EXHIBIT 10.2
INDEMNITY AGREEMENT
This Indemnity Agreement (this "Agreement") is entered into as of December
22, 2004, by and between PROSPECT ENERGY CORPORATION, a Maryland corporation
(the "Indemnitor"), and FIRST AMERICAN BANK, SSB, a state savings bank, as
Administrative Agent (in such capacity, the "Administrative Agent") for the
Lenders.
W I T N E S S E T H:
WHEREAS, Gas Solutions II Ltd., a Texas limited partnership and
successor-by-conversion to MNW Partners, LLC, a Texas limited liability company
(the "Borrower"), is engaged in the business of processing natural gas and
activities related or ancillary thereto and has purchased two natural gas
processing plants and related interests pursuant to the Gas Solutions
Acquisition Agreement as defined in the Credit Agreement referenced below;
WHEREAS, concurrently herewith, the Borrower is entering into that certain
Credit Agreement, dated as of even date herewith (the "Credit Agreement"), with
First American Bank, SSB, as administrative agent, and the lenders from time to
time parties thereto (the "Lenders"), pursuant to which the Lenders will make a
term loan to the Borrower in an aggregate principal amount not to exceed
$12,500,000 (the "Loan");
WHEREAS, the Borrower is an indirect wholly-owned Subsidiary of the
Indemnitor;
WHEREAS, as a condition precedent to the making of the Loan and to the
effectiveness of the Credit Agreement, the Administrative Agent has requested,
and the Indemnitor has agreed, to execute and deliver this Agreement;
WHEREAS, the Indemnitor has duly authorized the execution, delivery and
performance of this Agreement; and
WHEREAS, it is in the best interests of the Indemnitor to execute this
Agreement inasmuch as the Indemnitor will derive substantial direct and indirect
benefits from the Loan made to the Borrower by the Lenders pursuant to the
Credit Agreement.
NOW THEREFORE, in order to induce the Lenders to enter into the Credit
Agreement, the parties hereto, in consideration of the mutual agreements herein
set forth and for other good and valuable consideration, the receipt of which is
hereby acknowledged, agree as follows:
1
ARTICLE 1
DEFINITIONS
Section 1.1 Certain Terms. The following terms (whether or not underscored)
when used in this Agreement, including its preamble, recitals, exhibits and
schedules shall have the following meanings (such definitions to be equally
applicable to the singular and plural forms thereof):
"Administrative Agent" is defined in the preamble.
"Agreement" is defined in the preamble.
"Applicable Law" means any applicable code, statute, law, common law, rule,
regulation, order, ordinance, judgment, decree, order, consent order, stipulated
agreement, writ or injunction of any Governmental Entity.
"Bankruptcy Event of Default" means an event of default of the type
described in clause (d) of the definition of "Event of Default" in the Security
Agreement.
"Borrower" is defined in the first recital.
"Control Agreement" means that certain Deposit Account Control Agreement
dated as of even date herewith, by and among the Indemnitor, the Administrative
Agent and U.S. Bank National Association, as account agent.
"Credit Agreement" is defined in the second recital.
"Governmental Entity" means any domestic or foreign court or tribunal in
any domestic or foreign jurisdiction or any federal, state, municipal or local
government or other governmental body, agency, authority, district, department,
commission, board, bureau, or other instrumentality, arbitrator or arbitral body
(domestic or foreign), including any joint action agency, public power
authority, public utility district, or other similar political subdivision.
"Indemnifiable Claim" means any Loss suffered or incurred by an Indemnitee
that meets both of the following conditions:
(a) the Borrower and/or an Indemnitee has been joined as a defendant in the
Prospect Lawsuit; and
(b) as a result of the entering of a judgment, or of a temporary
restraining order, injunction or other court order with respect to, or the
settlement of, or otherwise as a result of the Prospect Lawsuit, (1) the
Borrower fails to pay in full the Obligations; and (2) the Lender Parties are
unable to collect or receive
1
or retain, following their good faith efforts to exercise their rights and
remedies as secured creditors under the Loan Documents, payment in full of the
Obligations;
provided, however, that, for purposes of clause (b), it will be presumed that,
if (i) the Borrower makes a payment in satisfaction of a judgment in, or
settlement of, the Prospect Lawsuit and (ii) the Borrower thereafter fails to
pay in full the Obligations, then an amount equal to the lesser of (y) such
payment and (z) the shortfall in Borrower's payment of the Obligations is deemed
to be "as a result" of the Prospect Lawsuit.
