Contingent Obligations. Borrower shall not create, incur, assume
or suffer to exist any Contingent Obligations except: (a) endorsements for
collection or deposit in the ordinary course of business; (b) obligations under
plugging bonds, performance bonds and fidelity bonds issued for the account of
Borrower's obligations to indemnify or make whole any surety and similar
agreements incurred in the ordinary course of business; and (c) pursuant to this
Agreement.
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7.10 Restricted Payments. Borrower agrees that it shall not purchase,
redeem or otherwise acquire for value any membership interests, partnership
interests, capital accounts, shares of its capital stock or any warrants, rights
or options to acquire such membership interests, partnership interests or
shares, now or hereafter outstanding from its members, partners or stockholders
and will not declare or pay any distribution, dividend, return capital to its
members, partners or stockholders, or make any distribution of assets to its
stockholders, members or partners (collectively "Distributions").
7.11 Change in Business, Organization Documents, Name and Address.
Borrower shall not engage in any business or activity other than the Principal
Business. Borrower shall not amend, supplement or modify its Organization
Documents without the prior written consent of the Lender nor change its name or
principal business address without thirty days prior advance notice to the
Lender.
7.12 Accounting Changes. Borrower shall not make any significant change
in its accounting treatment or reporting practices, except as required by GAAP
or the SEC, or change its fiscal year.
7.13 Restrictions of Pledges. Borrower shall not enter into any
contract or agreement which restricts Borrower's ability to (i) pledge any or
all of its assets or, (ii) in the case of any Subsidiary of Borrower, distribute
any or all of its funds or assets to Borrower; provided, however, nothing
contained in this Section 7.13 shall prohibit Borrower from entering into any of
the Loan Documents.
7.14 Capitalization. If at any time after Closing, it is determined
that the number of issued and outstanding shares of capital stock of Borrower on
a fully diluted basis as of Closing equals an amount greater than that amount
represented by Borrower under Section 5.22, Borrower agrees to promptly issue
the Lender that number of shares of Common Stock necessary for the Lender to
maintain its same percentage ownership interest in Borrower as determined by
dividing the number of Warrant Shares by the sum of (i) the number of shares of
capital stock of Borrower on a fully diluted basis set forth in Section 5.22 and
(ii) the number of Warrant Shares.
7.15 Repayment of Certain Indebtedness. Borrower shall not make any
payments (including prepayments) on the Indebtedness permitted pursuant to
Section 7.05(f) prior to the Stated Maturity Date other than regularly scheduled
principal and interest payments.
ARTICLE VIII.
EVENTS OF DEFAULT
8.01 Event of Default. Any of the following shall constitute an "Event
of Default":
(a) Non-Payment. Borrower fails to pay within three (3) Business Days
of when due, any amount of principal or interest of any Loans or any fee or
other amount payable by Borrower hereunder or under any other Loan Document; or
(b) Representation or Warranty. Any representation or warranty by
Borrower made or deemed made herein, in any other Loan Document, or which is
contained in any certificate, document or financial or other statement by
Borrower or any Responsible Officer, furnished at any time under this Agreement,
or in or under any other Loan Document, is incorrect in any material respect on
or as of the date made or deemed made; or
(c) Specific Defaults. Borrower fails to perform, observe or comply
with any term, covenant or agreement contained in any of Subsection 6.03(a) or
Article VII; or
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(d) Other Defaults. Borrower fails to perform, observe or comply with
any other term or covenant contained in this Agreement other than as identified
under Subsections 8.01(a), (b) or (c) or any other Loan Document to the extent
not covered under Subsections 8.01(a), (b) or (c) of this Agreement, and such
failure shall continue unremedied for a period of thirty (30) days after the
earlier of (i) the date upon which a Responsible Officer knew or reasonably
should have known of such failure or (ii) the date upon which written notice
thereof is given to Borrower by any Lender; or
(e) Cross-Default. Borrower (i) fails to make any payment when due
(whether by scheduled maturity, required prepayment, acceleration, demand, or
otherwise) in respect of any Indebtedness or Contingent Obligation having an
aggregate principal amount (including undrawn committed or available amounts and
including amounts owing to all creditors under any combined or syndicated credit
arrangement) of more than $50,000 and such failure continues after the
applicable grace or notice period, if any, specified in the relevant document on
the date of such failure; or (ii) fails to perform, observe or comply with any
other condition or covenant, or any other event shall occur or condition exist,
under any agreement or instrument relating to any such Indebtedness or
