EXHIBIT 10.10
U.S. $20,000,000
CREDIT AGREEMENT,
dated as of August 14, 1998,
between
FUTURE PETROLEUM CORPORATION,
as the Borrower,
and
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
as the Lender
TABLE OF CONTENTS
SECTION PAGE
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS -2-
1.1. Defined Terms -2-
1.2. Use of Defined Terms -22-
1.3. Cross-References -22-
1.4. Accounting and Financial Determinations -24-
ARTICLE II COMMITMENTS, BORROWING PROCEDURES AND NOTES -24-
2.1. Commitments -24-
2.1.1. Revolving Loans -24-
2.1.2. Term Loans -24-
2.1.3. Letters of Credit -24-
2.1.4. Lender Not Required To Make Loans, etc. Under Certain Circumstances-24-
2.2. Reduction of Commitment Amounts -25-
2.2.1. Optional -25-
2.2.2. Mandatory -25-
2.3. Borrowing Procedure -25-
2.4. Loan Accounts and Notes -26-
2.5. Borrowing Base Redetermination -26-
2.6. Purposes -27-
ARTICLE III REPAYMENTS, PREPAYMENTS, INTEREST AND FEES -27-
3.1. Repayments and Prepayments and Certain Borrowing Base Matters -27-
3.1.1. Repayments and Prepayments -27-
3.1.2. Borrowing Base Deficiencies and Asset Sales -28-
3.2. Interest Provisions -30-
3.2.1. Rate -30-
3.2.2. Post-Maturity Rates, etc -30-
3.2.3. Payment Dates -30-
3.2.4. Maximum Interest -31-
3.3. Fees -32-
3.3.1. Structuring Fee -32-
3.3.2. Closing Fee -32-
3.3.3. Engineering and Redetermination Fee -32-
3.3.4. Commitment Fees -32-
3.3.5. Letter of Credit Stated Amount Fee -32-
3.3.6. Letter of Credit Issuance Fee -33-
3.3.7. Letter of Credit Administrative Fees -33-
3.3.8. Borrowing Base Fee -33-
3.4. Proceeds Account -33-
ARTICLE IV LETTERS OF CREDIT -33-
4.1. Issuance Requests -33-
4.2. Issuances and Extensions -34-
4.3. Expenses -36-
4.4. Disbursements -36-
4.5. Reimbursement -36-
4.6. Deemed Disbursements -37-
4.7. Nature of Reimbursement Obligations -38-
4.8. Increased Costs; Indemnity -39-
ARTICLE V CERTAIN INTEREST RATE AND OTHER PROVISIONS -40-
5.1. Increased Capital Costs -40-
5.2. Taxes -41-
5.3. Payments, Computations, etc. -42-
5.4. Setoff -42-
5.5. Use of Proceeds -43-
ARTICLE VI CONDITIONS PRECEDENT -43-
6.1. Initial Credit Extension -43-
6.1.1. Resolutions, etc -43-
6.1.2. Delivery of Notes -44-
6.1.3. Guaranties -44-
6.1.4. Pledge Agreements -44-
6.1.5. Security Agreement -45-
6.1.6. Consents and Mortgage Consents -45-
6.1.7. Mortgage -45-
6.1.8. Opinions of Counsel -46-
6.1.9. UCC-11s -46-
6.1.10.Evidence of Insurance -47-
▇.▇.▇▇.▇▇▇▇▇▇▇▇▇▇▇ Reports -47-
6.1.12.Environmental Report -47-
6.1.13.Budget -47-
6.1.14.Intercreditor Agreement -47-
6.1.15.Closing of the Future California Merger -47-
6.1.16.Closing Fees, Expenses, etc -47-
6.1.17.Other Documents -47-
6.2. Inclusion of Hydrocarbon Interests in the Borrowing Base -47-
6.2.1. Environmental Report -48-
6.2.2. Mortgage -48-
6.2.3. UCC-11s -48-
6.2.4. Evidence of Insurance -49-
6.2.5. Engineering Reports -49-
6.2.6. Material Contracts and Related Consents; Security Agreement -49-
6.2.7. Guaranties -49-
6.2.8. Additional Stock or Partnership Pledge -49-
6.2.9. Other Documents -50-
6.3. All Credit Extensions -50-
6.3.1. Compliance with Warranties, No Default, etc -50-
6.3.2. Credit Request -51-
6.3.3. Satisfactory Legal Form -51-
ARTICLE VII REPRESENTATIONS AND WARRANTIES -51-
7.1. Organization, etc. -51-
7.2. Due Authorization, Non-Contravention, etc. -52-
7.3. Government Approval, Regulation, etc. -52-
7.4. Investment Company Act -52-
7.5. Public Utility Holding Company Act -52-
7.6. Validity, etc. -52-
7.7. Financial Information -53-
7.8. No Material Adverse Change -53-
7.9. Litigation, Labor Controversies, etc. -53-
7.10. Ownership of Properties -53-
7.11. Taxes -53-
7.12. Pension and Welfare Plans -54-
7.13. Compliance with Law -54-
7.14. Claims and Liabilities -54-
7.15. No Prohibition on Perfection of Security Documents -54-
7.16. Solvency -55-
7.17. Environmental Warranties -55-
7.18. Regulations G, U and X -57-
7.19. Year 2000 Compliance -57-
7.20. Insurance -57-
7.21. Accuracy of Information -58-
ARTICLE VIII COVENANTS -58-
8.1. Affirmative Covenants -58-
8.1.1. Financial Information, Reports, Notices, etc -58-
8.1.2. Compliance with Laws, etc -61-
8.1.3. Maintenance and Development of Properties -62-
8.1.4. Insurance -62-
8.1.5. Books and Records -63-
8.1.6. Environmental Covenant -63-
8.1.7. Further Assurances -64-
8.2. Negative Covenants -65-
8.2.1. Business Activities -65-
8.2.2. Indebtedness -65-
8.2.3. Liens -67-
8.2.4. Financial Condition -69-
8.2.5. Investments -70-
8.2.6. Restricted Payments, etc -71-
8.2.7. Rental Obligations -71-
8.2.8. Consolidation, Merger, etc -71-
8.2.9. Asset Dispositions, etc -72-
8.2.10.Modification of Certain Documents -72-
8.2.11.Transactions with Affiliates -72-
8.2.12.Negative Pledges, Restrictive Agreements, etc -73-
8.2.13.Take or Pay Contracts -73-
8.2.14.Hydrocarbon Hedging -73-
ARTICLE IX EVENTS OF DEFAULT -74-
9.1. Listing of Events of Default -74-
9.1.1. Non-Payment of Obligations -74-
9.1.2. Breach of Warranty -74-
9.1.3. Non-Performance of Certain Covenants and Obligations -74-
9.1.4. Non-Performance of Other Covenants and Obligations -75-
9.1.5. Default on Other Indebtedness -75-
9.1.6. Judgments -75-
9.1.7. Pension Plans -76-
9.1.8. Control of the Borrower -76-
9.1.9. Bankruptcy, Insolvency, etc -76-
9.1.10.Impairment of Security, etc -77-
9.1.11.Material Adverse Effect -77-
9.2. Action if Bankruptcy -77-
9.3. Action if Other Event of Default -77-
9.4. Rights Not Exclusive -77-
ARTICLE X MISCELLANEOUS PROVISIONS -78-
10.1. Waivers, Amendments, etc. -78-
10.2. Notices -78-
10.3. Payment of Costs and Expenses -79-
10.4. Indemnification -80-
10.5. Survival -81-
10.6. Severability -81-
10.7. Headings -81-
10.8. Execution in Counterparts, Effectiveness, etc. -81-
10.9. Governing Law; Entire Agreement -82-
10.10. Successors and Assigns -82-
10.11. Sale and Transfer of Loans and Notes; Participations in
Loans and Notes -82-
10.11.1.Assignments -82-
10.11.2.Participations -84-
10.12. Forum Selection and Consent to Jurisdiction -85-
10.13. Waiver of Jury Trial -85-
10.14. Notice -86-
SCHEDULE I Disclosure Schedule
SCHEDULE II Subsidiaries
SCHEDULE III Certain Consents and Mortgage Consents
EXHIBIT A Form of Secured Promissory Note
EXHIBIT B Form of Security Agreement
EXHIBIT C Form of Borrowing Request
EXHIBIT D Form of Guaranty
EXHIBIT E-1 Form of California Mortgage
EXHIBIT E-2 Form of Multi-State Mortgage
EXHIBIT F-1 Form of Pledge Agreement (Partnership Interests)
EXHIBIT F-2 Form of Pledge Agreement (Stock)
EXHIBIT G Form of Lender Assignment Notice
EXHIBIT H Form of Opinion of Counsel to the Borrower, et al.