"Indemnitee" is defined in Section 2.1.
"Indemnitor" is defined in the preamble.
"Lenders" is defined in the second recital.
"Lender Party" means, as the context may require, the Administrative Agent
or any Lender, and each of its successors, transferees and assigns.
"Loan" is defined in the second recital.
"Loan Documents" shall have the meaning given to such term in the Credit
Agreement.
"Loss" is defined in Section 2.1.
"Obligations" shall have the meaning given to such term in the Credit
Agreement, and means the amounts owed and owing by the Borrower to the Lender
Parties under the Credit Agreement and other Loan Documents. For sake of
clarity, the term "Obligations" shall include the costs and expenses (including
reasonable attorneys' fees) incurred by an Indemnitee as a result of such
Indemnitee being joined in the Prospect Lawsuit.
"Prospect Lawsuit" means that certain action styled Dallas Gas Partners, LP
v. Prospect Energy Corporation, Case No. G-04-669, filed on November 30, 2004,
and now pending in the United States District Court for the Southern District of
Texas, Galveston Division, and any other lawsuit asserting claims that are
raised or could be raised in such action.
"Security Agreement" means that certain Deposit Account Security Agreement
dated as of even date herewith, made by the Indemnitor in favor of the
Administrative Agent and the Lender Parties.
Section 1.2 Terminology. Unless the context of this Agreement clearly
requires otherwise, (a) pronouns, wherever used herein, and of whatever gender,
shall include natural persons and corporations and associations of every kind
and character, (b) the singular shall include the plural and the plural shall
include the singular wherever and as often as may be appropriate, (c) the word
"include"
2
or "includes" or "including" shall mean "including without limitation", and (d)
the words "hereof", "herein", "hereunder", and similar terms in this Agreement
shall refer to this Agreement as a whole and not any particular section or
article in which such words appear. The section, article and other headings in
this Agreement are for reference purposes and shall not control or affect the
construction of this Agreement or the interpretation hereof in any respect.
Article, section, subsection, schedule and exhibit references are to this
Agreement unless otherwise specified. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP.
ARTICLE 2
INDEMNIFICATION
Section 2.1 Indemnification by Indemnitor. Subject to the other terms and
limitations of this Agreement, the Indemnitor hereby agrees to indemnify and
hold each Lender Party and their respective directors, officers and employees
(individually, an "Indemnitee" and collectively, the "Indemnitees") harmless
from and against any and all claims, liabilities, losses, damages, costs or
expenses, including reasonable attorneys' fees (individually, a "Loss" and
collectively, the "Losses") that are suffered or incurred by any of them as a
result of an Indemnifiable Claim. THE INDEMNITIES BY THE INDEMNITOR IN FAVOR OF
THE INDEMNITEES IN THIS SECTION 2.1 SHALL BE APPLICABLE NOTWITHSTANDING THAT AN
INDEMNIFIABLE CLAIM OTHERWISE COVERED BY THIS SECTION 2.1 IS ATTRIBUTABLE TO THE
NEGLIGENCE (OTHER THAN GROSS NEGLIGENCE) OF AN INDEMNITEE (WHETHER SUCH
NEGLIGENCE IS SOLE, JOINT, CONCURRENT, ACTIVE OR PASSIVE), ANY PRE-EXISTING
CONDITION OR DEFECT OR ANY FORM OF STRICT LIABILITY. If and to the extent that
the foregoing undertaking may be unenforceable for any reason, the Indemnitor
hereby agrees to make the maximum contribution to the payment and satisfaction
of each of the Indemnifiable Claims which is permissible under Applicable Law.
Section 2.2 Notification to Indemnifiable Claims.
(a) In the event any Indemnitee proposes to assert the right to be
indemnified pursuant to Section 2.1 above with respect to any Indemnifiable
Claim, the Administrative Agent will notify the Indemnitor in writing
thereof, which notification shall include: a certification that (i) such
claim is or may be an Indemnifiable Claim, (ii) a copy of all papers served
or demands received from the plaintiff in the Prospect Lawsuit, and (iii)
the then-estimated amount of the Indemnifiable Claim, together with a
reasonably detailed explanation and calculation of such Indemnifiable
Claim, if such amount can then be calculated.