Contingent Obligation, if the effect of such failure, event or condition is to
cause, or to permit the holder or holders of such Indebtedness or beneficiary or
beneficiaries of such Indebtedness (or a trustee or agent on behalf of such
holder or holders or beneficiary or beneficiaries) to cause such Indebtedness to
be declared to be due and payable prior to its stated maturity, or such
Contingent Obligation to become payable or cash collateral in respect thereof to
be demanded; or (iii) any Indebtedness or Contingent Obligations of Borrower on
an aggregate basis in excess of $50,000 shall be declared due and payable prior
to its stated maturity or cash collateral is demanded in respect of such
Contingent Obligations; or
(f) Insolvency; Voluntary Proceedings. Borrower (i) generally fails to
pay, or admits in writing its inability to pay, its debts as they become due,
subject to applicable grace periods, if any, whether at stated maturity or
otherwise; (ii) commences any Insolvency Proceeding with respect to itself; or
(iii) takes any action to effectuate or authorize any of the foregoing; or
(g) Involuntary Proceedings. (i) Any involuntary Insolvency Proceeding
is commenced or filed against Borrower or any writ, judgment, warrant of
attachment, execution or similar process, is issued or levied against all or a
substantial part of Borrower's properties, and any such proceeding or petition
shall not be dismissed, or such writ, judgment, warrant of attachment, execution
or similar process shall not be released, vacated or fully bonded within 60 days
after commencement, filing or levy; (ii) Borrower admits the material
allegations of a petition against it or any of its Subsidiaries in any
Insolvency Proceeding, or an order for relief is ordered in any Insolvency
Proceeding; or (iii) Borrower acquiesces in the appointment of a receiver,
trustee, custodian, conservator, liquidator, mortgagee in possession (or agent
therefor), or other similar Person for itself or a substantial portion of its
property or business; or
(h) Monetary Judgments. One or more judgments, orders, decrees or
arbitration awards is entered against Borrower involving in the aggregate a
liability (to the extent not covered by independent third-party insurance as to
which the insurer does not dispute coverage) as to any single or related series
of transactions, incidents or conditions in excess of $50,000, and the same
shall remain unsatisfied, unvacated and unstayed pending appeal for a period of
thirty (30) days after the entry thereof; or
(i) Loss of Permit. Any Governmental Authority revokes or fails to
renew any material license, permit or franchise of Borrower or any of its
Subsidiaries, or any such Person for any reason loses any material license,
permit or franchise, or suffers the imposition of any restraining order, escrow,
suspension or impound of funds in connection with any proceeding (judicial or
administrative) with respect to any material license, permit or franchise; or
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(j) Change of Control or Management. There occurs any Change of Control
or a change of management such that any of the Current Management shall cease or
fail for any reason to serve and function in their current capacity as an
executive officer of Borrower and shall not be succeeded in such position by a
Person reasonably acceptable to the Lender; or
(k) Invalidity of Loan Documents. The Loan Documents, or any of them,
after delivery thereof, shall for any reason, except to the extent permitted by
the terms thereof, cease to be in full force and effect and valid, binding and
enforceable in accordance with their terms, or, with respect to the Security
Documents, cease to create a valid and perfected Lien or security interest, as
the case may be, of the priority required thereby on any of the Collateral
purported to be covered thereby, except to the extent permitted by the terms of
this Agreement, or Borrower shall so state in writing.
8.02 Remedies. If any Event of Default occurs and is continuing, the
Lender shall:
(a) exercise all rights and remedies available to them under the Loan
Documents or applicable law without presentment, demand, protest, notice of
intention to accelerate, notice of acceleration or any other notice of any kind,
all of which are hereby expressly waived by Borrower, and
(b) Notwithstanding the foregoing, upon the occurrence of any event
specified in Subsection 8.01(f), or (g), the unpaid principal amount of the
Loans and all interest and other amounts as aforesaid shall automatically become
due and payable without further act of the Lender.
8.03 Set-off. In addition to any rights and remedies of the Lender
provided by law, if an Event of Default exists, the Lender is authorized at any
time and from time to time, without prior notice to Borrower, any such notice
being waived by Borrower to the fullest extent permitted by law, set off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held by, and other indebtedness at any time owing by the
Lender to or for the credit or the account of Borrower against any and all
Obligations owing to the Lender, now or hereafter existing, irrespective of
whether the Lender shall have made demand under this Agreement or any Loan
Document and although such Obligations may be contingent or unmatured.