EXHIBIT I-1 Form of Pre-Closing Title Opinion of Special Counsel to the
Borrower
EXHIBIT I-2 Form of Post-Closing Title Opinion of Special Counsel to
the Borrower
EXHIBIT J Form of Consent
EXHIBIT K Form of Issuance Request
EXHIBIT L Form of Letter of Credit
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of August 14, 1998, between FUTURE PETROLEUM
CORPORATION, a Utah corporation (the "Borrower") and BANK OF AMERICA NATIONAL
TRUST AND SAVINGS ASSOCIATION, a national banking association (the "Lender"),
W I T N E S S E T H:
WHEREAS, the Borrower is engaged in the business of oil and gas exploration
and production, and activities related or ancillary thereto; and
WHEREAS, the Borrower desires to obtain Commitments from the Lender pursuant
to which
(a) Loans will be made to the Borrower from time to time prior to the
applicable Commitment Termination Date; and
(b) Letters of Credit will be issued by an Issuer for the account of the
Borrower from time to time prior to the Availability Termination Date;
in maximum aggregate principal amount of Loans and Letter of Credit
Outstandings at any one time not to exceed in the aggregate the lesser of
(x) the Borrowing Base, or (y) $20,000,000; and
WHEREAS, the Lender is willing, on the terms and subject to the conditions
hereinafter set forth (including Article VI), to extend such Commitments,
and to make such Loans to the Borrower and issue such Letters of Credit; and
WHEREAS, the proceeds of such Loans will be used for general business
purposes, including Acquisitions and the development of Oil and Gas Properties.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION I.1. Defined Terms. The following terms (whether or not
underscored) when used in this Agreement, including its preamble and recitals,
shall, except where the context otherwise requires, have the following meanings
(such meanings to be equally applicable to the singular and plural forms
thereof):
"Acquired Properties" means those Oil and Gas Properties and other assets
that are acquired from time to time in an Acquisition.
"Acquisition" means an acquisition by the Borrower or one or more of its
Subsidiaries of Acquired Properties.
"Affiliate" of any Person means any other Person which, directly or
indirectly, controls, is controlled by or is under common control with such
Person (excluding any trustee under, or any committee with responsibility for
administering, any Plan). A Person shall be deemed to be "controlled by" any
other Person if such other Person possesses, directly or indirectly, power
(a) to vote 10% or more of the securities (on a fully diluted
basis) having ordinary voting power for the election of directors or
managing general partners; or
(b) to direct or cause the direction of the management and
policies of such Person whether by contract or otherwise.
"Agreement" means, on any date, this Credit Agreement as originally in
effect on the Effective Date and as thereafter from time to time amended,
supplemented, amended and restated, or otherwise modified and in effect on such
date.
"Alternate Base Rate" means, on any date and with respect to all Base Rate
Loans, a fluctuating rate of interest per annum equal to the higher of
(a) the rate of interest as announced from time to time by the
Lender as its "reference rate" at its Domestic Office; or
(b) the Federal Funds Rate most recently determined by the Lender
plus 1/2%.
The Alternate Base Rate is not necessarily intended to be the lowest rate of
interest in connection with extensions of credit. Changes in the rate of
interest on that portion of any Loans maintained as Base Rate Loans will take
effect simultaneously with each change in the Alternate Base Rate. The Lender
will give notice to the Borrower of changes in the Alternate Base Rate.
"Applicable Law" means with respect to any Person or matter, any federal,
state, regional, tribal or local statute, law, code, rule, treaty, convention,
application, order, decree, consent decree, injunction, directive,
determination or other requirement (whether or not having the force of law)
relating to such Person or matter and, where applicable, any interpretation
thereof by a Government Agency having jurisdiction with respect thereto or
charged with the administration or interpretation thereof.
"Approvals" means each and every approval, authorization, license, permit,
consent, variance, land use entitlement, franchise, agreement, filing or
registration by or with any Government Agency or other Person necessary for all
stages of developing, operating, maintaining and abandoning Oil and Gas
Properties.
"Assignee Lender" is defined in Section 10.11.1.
"Authorized Officer" means, relative to any Obligor, those of its officers
(or, in the case of a partnership, those of the officers of its general
partner) whose signatures and incumbency shall have been certified to the
Lender pursuant to Section 6.1.1.
"Availability Termination Date" means August 14, 1999.
"Base Rate Loan" means a Loan bearing interest at a fluctuating rate
determined by reference to the Alternate Base Rate.
"Borrower" is defined in the preamble.
"Borrowing Base" means, as at any date, (a) prior to the initial Borrowing
Base Redetermination, $10,500,000 and (b) thereafter, (i) that amount of
indebtedness for borrowed money under the Facility that the Lender determines
can be supported by the Proven Reserves attributable to Hydrocarbon Interests
owned directly by the Borrower or its Subsidiaries which are a part of the
Mortgaged Properties, after an engineering and economic review of such reserves
conducted by the Lender using its normal procedures for oil and gas facilities
of this type, taking into account the value of all those proved developed
producing oil and gas reserves and certain portions of certain other categories
of Proven Reserves attributable to the Mortgaged Properties.