(b) Notwithstanding the foregoing clause (a), in the event that the
Administrative Agent shall fail to deliver such notice or shall not deliver
3
such notice in a timely manner so as to allow the Indemnitor to perform its
obligations hereunder, such failure shall not operate to excuse the
Indemnitor from its obligations under this Agreement but shall reduce the
amount of the Indemnitor's liability under this Agreement to the extent and
only to the extent that such failure shall have resulted in prejudice to
the ability of the Indemnitor to perform its obligations under this
Agreement or in a material increase in the costs thereof to the Indemnitor.
Section 2.3 Optional Assumption of Defense.
(a) At any time after receiving notice of any Indemnifiable Claim, the
Indemnitor may, but shall not be obligated to, assume, undertake and
control the defense of the affected Indemnitee in the Prospect Lawsuit,
including the employment of counsel (which counsel shall be reasonably
acceptable to the Administrative Agent), and the Indemnitor will pay the
fees and disbursements of such counsel, and such Indemnitee shall cooperate
with the Indemnitor and counsel in connection therewith.
(b) In the event the Indemnitor fails to notify the Administrative
Agent within thirty (30) days after such notice from the Administrative
Agent that the Indemnitor will assume the defense of the action or
proceeding, then the Administrative Agent may employ counsel selected by it
to represent or defend the affected Indemnitees in the relevant action or
proceeding and the Indemnitor will pay the fees and disbursements of such
counsel. In any action or proceeding the defense of which the Indemnitor
assumes, the Administrative Agent will have the right to participate in
such litigation and to retain its own counsel at its own expense; provided,
however, that in the event that the Administrative Agent reasonably
determines that the interests or actions of the Indemnitor in such defense
are in conflict with the interests or actions of the affected Indemnitees,
the Indemnitor shall pay the reasonable fees and disbursements of counsel
for the Indemnitees as selected by the Administrative Agent.
(c) So long as the Indemnitor, at the Indemnitor's cost and expense,
(i) has undertaken the defense of, and assumed full responsibility for an
Indemnifiable Claim presented to the Indemnitor under this Agreement, (ii)
is reasonably contesting such claim in good faith through appropriate
proceedings, and (iii) has taken such action (including the posting of a
bond, deposit, or other security) as may be necessary to prevent any action
to attach a lien against or attachment of the property of the Indemnitee
for payment of such claim, the Indemnitee shall not pay or settle any such
Indemnifiable Claim; provided, however, that, the Indemnitee shall have the
right to pay or settle any such Indemnifiable Claim if it has waived in
writing any right to indemnity by the Indemnitor for such Indemnifiable
Claim.
4
(d) Following the presentation of a claim by the Administrative Agent
pursuant to the provisions of Section 2.2, if the Indemnitor determines
that the claim or Loss which is the basis for the claim or Loss is not
or may not be an Indemnifiable Claim, the Indemnitor may nevertheless
assume the defense of such matter under this Section 2.3 without
prejudice to its right to later contest the issue with the
Administrative Agent; provided that, in the event that the Indemnitor
fails to assume the defense of such matter for any reason, the
provisions of Section 2.3(b) shall apply.
Section 2.4 Certain Limitations. Notwithstanding any other provision of
this Agreement to the contrary,
(a) in no event shall the Indemnitor be responsible or liable to any
Lender Party, Indemnitee or any other person for punitive, exemplary,
incidental, indirect or consequential damages;
(b) the Indemnitor shall not be obligated to indemnify any Indemnitee
for any Indemnifiable Claim to the extent that a court of competent
jurisdiction determines that the Loss asserted in the Indemnifiable Claim
asserted by such Indemnitee resulted from the gross negligence, bad faith,
willful misconduct or criminal misconduct of such Indemnitee; but in no
event will this limitation restrict or limit the obligations undertaken
hereunder to the other Indemnitees; and
(c) in no event shall the total amount payable by the Indemnitor under this
Agreement exceed, in the aggregate, the amount of the Obligations.