8.04 Payments Set Aside. To the extent that Borrower makes a payment to
the Lender, the Lender exercises its right of set-off, and such payment or the
proceeds of such set-off or any part thereof are subsequently invalidated,
declared to be fraudulent or preferential, set aside or required (including
pursuant to any settlement entered into by the Lender in its discretion) to be
repaid to a trustee, receiver or any other party, in connection with any
Insolvency Proceeding or otherwise, then to the extent of such recovery the
obligation or part thereof originally intended to be satisfied shall be revived
and continued in full force and effect as if such payment had not been made or
such set-off had not occurred.
8.05 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 law or in equity, or under
any other instrument, document or agreement now existing or hereafter arising.
ARTICLE IX.
MISCELLANEOUS
9.01 Amendments and Waivers. No amendment or waiver of any provision of
this Agreement or any other Loan Document, and no consent with respect to any
departure by Borrower therefrom, shall be effective unless the same shall be in
writing and signed by the Lender and Borrower and then any such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
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9.02 Notices.
(a) Subject to the limitations set forth in Subsection 9.02(d) below,
Borrower is authorized to receive on behalf of itself and any Subsidiary all
notices from the Lender at the address, facsimile number and electronic mail
address for Borrower set out on Appendix I; and all notices to the Lender shall
be sent to the Lender at its address, facsimile number and electronic mail
address set forth on Appendix I.
(b) All notices, requests, consents and other communications required
or permitted hereunder or under any other Loan Document shall be in writing and
mailed, faxed, delivered, or (subject to Subsection 9.02(d) below) transmitted
by electronic mail, to the address, facsimile number, or electronic mail address
specified for notices; or, as directed to Borrower, the Lender to such other
address as shall be designated by such Person in a written notice to the other
parties, and as directed to any other party, at such other address as shall be
designated by such party in a written notice to Borrower and the Lender.
(c) All such notices, requests, consents and communications shall be
deemed to be given or made, and shall be effective, upon the earlier to occur of
(i) actual receipt by the intended recipient or (ii) (A) if delivered by hand or
by courier, when signed for by the intended recipient or an authorized
representative of such recipient; (B) if delivered by mail, the third Business
Day after the date on which such mail, postage prepaid was deposited in the U.S.
mail; (C) if delivered by facsimile, when transmitted in legible form by
facsimile machine; and (D) if delivered by electronic mail or via internet or
intranet websites (which form of delivery is subject to the provisions of
Subsection 9.02(d) below), when delivered; provided, however, that notice and
other communications to Lender pursuant to Article II or Article VI shall not be
effective until actually received by the Lender.
(d) Electronic mail and internet and intranet websites may be used only
to distribute routine communications, such as financial statements and other
information, and to distribute Loan Documents for execution by the parties
hereto, and shall not be recognized for any other purpose.
(e) 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 Borrower to give such notice and the
Lender shall not have any liability to Borrower on account of any action taken
or not taken by the Lender in reliance upon such telephonic or facsimile notice.
The obligation of 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.
9.03 No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of the Lender, any right, remedy, power or
privilege hereunder, shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, remedy, power or privilege hereunder preclude any
other or further exercise thereof or the exercise of any other right, remedy,
power or privilege.
9.04 Costs and Expenses. Borrower shall, whether or not the
transactions contemplated hereby are consummated, pay or reimburse the Lender
within five (5) Business Days after demand (or the date of Closing if sooner)
for all reasonable costs and expenses incurred by the Lender in connection with
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the development, preparation, delivery, administration and execution of, and any
amendment, supplement, waiver or modification to (in each case, whether or not
consummated), this Agreement, any Loan Document and any other documents prepared
in connection herewith or therewith, and the consummation of the transactions
contemplated hereby and thereby, including attorney costs incurred by the Lender
with respect thereto.