"Borrowing Base Deficiency" means the amount by which (a) the sum of the
aggregate outstanding principal amount of all Loans plus Letter of Credit
Outstandings exceeds (b) the then current Borrowing Base.
"Borrowing Base Deficiency Notification Date" means the date on which any
notice of a Borrowing Base Deficiency is received by the Borrower.
"Borrowing Base Fee" is defined in Section 3.3.8.
"Borrowing Base Redetermination" is defined in Section 2.5.
"Borrowing Request" means a loan request and certificate duly executed by
an Authorized Officer of the Borrower, substantially in the form of Exhibit C
hereto.
"Business Day" means any day which is neither a Saturday or Sunday nor a
legal holiday on which banks are authorized or required to be closed in
Chicago, Illinois.
"Capital Expenditures" means, for any period, (without duplication) the
aggregate amount of all expenditures of the Borrower and its consolidated
Subsidiaries for fixed or capital assets made during such period which, in
accordance with GAAP, would be classified as capital expenditures including,
with respect to any period, payments made by the Borrower and its consolidated
Subsidiaries with respect to Capitalized Lease Liabilities incurred during such
period.
"Capitalization" means, at any time, the sum of (a) the total Debt of the
Borrower and its consolidated Subsidiaries plus (b) the total equity of the
Borrower and its consolidated Subsidiaries.
"Capitalized Lease Liabilities" means all monetary obligations of the
Borrower or any of its consolidated Subsidiaries under any leasing or similar
arrangement which, in accordance with GAAP, would be classified as capitalized
leases, and, for purposes of this Agreement and each other Loan Document, the
amount of such obligations shall be the capitalized amount thereof, determined
in accordance with GAAP.
"Cash Equivalent Investment" means, at any time:
(a) any evidence of Indebtedness, maturing not more than one year
after such time, issued or guaranteed by the United States Government;
(b) commercial paper, maturing not more than nine months from the
date of issue, which is issued by
(i) a corporation (other than an Affiliate of the Borrower)
organized under the laws of any state of the United States or of the
District of Columbia and rated at least A-1 by Standard & Poor's
Corporation or P-1 by ▇▇▇▇▇'▇ Investors Service, Inc., or
(ii) the Lender;
(c) any certificate of deposit or bankers acceptance, maturing
not more than one year after such time, which is issued by
(i) a commercial banking institution that is a member of
the Federal Reserve System and has a combined capital and surplus and
undivided profits of not less than $500,000,000, or
(ii) the Lender; or
(d) any repurchase agreement entered into with the Lender (or
other commercial banking institution of the stature referred to in clause
(c)) which
(i) is secured by a fully perfected security interest in
any obligation of the type described in any of clauses (a) through
(c); and
(ii) has a market value at the time such repurchase
agreement is entered into of not less than 100% of the repurchase
obligation of the Lender (or other commercial banking institution)
thereunder.
"CERCLA" means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended.
"CERCLIS" means the Comprehensive Environmental Response Compensation
Liability Information System List.
"Change in Control" means (a) if ▇▇▇▇▇ Energy Resources, Ltd., EnCap Equity
1994 Limited Partnership and Energy Capital Investment Company PLC shall
fail to collectively own at least 51% of the outstanding capital stock of
the Borrower, on a fully diluted basis, or (b) if the Borrower ceases to
own beneficially and of record 100% of the capital stock of each of Future
Texas, Future Nevada and Future Newco, or (c) if Future Texas or Future
Nevada ceases to own beneficially and of record 100% of the general partner
and limited partner interests, respectively, in the Partnership Subsidiaries.
"Code" means the Internal Revenue Code of 1986, as amended, reformed or
otherwise modified from time to time, and the regulations promulgated
thereunder.
"Commitment" means the Lender's commitment pursuant to Section 2.1 to make
Loans to the Borrower and to issue Letters of Credit in accordance with the
terms and provisions of this Agreement.
"Commitment Amount" means the lesser of (i) $20,000,000, as reduced from
time to time pursuant to the provisions of Section 2.2, or (ii) the Borrowing
Base.
"Commitment Availability" means, on any date, the excess of
(a) the then applicable Commitment Amount, over
(b) the sum of
(i) the aggregate outstanding principal amount of all Loans
on such date, plus
(ii) the Letter of Credit Outstandings on such date.
"Commitment Termination Date" means the earliest of
(a) the Stated Maturity Date;
(b) the date on which either the Commitment Amount is terminated
in full or reduced to zero pursuant to Section 2.2; and
(c) the date on which any Commitment Termination Event occurs.
"Commitment Termination Event" means
(a) the occurrence of any Default described in clauses (a)
through (d) of Section 9.1.9 with respect to the Borrower or any Subsidiary;
or
(b) the occurrence and continuance of any other Event of Default
and either
(i) the declaration of the Loans and other Obligations to
be due and payable pursuant to Section 9.3, or
(ii) in the absence of such declaration, the giving of
notice by the Lender to the Borrower that the Commitments have been
terminated.
"Consent" means a Consent to Assignment executed and delivered pursuant to
Section 6.2.6, substantially in the form of Exhibit J, as amended,
supplemented, restated or otherwise modified from time to time pursuant to
which the Borrower's counterparty to each Material Contract (i) consents to
the assignment of each such Material Contract to the Lender as security for
the Obligations and (ii) provides the Lender an independent right to cure
defaults under such Material Contract.
"Consolidated Net Income" means, with respect to the Borrower and its
consolidated Subsidiaries for any period, the consolidated net income (or loss)
of the Borrower and its consolidated Subsidiaries for such period determined in
accordance with GAAP.
"Contingent Liability" means, as to any Person, any direct or indirect
liability of that Person, whether or not contingent, with or without recourse,
(a) with respect to any Indebtedness, lease, dividend, letter of credit or
other obligation (the "primary obligations") of another Person (the "primary
obligor"), including any obligation of that Person (i) to purchase, repurchase
or otherwise acquire such primary obligations or any security therefor, (ii) to
advance or provide funds for the payment or discharge of any such primary
obligation, or to maintain working capital or equity capital of the primary
obligor or otherwise to maintain the net worth or solvency or any balance sheet
item, level of income or financial condition of the primary obligor, (iii) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation, or (iv) otherwise to assure or hold
harmless the holder of any such primary obligation against loss in respect
thereof (each, a "Guaranty Obligation"); (b) with respect to any Surety
Instrument issued for the account of that Person or as to which that Person is
otherwise liable for reimbursement of drawings or payments; or (c) to purchase
any materials, supplies or other property from, or to obtain the services of,
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.