Section 2.5 Termination. This Agreement shall immediately terminate on the
earliest to occur of:
(a) Ninety-one (91) days after the payment in full of all principal
and interest on the Loan and all other Obligations then due and payable at
the time that such principal and interest is repaid (without resort to the
exercise of any rights and remedies (other than acceleration and demand for
payment) by the Lender Parties under the Loan Documents as a result of an
Event of Default); provided, however, that if a Bankruptcy Event of Default
has occurred prior to the end of such ninety-one day period, this Agreement
shall not terminate pursuant to this clause (a) until the final resolution
of such Bankruptcy Event of Default; and provided, further, that if
following termination of this Agreement pursuant to this clause (a), any
Lender Party is thereafter subject to any legal claim, action or proceeding
seeking the return, avoidance or disgorgement of the amounts paid to such
Lender Party under the Loan Documents based on the Prospect Lawsuit, this
Agreement (and the Indemnitor's obligation to indemnify such
5
Lender Party) shall continue as to such Lender Party with respect to such
claim, action or proceeding as though this Agreement had not terminated;
(b) A final, non-appealable settlement, judgment or other resolution
of the Prospect Lawsuit;
(c) A final, non-appealable dismissal or declaratory judgment or other
judicial or arbitral ruling excluding the Lender Parties and the Borrower
from any participation as a defendant in, or liability with respect to, the
Prospect Lawsuit or prohibiting the joinder of the Lender Parties and the
Borrower in the Prospect Lawsuit;
(d) An enforceable undertaking or agreement by Dallas Gas Partners, LP
(and any other person entitled to make the claims asserted in the Prospect
Lawsuit) not to take any legal action adverse to the Lender Parties or the
Borrower with respect to the Prospect Lawsuit; or
(e) The Prospect Lawsuit is dismissed or withdrawn with prejudice as
to all claims thereunder;
provided, that the resolution, settlement, judgment, order, ruling, undertaking
or agreement contemplated by the first and second proviso of the foregoing
clause (a) and by the foregoing clauses (b) through (e) above shall be
reasonably satisfactory in form and substance to the Administrative Agent. If
such document is not reasonably satisfactory in form and substance to the
Administrative Agent, then this Agreement shall not then terminate.
Upon such termination, the Secured Party will, at the Debtor's sole expense,
execute and deliver to the Debtor such documents as the Debtor shall reasonably
request to evidence such termination.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
The Indemnitor hereby represents and warrants to the Administrative Agent
that as of the date of this Agreement:
Section 3.1 Corporate Action; Due Authorization; Due Execution. The
execution, delivery and performance by the Indemnitor of this Agreement (a) are
within its corporate powers and (b) have been duly authorized by all necessary
corporate action. This Agreement has been duly executed and delivered by the
Indemnitor.
Section 3.2 Validity and Enforceability. This Agreement constitutes the
legal, valid and binding obligation of the Indemnitor enforceable against it in
accordance with its terms, except as the enforceability hereof may be limited by
the effect of any applicable bankruptcy, insolvency, reorganization, moratorium
or
6
similar laws affecting creditors' rights generally and by general principles of
equity.
ARTICLE 4
CONFIDENTIALITY
Section 4.1 Confidentiality. Each Indemnitee, by its acceptance of the
benefits of this Agreement, hereby agrees that it shall not disclose the
existence of this Agreement or any information concerning the terms and
conditions of this Agreement or any information concerning amounts paid or to be
paid or received or to be received by any Indemnitee pursuant to this Agreement
(the "Confidential Information"), without the prior written consent of the
Indemnitor; provided, however, that nothing herein shall prevent any Lender
Party from disclosing Confidential Information to its officers, directors and
employees, as well as its agents, representatives, lenders, counsel, advisors,
accountants, examiners and affiliates and each of their respective directors,
employees, representatives, lenders, counsel or affiliates, if any, to whom it
determines have a need to know such Confidential Information (collectively,
"Representatives") to the extent necessary to evaluate and/or to obtain
requisite approvals for the consummation of the transactions contemplated by
this Agreement and the Loan Documents (as defined in the Credit Agreement)
and/or to the extent necessary to receive and/or report amounts paid or to be
paid or received pursuant to this Agreement. Each Indemnitee, by its acceptance
of the benefits of this Agreement, hereby agrees to (i) inform each of its
Representatives of the confidential nature of the Confidential Information and
the requirement that it not be used other than for the purposes described above,
(ii) in writing direct each of its non-employee Representatives to treat the
Confidential Information as confidential, and (iii) in any event be responsible
for any breach of this confidentiality obligation by any of its Representatives.