9.05 Indemnity. Whether or not the transactions contemplated hereby are
consummated, Borrower shall indemnify and hold the Lender, and each of its
Affiliates, officers, directors, employees, counsel, agents and
attorneys-in-fact (each, an "Indemnified Person") harmless from and against any
and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, charges, expenses and disbursements (including
attorneys' fees and expenses) of any kind or nature whatsoever which may at any
time (including at any time following repayment of the Loans) be imposed on,
incurred by or asserted against any Indemnified Person in any way relating to or
arising out of this Agreement or any document contemplated by or referred to
herein, or the transactions contemplated hereby, or any action taken or omitted
by any Indemnified Person under or in connection with any of the foregoing,
including with respect to any investigation, litigation or proceeding (including
any Insolvency Proceeding or appellate proceeding) related to or arising out of
this Agreement or the Loans or the use of the proceeds thereof, whether or not
any Indemnified Person is a party thereto (all the foregoing, collectively, the
"Indemnified Liabilities") WHETHER OR NOT SUCH INDEMNIFIED LIABILITIES ARISE OUT
OF OR AS A RESULT OF ANY INDEMNIFIED PERSON'S NEGLIGENCE IN WHOLE OR IN PART,
INCLUDING, WITHOUT LIMITATION, THOSE CLAIMS WHICH RESULT FROM THE SOLE, JOINT,
CONCURRENT OR COMPARATIVE NEGLIGENCE OF THE INDEMNIFIED PERSON, OR ANY ONE OR
MORE OF THEM, provided, that Borrower shall not have any obligation hereunder to
any Indemnified Person with respect to Indemnified Liabilities to the extent
same arise from the gross negligence or willful misconduct of such Indemnified
Person as determined by a final judgment rendered by a court of competent
jurisdiction, or that arise solely by reason of claims among Indemnified
Persons; provided, however, no indemnity shall be afforded under this Section
9.05 in respect of any property for any occurrence arising from the acts or
omissions of the Lender during the period after which Borrower, its successors
or assigns, or their agents or representatives, shall have obtained possession
of such Property (whether by foreclosure or deed in lieu of foreclosure, as
mortgagee-in-possession or otherwise). The agreements in this Section shall
survive payment of all other Obligations.
9.06 Environmental Indemnification. In addition to the indemnifications
hereunder and under any other Loan Documents, Borrower shall indemnify, protect
and hold each Indemnified Person harmless from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
claims, proceedings, costs, expenses (including, without limitation, all
attorneys' fees and legal expenses whether or not suit is brought) and
disbursements of any kind or nature whatsoever which may at any time be imposed
on, incurred by, or asserted against such Indemnified Person, with respect to or
as a direct or indirect result of the violation by Borrower or each Subsidiary
of any Environmental Law; or with respect to or as a direct or indirect result
of Borrower's or each Subsidiary's use, generation, manufacture, production,
storage, release, threatened release, discharge, disposal or presence in
connection with the Mortgaged Properties of a hazardous substance including,
without limitation, (a) all damages of any such use, generation, manufacture,
production, storage, release, threatened release, discharge, disposal or
presence, or (b) the costs of any reasonably required or necessary environmental
investigation, monitoring, repair, cleanup or detoxification and the preparation
and implementation of any closure, remedial or other plans (all the foregoing,
collectively, the "Indemnified Environmental Liabilities"). Borrower agrees to
indemnify and hold each Indemnified Person harmless as provided in this Section
9.06, WHETHER OF NOT THE INDEMNIFIED ENVIRONMENTAL LIABILITIES ARISE OUT OF OR
AS A RESULT OF ANY INDEMNIFIED PERSON'S NEGLIGENCE IN WHOLE OR IN PART,
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INCLUDING, WITHOUT LIMITATION, THOSE INDEMNIFIED ENVIRONMENTAL LIABILITIES WHICH
RESULT FROM THE SOLE, JOINT, CONCURRENT OR COMPARATIVE NEGLIGENCE OF THE
INDEMNIFIED PERSON, OR ANY ONE OR MORE OF THEM provided, that Borrower and each
Subsidiary shall not have any obligation hereunder to any Indemnified Person
with respect to Indemnified Environmental Liabilities to the extent same arise
from the gross negligence or willful misconduct of such Indemnified Person as
determined by a final judgment rendered by a court of competent jurisdiction.
The provisions of and undertakings and indemnification set forth in this Section
9.06 shall survive (x) the satisfaction and payment of the Obligations and
termination of this Agreement, and (y) the release of any Liens securing the
Obligations or the extinguishment of such Liens by foreclosure or action in lieu
thereof.
9.07 Successors and Assigns. The provisions of this Agreement shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that Borrower may not assign or transfer any of
its rights or obligations under this Agreement without the prior written consent
of the Lender. The Lender may at any time, with prior written notice to
Borrower, assign and delegate to one or more Persons (each an "Assignee") all,
or any ratable part of, the Loans and the other rights and obligations of the
Lender hereunder.