"Controlled Group" means all members of a controlled group of corporations
and all members of a controlled group of trades or businesses (whether or not
incorporated) under common control which, together with the Borrower, are
treated as a single employer under Section 414(b) or 414(c) of the Code or
Section 4001 of ERISA.
"Credit Extension" means and includes
(a) the advancing of any Revolving Loans by the Lender in
connection with a borrowing hereunder,
(b) the advancing of any Term Loans by the Lender in connection
with a borrowing hereunder, and
(c) any issuance by an Issuer, or the extension of the Stated
Expiry Date by an Issuer, of a Letter of Credit.
"Current Ratio" means, as of the end of each Fiscal Quarter, the ratio of
(a) the current assets (including the unused portion of the
Commitment Amount) of the Borrower and its consolidated Subsidiaries
to
(b) the current liabilities (minus current portion of its long
term Debt) of the Borrower and its consolidated Subsidiaries.
"Debt" means the outstanding principal amount of all Indebtedness of the
Borrower and its consolidated Subsidiaries of the nature referred to in clauses
(a) and (b) of the definition of "Indebtedness".
"Debt to Capitalization Ratio" means, as of the end of each Fiscal Quarter,
the ratio of (a) Debt of the Borrower and its consolidated Subsidiaries to (b)
Capitalization of the Borrower and its consolidated Subsidiaries.
"Default" means any Event of Default or any condition, occurrence or event
which, after notice or lapse of time or both, would constitute an Event of
Default.
"Disbursement Date" is defined in Section 4.4.
"Disbursement" means the amount disbursed by the Issuer on a Disbursement
Date.
"Disclosure Schedule" means the Disclosure Schedule attached hereto as
Schedule I, as it may be amended, supplemented or otherwise modified from time
to time by the Borrower with the written consent of the Lender.
"Distribution Payments" is defined in Section 8.2.6.
"Dollar" and the sign "$" mean lawful money of the United States.
"Domestic Office" means the office of the Lender designated as such on its
signature page hereto or designated in a Lender Assignment Notice or such other
office of the Lender (or any successor or assign of the Lender) within the
United States as may be designated from time to time by notice from the Lender,
as the case may be, to each other Person party hereto.
"EBITDA" means for any period, the sum, without duplication, of the
following:
(a) Consolidated Net Income for such period, plus
(b) Interest Expense for such period, plus
(c) all depreciation and amortization of assets (including
goodwill and other intangible assets) of the Borrower and its consolidated
Subsidiaries deducted in determining Consolidated Net Income for such
period, plus (minus)
(d) all federal, state, local and foreign income taxes of the
Borrower and its consolidated Subsidiaries deducted (or credits added) in
determining Consolidated Net Income for such period, plus (minus)
(e) other non-cash items deducted or added in determining
Consolidated Net Income for such period.
"Effective Date" means the date this Agreement becomes effective pursuant
to Section 10.8.
"Engineering Report" means one or more reports, in form and substance
satisfactory to the Lender, prepared at the sole cost and expense of the
Borrower by a petroleum engineer acceptable to the Lender in its reasonable
business judgment, which shall evaluate the Proven Reserves and probable
reserves attributable to the Hydrocarbon Interests owned directly by the
Borrower and/or its Subsidiaries and constituting part of the Mortgaged
Properties, as of the immediately preceding January 1 or July 1. Each
Engineering Report shall set forth volumes, projections of the future rate of
production, Hydrocarbons prices, escalation rates, discount rate assumptions,
and net proceeds of production, present value of the net proceeds of
production, estimated costs of Remedial Action, operating expenses and
capital expenditures, in each case based upon updated economic assumptions
reasonably acceptable to the Lender.
"Environmental Laws" means all Applicable Laws relating to public health and
safety through protection of the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time.
References to sections of ERISA also refer to any successor sections.
"Event of Default" is defined in Section 9.1.
"Existing Creditors" means EnCap Equity 1994 Limited Partnership, Energy
Capital Investment Company PLC and Gecko Booty 1994 I Limited Partnership.
"Facility" means the facility providing for the Commitment and the Loans.
"Federal Funds Rate" means, for any period, a fluctuating interest rate per
annum equal for each day during such period to
(a) the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by federal
funds brokers, as published by the Federal Reserve Bank of New York for such
day (or, if such day is not a Business Day, for the next preceding Business
Day) by the Federal Reserve Bank of New York; or
(b) if such rate is not so published for any day which is a
Business Day, the average of the quotations for such day on such
transactions received by the Lender from three federal funds brokers of
recognized standing selected by it.
Upon written request from the Borrower, the Lender shall advise the Borrower
as to the details of the method of calculation of Federal Funds Rate then
utilized by the Lender.
"Fiscal Quarter" means any quarter ending on the last day of March, June,
September and December of a Fiscal Year.
"Fiscal Year" means any period of twelve consecutive calendar months ending
on December 31; references to a Fiscal Year with a number corresponding to any
calendar year (e.g., "Fiscal Year 1998") refer to the Fiscal Year ending on the
December 31 occurring during such calendar year.
"F.R.S. Board" means the Board of Governors of the Federal Reserve System
or any successor thereto.
"Future California" means Future CAL-TEX Corporation, a Texas corporation,
the Subsidiary of the Borrower that will acquire the South Coles Levee Unit
property.
"Future Nevada" means Future Energy Corporation, a Nevada corporation, the
sole limited partner of each of the Partnership Subsidiaries and any successor
limited partner or limited partners of any of the Partnership Subsidiaries.
"Future Texas" means Future Petroleum Corporation, a Texas corporation, the
sole general partner of each of the Partnership Subsidiaries and any successor
general partner or general partners of any of the Partnership Subsidiaries.
"GAAP" is defined in Section 1.4.
"Government Agency" means any federal, state, regional, tribal or local
government or governmental department or other entity charged with the
administration, interpretation or enforcement of any Applicable Law.
"Guaranties" means the guaranties of the Obligations, executed and delivered
pursuant to Section 6.1.3 and Section 6.2.7, substantially in the form of
Exhibit D, given by each of the Borrower's Subsidiaries.
"Hazardous Material" means
(a) any "hazardous substance", as defined by CERCLA;
(b) any "hazardous waste", as defined by the Resource
Conservation and Recovery Act, as amended;
(c) any petroleum, crude oil or fraction thereof;
(d) any hazardous, dangerous or toxic chemical, material, waste
or substance within the meaning of any Environmental Law;
(e) any radioactive material, including any naturally occurring
radioactive material, and any source, special or by-product material as
defined in 42 U.S.C. 2011 et seq., and any amendments or reauthorizations
thereof;
(f) asbestos-containing materials in any form or condition; or
(g) polychlorinated biphenyls in any form or condition.