Confidential Information shall not include information (A) that is in the public
domain (either prior to or after receipt of such information, other than as a
result of a disclosure by a Lender Party in breach of this Agreement) or (B) to
the extent, but only to the extent, disclosure thereof is required by Applicable
Law or any legal proceedings or to the extent required by a subpoena, order of
any court or Government Agency (as defined in the Credit Agreement) having
jurisdiction over such Indemnitee.
ARTICLE 5
MISCELLANEOUS
Section 5.1 Amendments, Etc. No amendment, modification or waiver of any
provision of this Agreement nor consent to any departure by any party from the
provisions hereof shall be effective in any event unless the same shall be in
writing and signed by all the Indemnitor and the Administrative Agent, and
7
then any such waiver or consent shall be effective only in the specific instance
and purpose for which given.
Section 5.2 Notices. All notices and communications hereunder shall be in
writing, and shall be deemed to be duly given if sent by facsimile or first
class mail, postage prepaid to the facsimile number or the address set forth
below the signature of the party to receive such notice. Any party to this
Agreement may, from time to time, change its address for notice by giving
written notice of such change to the other parties hereto.
Section 5.3 Successors and Assigns. The rights created by this Agreement
shall inure to the benefit of, and the obligations created hereby shall be
binding upon, the successors and assigns of each of the parties hereto. There
are no third party beneficiaries of this Agreement.
Section 5.4 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED
ACCORDING TO THE INTERNAL LAWS OF THE STATE OF TEXAS.
Section 5.5 Counterparts. This Agreement may be executed in several
counterparts, which taken together shall constitute a single document.
Section 5.6 Entire Agreement. THIS WRITTEN AGREEMENT, THE SECURITY
AGREEMENT AND THE CONTROL AGREEMENT REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF AND THEREOF 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.
Section 5.7 Forum Selection and Consent to Jurisdiction. ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR
ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN)
OR ACTIONS OF THE PARTIES HERETO SHALL BE BROUGHT AND MAINTAINED IN THE COURTS
OF THE STATE OF TEXAS OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN
DISTRICT OF TEXAS. EACH OF THE PARTIES HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS
TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF TEXAS AND OF THE
UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS FOR THE PURPOSE
OF ANY SUCH LITIGATION AS SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY
ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SUCH LITIGATION.
8
Section 5.8 WAIVER OF JURY TRIAL. THE PARTIES HERETO FULLY AND VOLUNTARILY
AND EXPRESSLY WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR ANY AGREEMENT DELIVERED (OR
WHICH MAY IN THE FUTURE BE DELIVERED) IN CONNECTION HEREWITH. THE PARTIES HERETO
AGREE THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT
BEFORE A JURY.
Section 5.9 Severability. If any provision of this Agreement is declared by
a court of competent jurisdiction to be invalid, void or unenforceable, the
remaining provisions shall nevertheless continue in full force and effect
without being impaired or invalidated in any way.
Section 5.10 Security. For the periods of time, and on the terms and
conditions, set forth in the Control Agreement and the Security Agreement, the
obligations of the Indemnitor are secured by the Collateral (as defined in the
Security Agreement).
[signatures begin on next page]
9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first above written.
PROSPECT ENERGY CORPORATION
By /s/ Xxxx X. Xxxxx III
-----------------------------------------
Name: Xxxx X. Xxxxx III
Title: President
All notices should be sent to:
00 Xxxx 00xx Xxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 10016
Attention: Xxxx Xxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
FIRST AMERICAN BANK, SSB, as Administrative
Agent
By: /s/ Xxxxxx XxXxxxxxx
----------------------------------------
Name: Xxxxxx XxXxxxxxx
Title: Vice President
Address:
One Lincoln Park
0000 Xxxxx Xxxxxxx Xxxxxxxxxx
Xxxxx 000
Xxxxxx, Xxxxx 00000
All notices should be sent to:
First American Bank, SSB
One Lincoln Park
0000 Xxxxx Xxxxxxx Xxxxxxxxxx
Xxxxx 000
Xxxxxx, Xxxxx 00000
Attention: Xxxxxx XxXxxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
10