9.08 Interest.
(a) It is the intention of the parties hereto to comply with applicable
usury laws; accordingly, notwithstanding any provision to the contrary in this
Agreement, the Note or in any of the other Loan Documents securing the payment
hereof or otherwise relating hereto, in no event shall this Agreement, the Note
or such other Loan Documents require the payment or permit the payment, taking,
reserving, receiving, collection, or charging of any sums constituting interest
under applicable laws, if any, which exceed the maximum amount permitted by such
laws. If any such excess interest is called for, contracted for, charged, taken,
reserved, or received in connection with the Loans evidenced by the Note or in
any of the Loan Documents securing the payment thereof or otherwise relating
thereto, or in any communication by the Lender or any other person to Borrower
or any other person, or in the event all or part of the principal or interest
thereof shall be prepaid or accelerated, so that under any of such circumstances
or under any other circumstance whatsoever the amount of interest contracted
for, charged, taken, reserved, or received on the amount of principal actually
outstanding from time to time under the Note shall exceed the maximum amount of
interest permitted by applicable usury laws, then in any such event it is agreed
as follows: (i) the provisions of this paragraph shall govern and control, (ii)
neither Borrower nor any other person or entity now or hereafter liable for the
payment and performance of the Obligations shall be obligated to pay the amount
of such interest to the extent such interest is in excess of the maximum amount
of interest permitted by applicable usury laws, (iii) any such excess which is
or has been received notwithstanding this paragraph shall be credited against
the then unpaid principal balance of the Note or, if the Note have been or would
be paid in full, refunded to Borrower, and (iv) the provisions of this
Agreement, the Note and the other Loan Documents securing the payment hereof and
otherwise relating hereto, and any communication to Borrower, shall immediately
be deemed reformed and such excess interest reduced, without the necessity of
executing any other document, to the Highest Lawful Rate allowed under
applicable laws as now or hereafter construed by courts having jurisdiction
hereof or thereof. Without limiting the foregoing, all calculations of the rate
of the interest contracted for, charged, taken, reserved, or received in
connection with the Note or this Agreement which are made for the purpose of
determining whether such rate exceeds the Highest Lawful Rate shall be made to
the extent permitted by applicable laws by amortizing, prorating, allocating and
spreading during the period of the full term of the Loans, including all prior
and subsequent renewals and extensions, all interest at any time contracted for,
charged, taken, reserved, or received. The terms of this paragraph shall be
deemed to be incorporated in every document and communication relating to the
Note, the Loans or any other Loan Document.
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(b) If the Contract Rate exceeds the Highest Lawful Rate, then the
Contract Rate shall be limited to the Highest Lawful Rate, but any subsequent
reductions in the Contract Rate shall not reduce the interest rate thereon below
the Highest Lawful Rate until the total amount of accrued interest equals the
amount of interest that would have accrued if Contract Rate had always been in
effect. If at the Termination Date the total interest paid or accrued is less
than the interest that would have accrued if the Contract Rate had always been
in effect, then, at that time and to the extent permitted by law, Borrower shall
pay an amount equal to the difference between: (a) the lesser of the amount of
interest that would have accrued if the Contract Rates had always been in effect
and the amount of interest that would have accrued if the Highest Lawful Rate
had always been in effect; and (b) the amount of interest actually paid or
accrued on the Note.
(c) To the extent that the interest rate laws of the State of Texas are
applicable to the Loans, the applicable interest rate ceiling is the indicated
(weekly) ceiling from time to time in affect under Texas Finance Code
ss.303.001, as limited by Texas Finance Code ss.303.009, and to the extent that
this Agreement is deemed an "open end account" as such term is defined in Texas
Finance Code ss.301.002(a)(14), the Lender retains the right to modify the
interest rate in accordance with applicable law.
9.09 Counterparts and Facsimile Signatures. This Agreement may be
executed in any number of separate counterparts, each of which, when so
executed, shall be deemed an original, and all of said counterparts taken
together shall be deemed to constitute but one and the same instrument. The Loan
Documents may be transmitted and/or signed by facsimile. The effectiveness of
any such documents and signatures shall, subject to applicable law, have the
same force and effect as manually-signed originals and shall be binding on
Borrower, the Lender may also require that any such documents and signatures be
confirmed by a manually-signed original thereof; provided, however, that the
failure to request or deliver the same shall not limit the effectiveness of any
facsimile document or signature.
9.10 Severability. The illegality or unenforceability of any provision
of this Agreement or any instrument or agreement required hereunder shall not in
any way affect or impair the legality or enforceability of the remaining
provisions of this Agreement or any instrument or agreement required hereunder.
9.11 Third Party Beneficiaries. The Lender has been formed for the sole
purpose of holding the Note and exercising the rights and obligations
contemplated in this Agreement and the other Loan Documents for the protection
and legal benefit of the Partners. Notwithstanding the foregoing, this Agreement
and the other Loan Documents are made and entered into for the sole protection
and legal benefit of Borrower, the Lender, the Partners 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.