"Hedging Agreements" means:
(a) interest rate swap agreements, basis swap agreements,
interest rate cap agreements, forward rate agreements, interest rate floor
agreements and interest rate collar agreements, and all other agreements or
arrangements designed to protect such Person against fluctuations in
interest rates or currency exchange rates, and
(b) forward contracts, options, futures contracts, futures options,
commodity swaps, commodity options, commodity collars, commodity caps,
commodity floors and all other agreements or arrangements designed to
protect such Person against fluctuations in the price of commodities.
"Hedging Obligations" means, with respect to any Person, all liabilities
(including but not limited to obligations and liabilities arising in connection
with or as a result of early or premature termination of a Hedging Agreement,
whether or not occurring as a result of a default thereunder) of such Person
under a Hedging Agreement.
"Highest Lawful Rate" is defined in Section 3.2.4.
"Hydrocarbon Interests" means all rights, titles and interests in and to oil
and gas leases; oil, gas and mineral leases; other Hydrocarbon leases; mineral
interests; mineral servitudes; overriding royalty interests; royalty interests;
net profits interests; production payment interests; and other similar
interests.
"Hydrocarbons" means, collectively, oil, gas, casinghead gas, drip gasoline,
natural gasoline, condensate, distillate and all other liquid or gaseous
hydrocarbons and related minerals and all products therefrom, in each case
whether in a natural or a processed state.
"Impermissible Qualification" means, relative to the opinion or
certification of any independent public accountant as to any financial
statement of the Borrower, any qualification or exception to such opinion or
certification
(a) which is of a "going concern" or similar nature;
(b) which relates to the limited scope of examination of matters
relevant to such financial statement;
(c) which relates to the treatment or classification of any item
in such financial statement and which, as a condition to its removal, would
require an adjustment to such item the effect of which would be to cause the
Borrower to be in default of any of its obligations under Section 8.2.4; or
(d) which relates to possible errors generated by financial
reporting and related systems due to the Year 2000 Problem.
"including" means including without limiting the generality of any
description preceding such term, and, for purposes of this Agreement and each
other Loan Document, the parties hereto agree that the rule of ejusdem generis
shall not be applicable to limit a general statement, which is followed by or
referable to an enumeration of specific matters, to matters similar to the
matters specifically mentioned.
"Indebtedness" of any Person means, without duplication:
(a) all obligations of such Person for borrowed money and all
obligations of such Person evidenced by bonds, debentures, notes or other
similar instruments;
(b) all obligations, contingent or otherwise, relative to the
face amount of all letters of credit, whether or not drawn, and banker's
acceptances issued for the account of such Person;
(c) all other items which, in accordance with GAAP, would be
included as liabilities on the liability side of the balance sheet of such
Person as of the date at which Indebtedness is to be determined;
(d) net liabilities of such Person under all Hedging Obligations;
(e) all net monetary obligations of such Persons with respect to
Production Payments;
(f) all Capitalized Lease Liabilities;
(g) whether or not so included as liabilities in accordance with
GAAP, all obligations of such Person to pay the deferred purchase price of
property or services, and indebtedness (excluding prepaid interest thereon)
secured by a Lien on property owned or being purchased by such Person
(including indebtedness arising under conditional sales or other title
retention agreements), whether or not such indebtedness shall have been
assumed by such Person or is limited in recourse; and
(h) all Contingent Liabilities of such Person.
For all purposes of this Agreement, the Indebtedness of any Person shall
include the Indebtedness of any partnership or joint venture in which such
Person is a general partner or a joint venturer, unless the Lender expressly
permits exclusion based on non-recourse provisions acceptable to the Lender
set forth in the agreements regarding such Indebtedness.
"Indemnified Liabilities" is defined in Section 10.4.
"Indemnified Parties" is defined in Section 10.4.
"Interest Coverage Ratio" means, for any four consecutive Fiscal Quarters,
the ratio of (a) EBITDA for such Fiscal Quarters to (b) Interest Expense for
such Fiscal Quarters.
"Interest Expense" means, for any period, the consolidated interest expense
of the Borrower and its consolidated Subsidiaries for such period (including
all imputed interest under Hedging Agreements, but excluding all fees paid
under Section 3.3), as determined in accordance with GAAP, including the
interest expense associated with any Capitalized Lease Liabilities of the
Borrower and its consolidated Subsidiaries.
"Investment" means, relative to any Person,
(a) any loan or advance made by such Person to any other Person
(excluding commission, travel and similar advances to officers and employees
made in the ordinary course of business and excluding prepaid expenses
incurred in the ordinary course of business);
(b) any Contingent Liability of such Person; and
(c) any ownership or similar interest held by such Person in any
other Person; provided, however, that (i) Hedging Obligations and (ii)
Production Payments where the Borrower or its Subsidiary is the grantor or
transferror thereof shall not be considered Investments.
The amount of any Investment shall be the original principal or capital amount
thereof less all returns of principal or equity thereon (and without adjustment
by reason of the financial condition of such other Person) and shall, if
made by the transfer or exchange of property other than cash, be deemed to
have been made in an original principal or capital amount equal to the fair
market value of such property.
"Issuance Request" means a request for the issuance of a Letter of Credit
and certificate duly executed by the chief executive, accounting or financial
Authorized Officer of the Borrower, in substantially the form of Exhibit K
attached hereto (with such changes thereto as may be agreed upon from time to
time by the Issuer and the Borrower).
"Issuer" means the Lender or its designees, in its capacity as an issuer of
the Letters of Credit.
"Lender Assignment Notice" means a Lender Assignment Notice substantially
in the form of Exhibit G hereto.
"Lender" is defined in the preamble.
"Letter of Credit" is defined in Section 4.1.
"Letter of Credit Availability" means, at any time, the lesser of
(a) the excess of
(i) $1,000,000 over
(ii) the then Letter of Credit Outstandings,
or
(b) the Commitment Availability at such time.
"Letter of Credit Outstandings" means, at any time, an amount equal to the
sum of
(a) the aggregate Stated Amount at such time of all Letters of
Credit then outstanding and undrawn (as such aggregate Stated Amount shall
be adjusted, from time to time, as a result of drawings, the issuance of
Letters of Credit, or otherwise),
plus
(b) the then aggregate amount of all unpaid and outstanding
Reimbursement Obligations.
"Lien" means any security interest, mortgage, deed of trust, pledge,
hypothecation, assignment, charge or deposit arrangement, encumbrance, lien
(statutory or otherwise), charge against or interest in Property to secure (i)
the payment of a debt or (ii) the performance of an obligation or other
priority or preferential arrangement of any kind or nature whatsoever in
respect of any Property (including those created by, arising under or
evidenced by any conditional sale or other title retention agreement, the
interest of a lessor under a capital lease, any financing lease having
substantially the same economic effect as any of the foregoing, or the
filing of any financing statement naming the owner of the asset to which
such lien relates as debtor, under the Uniform Commercial Code or any
comparable law) and any contingent or other agreement to provide any of the
foregoing.