9.12 USA PATRIOT Act Notice. The Lender hereby notifies Borrower that
pursuant to the requirements of the USA Patriot Act (Title III of Pub. L. 107-56
(signed into law October 26, 2001)) (the "Act"), it is required to obtain,
verify and record information that identifies Borrower and each of its
Subsidiaries, which information includes the name and address of Borrower and
each of its Subsidiaries and other information that will allow the Lender to
identify Borrower and each of its Subsidiaries in accordance with the Act.
9.13 Governing Law. This Agreement, the Note, the Warrants, the
Security Documents, and the other Loan Documents shall be governed by, construed
and interpreted in accordance with, the laws of the State of Texas, except to
the extent that federal laws of the United States of America apply.
34
9.14 Submission To Jurisdiction. With respect to any and all disputes
arising hereunder, or under the Note, the Security Documents, the other Loan
Documents, or any of the other instruments and documents executed in connection
herewith or therewith not settled, each of Borrower and the Lender hereby
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement, the Note and any document to which it is
a party, or for recognition and enforcement of any judgment in respect of any
thereof, to the non-exclusive general jurisdiction of the courts of the State of
Texas, the courts of the United States of America for the Northern District of
Texas, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in such
courts, and waives any objection that it may now or hereafter have to the venue
of any such action or proceeding in any such court (except to the extent
applicable rules of procedure provide venue lies exclusively in another
jurisdiction), or that such action or proceeding was brought in an inconvenient
court and agrees not to plead or claim the same;
(d) agrees that service of process in any such action or proceeding may
be effected by mailing a copy thereof by registered or certified mail (or any
substantially similar form and mail), postage prepaid, to it at its address
specified in Appendix I hereof;
(e) agrees that nothing herein shall affect the right to effect service
of process in any other manner permitted by law or shall limit the right to xxx
in any other jurisdiction;
(f) agrees that service upon it or its authorized agent shall, to the
fullest extent permitted by law, constitutes valid and effective personal
service upon it, as the case may be, and that the failure of any such authorized
agent to give any notice of such service to it shall not impair or affect in any
way the validity of such service or any judgment rendered in any action or
proceeding based thereon; and
(g) waives, to the fullest extent permitted by applicable law, any
objection, including any objection to the laying of venue or based on the
grounds of forum non conveniens, which it may now or hereafter have to the
bringing of any action or proceeding in such jurisdiction in respect of this
agreement or any document related hereto.
9.15 Waiver Of Jury Trial. Borrower waives, to the fullest extent
permitted by applicable law, its rights to a trial by jury of any claim or cause
of action based upon or arising out of or related to this Agreement, the Note,
the Security Documents, the other Loan Documents, or the transactions
contemplated hereby or thereby, in any action, proceeding or other litigation of
any type brought by any of the parties against any other party or any
Indemnified Person, or assignee thereof, whether with respect to contract
claims, tort claims, or otherwise. Borrower, to the fullest extent permitted by
applicable law, agrees that any such claim or cause of action shall be tried by
a court trial without a jury. Without limiting the foregoing, to the fullest
extent permitted by applicable law, Borrower further agrees that its respective
right to a trial by jury is waived by operation of this section as to any
action, counterclaim or other proceeding which seeks, in whole or in part, to
challenge the validity or enforceability of this Agreement or the other Loan
Documents or any provision hereof or thereof. This waiver shall apply to any
subsequent amendments, renewals, supplements or modifications to this Agreement
and the other Loan Documents.
9.16 Entire Agreement. This Agreement, together with the other Loan
Documents, embodies the entire agreement and understanding among the Borrower
35
and Lender and supersedes all prior or contemporaneous agreements and
understandings of such Persons, verbal or written, relating to the subject
matter hereof and thereof.
9.17 NO ORAL AGREEMENTS. THIS WRITTEN AGREEMENT, TOGETHER WITH THE
OTHER WRITTEN LOAN DOCUMENTS EXECUTED IN CONNECTION HEREWITH, REPRESENTS THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
[Signature Pages Follow]
36
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their proper and duly authorized officers as of
the day and year first above written.
BORROWER:
CUBIC ENERGY, INC.,
a Texas corporation
By: /s/Xxxxxx Xxxxxx, III
----------------------
Xxxxxx Xxxxxx, III
Chief Executive Officer
LENDER:
PETRO CAPITAL V, L.P.,
a Texas limited partnership
By: Petro/Cubic Management, LLC,
a Texas limited ..liability company,
its General Partner
By: /s/ Xxxxx Xxxxx Xxxxxx
-----------------------
Xxxxx Xxxxx Xxxxxx
Manager
APPENDIX I
CREDIT AGREEMENT
dated as of February 6, 2006
between Petro Capital V, L.P. (the "Lender")
and Cubic Energy, Inc. ("Borrower")
This Appendix I is attached to and made a part of the Credit Agreement.