"Loans" means the loans provided for by Section 2.1 and shall include
Revolving Loans and Term Loans.
"Loan Documents" means this Agreement, the Notes, the Security Documents,
all Letters of Credit, all Hedging Agreements and all other agreements relating
to this Agreement entered into from time to time between the Borrower (or
any or all of its Subsidiaries or Affiliates) and the Lender (or any
Affiliate of the Lender), and any document delivered by the Borrower or any
of its Subsidiaries in connection with any of the foregoing.
"Material Adverse Effect" means (a) a material adverse change in, or a
material adverse effect upon, the operations, business, properties, condition
(financial or otherwise) or prospects of the Borrower and its Subsidiaries or
any other Obligor; or (b) a material adverse effect upon (i) the legality,
validity, binding effect or enforceability against the Borrower, its
Subsidiaries or any other Obligor of any Loan Document, or (ii) the perfection
or priority of any Lien granted under any of the Loan Documents.
"Material Contract" means each acquisition agreement, Hydrocarbon purchase
and sale agreement, or similar contract relating to any Hydrocarbon Interests
included in the Mortgaged Properties.
"Mortgage Consents" means all consents required under existing oil and gas
leases or other agreements and Approvals by Governmental Agencies to the
granting of a Mortgage to the Lender, and as reasonably determined by the
Lender with respect to Acquired Properties that become Mortgaged Properties
after the Effective Date.
"Mortgages" means the Mortgage, Deed of Trust, Assignment, Security
Agreement and Financing Statements executed and delivered pursuant to Section
6.1.7 and Section 6.2.2, substantially in the form of Exhibit E hereto, as
amended, supplemented, restated or otherwise modified from time to time.
"Mortgaged Properties" means the Hydrocarbon Interests, Properties and
interests described in and secured by the Mortgages, as such Properties and
interests are from time to time constituted, all as further provided in Section
6.1.7 and Section 6.2.2.
"Non-Redeemable Stock" means stock issued by the Borrower or any of its
Subsidiaries, provided that such stock is not considered debt for GAAP, tax law
or any other purpose and provided further that neither the Borrower nor any of
its Subsidiaries has any obligation to redeem or purchase or pay dividends on
such stock or to exchange such stock for, or convert such stock to, any other
security, whether such obligation arises pursuant to the terms of such stock or
any other agreement relating thereto or otherwise and whether or not such
obligation exists in all circumstances or only upon the occurrence of a
particular event or condition or upon the passage of time or otherwise.
"Notes" means the secured promissory notes of the Borrower payable to the
order of the Lender, in the form of Exhibit A hereto (as such promissory notes
may be amended, endorsed or otherwise modified from time to time), evidencing
the aggregate Indebtedness of the Borrower to the Lender resulting from
outstanding Loans, and also means all other promissory notes accepted from time
to time in substitution therefor or renewal thereof.
"Obligations" means all obligations (monetary or otherwise) of the Borrower
and/or any other Obligor arising under or in connection with this Agreement,
the Notes and each other Loan Document, including without limitation, all
Hedging Obligations arising under Hedging Agreements between the Borrower
(or any Affiliate of the Borrower) and the Lender (or any Affiliate of the
Lender).
"Obligor" means the Borrower, any of its Subsidiaries or any other Person
(other than the Lender or any Affiliate of the Lender) obligated under, or
otherwise a party to, any Loan Document.
"Oil and Gas Properties" means Hydrocarbon Interests; the Properties now or
hereafter pooled or unitized with Hydrocarbon Interests; all presently existing
or future unitization, pooling agreements and declarations of pooled units and
the units created thereby (including without limitation all units created under
orders, regulations and rules of any Government Agency having jurisdiction)
which may affect all or any portion of the Hydrocarbon Interests; all operating
agreements, joint venture agreements, contracts and other agreements which
relate to any of the Hydrocarbon Interests or the production, sale, purchase,
exchange or processing of Hydrocarbons from or attributable to such Hydrocarbon
Interests; all Hydrocarbons in and under and which may be produced and saved or
attributable to the Hydrocarbon Interests, the lands covered thereby and
all oil in tanks and all rents, issues, profits, proceeds, products,
revenues and other incomes from or attributable to the Hydrocarbon
Interests; all tenements, profits prendre, hereditaments, appurtenances and
Properties in anywise appertaining, belonging, affixed or incidental to the
Hydrocarbon Interests, Properties, rights, titles, interests and estates
described or referred to above, including any and all Property, real or
personal, now owned or hereinafter acquired and situated upon, used, held for
use or useful in connection with the operating, working or development of
any of such Hydrocarbon Interests or Property (excluding drilling rigs,
automotive equipment or other personal property which may be on such
premises for the purpose of drilling a well or for other similar temporary
uses) and including any and all oil ▇▇▇▇▇, gas ▇▇▇▇▇, water ▇▇▇▇▇, injection
▇▇▇▇▇ or other ▇▇▇▇▇, buildings, structures, fuel separators, liquid
extraction plants, plant compressors, pumps, pumping units, field gathering
systems, tanks and tank batteries, fixtures, valves, fittings, machinery and
parts, engines, boilers, meters, apparatus, equipment, appliances, tools,
implements, cables, wires, towers, casing, tubing and rods, surface leases,
rights-of-way, easements and servitudes together with all additions,
substitutions, replacements, accessions and attachments to any and
all of the foregoing.
"Organic Document" means, relative to any corporate Obligor, its certificate
of incorporation, its by-laws and all shareholder agreements, voting trusts and
similar arrangements applicable to any of its authorized shares of capital
stock, and, relative to any partnership Obligor, its partnership agreement.
"Participant" is defined in Section 10.11.2.
"Partners" means the general and limited partners constituting the
Partnership Subsidiaries, being Future Texas as the general partner, and Future
Nevada as the limited partner, and any successor general partner or limited
partner of any Partnership Subsidiary.
"Partnership Subsidiary" means any direct or indirect Subsidiary of the
Borrower that is a limited partnership, including Future Acquisition 1995,
Ltd., a Texas limited partnership, BMC Development No. 1 Limited Partnership,
a Texas limited partnership and NCI Shawnee L.P., a Texas limited partnership.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Pension Plan" means a "pension plan", as such term is defined in section
3(2) of ERISA, which is subject to Title IV of ERISA (other than a
multiemployer plan as defined in section 4001(a)(3) of ERISA), and to which
the Borrower or any corporation, trade or business that is, along with the
Borrower, a member of a Controlled Group, may have liability, including any
liability by reason of having been a substantial employer within the meaning
of section 4063 of ERISA at any time during the preceding five years, or by
reason of being deemed to be a contributing sponsor under section 4069 of
ERISA.
"Percentage" means, relative to the Lender, 100%, as such percentage may be
adjusted from time to time pursuant to Lender Assignment Notice(s) executed by
the Lender and its Assignee Lender(s) and delivered pursuant to Section 10.11.
"Person" means any natural person, corporation, partnership, joint venture,
limited liability company, firm, association, trust, Government Agency or any
other entity, whether acting in an individual, fiduciary or other capacity.
"Plan" means any Pension Plan or Welfare Plan.
"Pledge Agreement" means a Pledge Agreement of each of the Principal
Shareholders and the Borrower executed and delivered pursuant to Section 6.1.4
and Section 6.2.8, substantially in the form of Exhibit F-1 hereto, and a
Pledge Agreement of each of the Partners executed and delivered pursuant to
Section 6.1.4 and Section 6.2.8, substantially in the form of Exhibit F-2
hereto, in each case as amended, supplemented, restated or otherwise
modified from time to time.
"Principal Shareholders" means ▇▇▇▇▇ Energy Resources, Ltd., EnCap Equity
1994 Limited Partnership, Energy Capital Investment Company PLC, ▇▇▇▇ ▇▇▇▇▇ and
▇▇▇ ▇▇▇▇▇▇▇▇, the controlling shareholders of the Borrower.
"Proceeds Account" is defined in Section 3.4.
"Production Payments" means a production payment (whether volumetric or
dollar denominated) or similar royalty, overriding royalty, net profits
interest or other similar interest in Oil and Gas Properties, or the right
to receive all or a portion of the production or the proceeds from the sale
of production attributable to such Oil and Gas Properties where the holder
of such interest has recourse solely to such interest and the grantor or
transferor thereof has an express contractual obligation to produce and sell
Hydrocarbons from such Oil and Gas Properties, or to cause such Oil and Gas
Properties to be so operated and maintained, in each case in a reasonably
prudent manner.
"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
"Proven Reserves" means collectively, "proved oil and gas reserves," "proved
developed producing oil and gas reserves," "proved developed non-producing oil
and gas reserves" (consisting of proved developed shut-in oil and gas reserves
and proved developed behind pipe oil and gas reserves), and "proved undeveloped
oil and gas reserves," as such terms are defined by the U.S. Securities and
Exchange Commission in its standards and guidelines.
"Quarterly Payment Date" means, commencing September, 1998, the last
Business Day of each March, June, September and December.
"Reimbursement Obligation" is defined in Section 4.5.
"Release" means a "release," as such term is defined in CERCLA.
"Remedial Action" means any action under Environmental Laws required to
(a) clean up, remove, treat, dispose of, ▇▇▇▇▇, or in any other way address
pollutants (including Hazardous Materials) in the environment, (b) prevent the
Release or threat of a Release or minimize the further Release of pollutants,
or (c) investigate and determine if a remedial response is needed and to
design such a response and any post-remedial investigation, monitoring,
operation, and maintenance and care.
"Resource Conservation and Recovery Act" means the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901, et seq., as in effect from time to time.
"Restricted Payment Tests" means compliance with each of the following
restrictions (both before and immediately after giving effect to the applicable
Distribution Payment):
(a) Tangible Net Worth shall not be less than the sum of
(i) $5,000,000 plus (ii) fifty percent (50%) of Consolidated Net Income of
the Borrower and its consolidated Subsidiaries (excluding the effects of
consolidated net losses), for all Fiscal Quarters beginning after the
Effective Date and treated as a single accounting period, plus (iii) one-
hundred percent (100%) of the net proceeds received by the Borrower or its
Subsidiaries from the sale of any Non-Redeemable Stock by the Borrower or
any of its Subsidiaries at any time after the Effective Date;
(b) the Current Ratio shall be not less than 1.1:1.0;
(c) the Debt to Capitalization Ratio shall not be greater than
70%;
(d) the Interest Coverage Ratio shall be not less than 3.0:1.0;
(e) there shall exist no Borrowing Base Deficiency; and
(f) no Default shall have occurred and be continuing.
"Revolving Loans" means the loans provided for by Section 2.1.1.
"Security Agreement" means a security agreement and any similar instrument
or agreement executed and delivered pursuant to Section 6.1.5 or Section 6.2.6,
substantially in the form of Exhibit B, as amended, supplemented, restated or
otherwise modified from time to time.
"Security Documents" means, collectively, (a) the Guaranties, (b) the Pledge
Agreements, (c) the Mortgages, (d) the Security Agreements, (e) the Consents
and (f) the Mortgage Consents, together with any exhibits, schedules and
other attachments to such documents and any financing statements related
thereto, as such documents, exhibits, schedules, attachments or financing
statements may be, from time to time, amended, supplemented, restated or
otherwise modified.
"Stated Amount" of each Letter of Credit means the face amount or the
"Stated Amount" of such Letter of Credit (as defined therein).
"Stated Expiry Date" is defined in Section 4.1.
"Stated Maturity Date means that date that is four (4) years after the
Availability Termination Date.
"Subsidiary" means, with respect to any Person, (a) any corporation of which
more than 50% of the outstanding capital stock having ordinary voting power to
elect a majority of the board of directors of such corporation (irrespective of
whether at the time capital stock of any other class or classes of such
corporation shall or might have voting power upon the occurrence of any
contingency) is at the time directly or indirectly owned by such Person, (b)
any partnership, limited liability company, joint venture, association or
other business entity in which more than 50% of the equity interest or
voting power is at the time directly or indirectly owned by such Person, by
such Person and one or more other Subsidiaries of such Person, or by one or
more other Subsidiaries of such Person or (c) any partnership in which such
Person is a general partner.
"Surety Instruments" means all letters of credit (including standby and
commercial), banker's acceptances, bank guaranties, shipside bonds, surety
bonds and similar instruments.
"Tangible Net Worth" means the consolidated net worth of the Borrower and
its consolidated Subsidiaries after subtracting therefrom the aggregate amount
of any intangible assets of the Borrower and its consolidated Subsidiaries,
including goodwill, franchises, licenses, patents, trademarks, trade names,
copyrights, service marks and brand names.
"Taxes" is defined in Section 5.2.
"Term Loans" means the loans provided for by Section 2.1.2.
"Unavailable Commitment" means $20,000,000 less the Borrowing Base (in each
case as reduced from time to time pursuant to the provisions of Section 2.2).
"United States" or "U.S." means the United States of America, its fifty
States and the District of Columbia.
"Welfare Plan" means a "welfare plan", as such term is defined in section
3(1) of ERISA.
"Year 2000 Compliant" is defined in Section 7.19.
"Year 2000 Problem" is defined in Section 7.19.
SECTION I.2. Use of Defined Terms. Unless otherwise defined or the context
otherwise requires, terms for which meanings are provided in this Agreement
shall have such meanings when used in the Disclosure Schedule and in each Note,
Borrowing Request, notice and other communication or other Loan Document
delivered from time to time in connection with this Agreement or any other Loan
Document.