All capitalized terms not otherwise defined in this Appendix I are defined in
the Credit Agreement.
Lender: Principal Address:
------ -----------------
Petro Capital V, L.P.
Attn: Xxxxx Xxxxx Xxxxxx 0000 Xxx Xxxx Xxx.
Phone: (000) 000-0000 Suite 1775
Fax: (000) 000-0000 Xxxxxx, Xxxxx 00000
Email: xxxxx@xxxxx-xxxxxxx.xxx
Borrower: Principal Address:
-------- -----------------
Cubic Energy, Inc.
Attn: Xxx Xxxxx 0000 Xxxxx Xxxx
Phone: (000) 000-0000 Xxxxxx, Xxxxx 00000
Fax: (000) 000-0000
Email: xxx@xxxxxxxxxxxxxx.xxx
Current Management:
Xxxxxx Xxxxxx, III - President
Xxx Xxxxxx Xxxx - Secretary
Xxxxx X. Xxxxx - Chief Financial Officer
Current Directors:
Xxxxxx Xxxxxx III
Xxx Xxxxxx Xxxx
Xxxx Xxxxxx
Xxxxxxx Xxxxx
Xxx Xxxxxxxx
1. LOAN TERMS
----------
A. Maximum Loan Amount - (Section 1.01): $7,000,000.00
B. Initial Loan Amount - (Section 2.01): $5,500,000.00
C. Stated Maturity Date - (Section 1.02): February 6, 2009
D. Debt Service Amount - (Section 2.01) $400,000.00
E. Quarterly Principal Payment Date - (Section 2.03(a)) March 31, 2007
F. Quarterly Principal Payment Amount - (Section 2.03(a)) $250,000.00
G. Quarterly Principal Payment Deferral Option - (Section 2.03(a))
Provided, no Event of Default or Default occurs and is
continuing, and provided that Borrower is otherwise in
compliance with all of the terms and conditions of this
Agreement, Borrower shall have the right to defer the first
two Quarterly Principal Payments as follows:
(i) For the deferral of the first Quarterly Principal
Payment, Borrower shall deliver to the Lender, Warrants to
purchase 100,000 shares of common stock of Borrower at an
exercise price equal to the lesser of (a) the exercise price
of the Warrants issued at Closing in connection with Section
2.04(b) and (b) the thirty (30) day average closing price of
Borrower's common stock immediately preceding the due date of
such Quarterly Principal Payment; and
(ii) For the deferral of the second Quarterly
Principal Payment, Borrower shall deliver to the Lender,
Warrants to purchase 200,000 shares of common stock of
Borrower at an exercise price equal to the lesser of (a) the
exercise price of the Warrants issued at Closing in connection
with Section 2.04(b) and (b) the thirty (30) day average
closing price of Borrower's common stock immediately preceding
the due date of such Quarterly Principal Payment
H. Pricing - (Section 2.03(b))
(i) Contract Rate: 12.5%
(ii) Default Rate: lesser of:
(i) Contract Rate plus 5% or
(ii) Highest Lawful Rate.
I. Fees - (Section 2.04)
(i) Commitment Fee 2% of Initial Loan Amount.
2% of any additional Loan Amount
(ii) Warrants 1,833,334 shares of Borrower's
Common Stock.
J. Reporting - (Sections 6.01 and 6.02)
(i) Annual Audited 90 days, or sooner to the extent
required by SEC.
(ii) Quarterly Unaudited 45 days, or sooner to the extent
required by SEC.
(iii) Status Report 45 days following the last day
of each month.
(iv) Reserve Report On or before February 28 of each
year dated as of December 31 of
the immediately preceding year
(in-house) and on or before
September 30 of each year dated
as of June 30 of such year
(third party).
K. Use of Proceeds - (Section 6.11)
Borrower shall use the proceeds of the Loans (i) to fund the
acquisition of a 49% working interest in approximately 8,500 acres
of leasehold and a 35% working interest in approximately 2,500
acres of leasehold from Tauren, (ii) for the initial development
of such leases, (iii) for the acquisition of additional working
interests in the leases referenced in clause (i) hereof and
additional leases in Caddo and Desoto Parishes, Louisiana, (iv)
for a drilling credit to the principals of Tauren not to exceed
$4,500,000 in the aggregate, (v) to finance the working capital
needs of Borrower and for general corporate purposes of Borrower
in the ordinary course of business, (vi) to finance Borrower's
expenses associated with this Agreement, and (vii) to refinance
Borrower's existing senior secured debt.
2. ADDITIONAL CLOSING CONDITIONS (Subsection 4.01(f)):
-----------------------------
A. Lender shall have completed to its satisfaction, an
independent engineering review of the Oil and Gas Properties.
B. Lender shall have reviewed to its satisfaction, all employment
agreements with key management personnel.
C. Lender shall have satisfied itself with Borrower's corporate,
legal and tax structure.
D. Borrower shall be current with all required filings with the
SEC and any other governing body, and with the exchange on
which its common stock is traded.
E. Borrower shall have closed on its acquisition of assets from
Tauren.
F. Borrower shall have repaid its existing convertible senior
debt if such debt is not converted on or before Closing, and
shall have received all necessary release documentation in
connection therewith.
G. No Material Adverse Effect shall have occurred with respect to
Borrower or the assets to be acquired from Tauren.
H. Borrower shall have (i) established the Debt Service Account
with a bank mutually acceptable to Borrower and the Lender,
(ii) entered into a Deposit Account Control Agreement with
such bank in form satisfactory to the Lender, which names the
Lender as the secured party, and (iii) entered into a Security
Agreement with the Lender as the secured party, covering such
account.
I. The opinion of Financial Advisor and the recommendation of the
Special Committee described in Section 5.25 shall not have
been withdrawn or modified in any respect.
2. POST CLOSING CONDITIONS (Subsection 4.02):
-----------------------
None.
SCHEDULE I - SECURITY DOCUMENTS
CREDIT AGREEMENT
dated as of February 6, 2006
between Petro Capital V, L.P. (the "Lender")
and Cubic Energy, Inc. ("Borrower")
1. Oil and Gas Properties
----------------------
A. Mortgage, Deed of Trust, Security Agreement, Assignment of
Production and Financing Statement covering Borrower's Oil and
Gas Properties located in:
County State
------ -----
(i) Xxxxxxxx Texas
(ii) Eastland Texas
(iii) Palo Pinto Texas
B. Act of Mortgage, Security Agreement, Assignment of Production
and Financing Statement covering Borrower's Oil and Gas
Properties located in:
Parish State
------ -----
(i) Caddo Louisiana
(ii) Desoto Louisiana
2. Personal Property
-----------------
Security Agreement from Borrower in favor of Lender covering all of
Borrower's personal property of any kind.
3. Control Agreement
-----------------
Deposit Account Control Agreement from Borrower in favor of the Lender
and Depository Bank securing the Debt Service Account to be established
at a bank mutually acceptable to Borrower and the Lender ("Depository
Bank") for the account of "Cubic Energy, Inc. Debt Service Account" in
the original amount of $400,000.00.
4. Financing Statements
--------------------
Jurisdiction: Secretary of State of Texas
Jurisdiction: Desoto Parish, Louisiana
SCHEDULE 5.14(c) - TAXES
CREDIT AGREEMENT
dated as of February 6, 2006
between Petro Capital V, L.P. (the "Lender")
and Cubic Energy, Inc. ("Borrower")
None.
SCHEDULE 7.01 - Liens
CREDIT AGREEMENT
dated as of February 6, 2006
between Petro Capital V, L.P. (the "Lender")
and Cubic Energy, Inc. ("Borrower")
None.
SCHEDULE 7.05 - INDEBTEDNESS
CREDIT AGREEMENT
dated as of February 6, 2006
between Petro Capital V, L.P. (the "Lender")
and Cubic Energy, Inc. ("Borrower")
None.
SCHEDULE 7.07 - TRANSACTIONS WITH AFFILIATES
CREDIT AGREEMENT
dated as of February 6, 2006
between Petro Capital V, L.P. (the "Lender")
and Cubic Energy, Inc. ("Borrower")
1. Fossil Operating, Inc., a Texas entity owned by Xxxxxx Xxxxxx III,
President and Chief Executive Officer of Cubic Energy, Inc., currently
operates all xxxxx in which Cubic Energy, Inc. owns an interest. It is
contemplated that Fossil Operating, Inc. will continue to maintain
operations for Cubic Energy, Inc.
2. The Office Sharing Agreement, dated effectively January 1, 2002 and as
effectively extended on January 1, 2005, by and between Cubic Energy,
Inc. on one hand, and Tauren, an entity owned by Xxxxxx Xxxxxx III,
President and Chief Executive Officer of Cubic Energy, Inc. on the
other hand.
3. Four of Cubic Energy, Inc.'s five employees are also employed by
Tauren, an entity owned by Xxxxxx Xxxxxx III..