SECTION I.3. Cross-References. Unless otherwise specified, references in
this Agreement and in each other Loan Document to any Article or Section are
references to such Article or Section in this Agreement or other Loan Document,
as applicable.
(a) The meanings of defined terms are equally applicable to the
singular and plural forms of the defined terms.
(b) The words "hereof," "herein," "hereunder" and similar words
refer to this Agreement as a whole and not to any particular provision of
this Agreement; and subsection, Section, Schedule and Exhibit references are
to this Agreement or such other Loan Document, as the case may be, and,
unless otherwise specified, references in any Article, Section or definition
to any clause are references to such clause of such Article, Section or
definition.
(c) (i) The term "documents" includes any and all
instruments, documents, agreements, certificates, indentures, notices
and other writings, however evidenced.
(ii) In the computation of periods of time from a specified
date to a later specified date, the word "from" means "from and
including"; the words "to" and "until" each mean "to but excluding,"
and the word "through" means "to and including."
(iii) The term "property" includes any kind of property or
asset, real, personal or mixed, tangible or intangible.
(d) Unless otherwise expressly provided herein, (i) references to
agreements (including this Agreement) and other contractual instruments
shall be deemed to include all subsequent amendments and other modifications
thereto, but only to the extent such amendments and other modifications are
not prohibited by the terms of any Loan Document, and (ii) references to any
statute or regulation are to be construed as including all statutory and
regulatory provisions consolidating, amending, replacing, supplementing or
interpreting the statute or regulation.
(e) This Agreement and other Loan Documents may use several
different limitations, tests or measurements to regulate the same or similar
matters. All such limitations, tests and measurements are cumulative and
shall each be performed in accordance with their terms. Unless otherwise
expressly provided, any reference to any action of the Lender by way of
consent, approval or waiver shall be deemed modified by the phrase "in its
sole discretion."
(f) This Agreement and the other Loan Documents are the result of
negotiations among and have been reviewed by counsel to the Lender, the
Borrower and the other parties, and are the products of all parties.
Accordingly, they shall not be construed against the Lender merely because
of the Lender's involvement in their preparation.
SECTION I.4. Accounting and Financial Determinations. Unless otherwise
specified, all accounting terms used herein or in any other Loan Document shall
be interpreted, all accounting determinations and computations hereunder or
thereunder (including under Section 8.2.4) shall be made, and all financial
statements required to be delivered hereunder or thereunder shall be prepared
in accordance with, those generally accepted accounting principles ("GAAP")
applied in the preparation of the financial statements referred to in
Section 7.7.
ARTICLE II
COMMITMENTS, BORROWING PROCEDURES AND NOTES
SECTION II.1. Commitments.
SECTION II.1.1. Revolving Loans. On the terms and subject to the
conditions of this Agreement (including Article VI), the Lender agrees to make
revolving loans ("Revolving Loans") to the Borrower equal to the aggregate
amount requested by the Borrower, subject to this Section 2.1. On the terms
and subject to the conditions hereof, the Borrower may from time to time
borrow, prepay and reborrow Revolving Loans. From time to time on any
Business Day during the period from and after the Effective Date to, but not
including, the earlier to occur of (x) the Availability Termination Date,
and (y) the Commitment Termination Date, the Lender will make Revolving
Loans to the Borrower equal to the amount of the Revolving Loans requested
by the Borrower to be made on such day in the applicable Borrowing Request
therefor.
SECTION II.1.2. Term Loans. On the terms and subject to the conditions of
this Agreement (including Article VI), the Lender agrees to convert the
aggregate unpaid principal amount of the Revolving Loans outstanding at the
opening of business on the Availability Termination Date to the principal
amount of a Term Loan, provided that (i) no Event of Default has occurred
and is continuing at that time and (ii) the Borrower has provided a
certificate to the Lender to that effect. Once repaid or prepaid, Term
Loans may not be reborrowed.
SECTION II.1.3. Letters of Credit. From time to time on any Business Day,
the Issuer will issue the Letters of Credit in accordance with Article IV.
SECTION II.1.4. Lender Not Required To Make Loans, etc. Under Certain
Circumstances. The Lender shall not be required to
(a) make any Loan if, after giving effect thereto
(i) the aggregate outstanding principal amount of all Loans would
exceed the Commitment Amount less the Letter of Credit Outstandings, or
(ii) a Borrowing Base Deficiency would exist; or
(iii) an Event of Default has occurred and is continuing; or
(b) cause an Issuer to issue any Letter of Credit if, after giving
effect thereto
(i) all Letter of Credit Outstandings together with the aggregate
outstanding principal amount of all Loans would exceed the Commitment
Amount; or
(ii) a Borrowing Base Deficiency would exist; or
(iii) all Letter of Credit Outstandings would exceed $1,000,000;
or
(iv) an Event of Default has occurred and is continuing.
SECTION II.2. Reduction of Commitment Amounts. Any Commitment Amount is
subject to reduction from time to time pursuant to this Section 2.2.
SECTION II.2.1. Optional. The Borrower may, from time to time on any
Business Day, voluntarily reduce the Commitment Amount; provided, however, that
all such reductions shall require at least three Business Days' prior notice to
the Lender and be permanent, and any partial reduction of either Commitment
Amount shall be in a minimum amount of $100,000 and in an integral multiple of
$50,000.
SECTION II.2.2. Mandatory.
(a) On the Availability Termination Date, the unused portion of
the Commitment Amount shall, without any further action, automatically and
permanently be cancelled.
(b) On any Commitment Termination Date, the Commitment Amount
shall be reduced to zero.
SECTION II.3. Borrowing Procedure. By delivering a Borrowing Request to
the Lender on or before 10:00 a.m. (Chicago time) on a Business Day, the
Borrower may from time to time irrevocably request, on one (1) Business Day's
notice, that a borrowing be made in a minimum amount of $100,000 and an
integral multiple of $50,000, or in the unused amount of the applicable
Commitment. On the terms and subject to the conditions of this Agreement,
each borrowing shall be made on the Business Day specified in such Borrowing
Request. The Lender shall make such funds available to the Borrower by wire
transfer to the accounts the Borrower shall have specified in its Borrowing
Request.
SECTION II.4. Loan Accounts and Notes.
(a) The Loans made by the Lender shall be evidenced by one or
more loan accounts or records maintained by the Lender in the ordinary
course of business. The loan accounts or records maintained by the Lender
shall be rebuttable presumptive evidence of the amount of the Loans made by
the Lender to the Borrower and the interest and payments thereon. Any
failure so to record or any error in doing so shall not, however, limit or
otherwise affect the obligation of the Borrower hereunder to pay any amount
owing with respect to the Loans.
(b) The Loans made by the Lender shall also be evidenced by a
Note or Notes payable to the order of the Lender in a maximum principal
amount equal to the original, aggregate Commitment Amount. The Borrower
hereby irrevocably authorizes the Lender to make (or cause to be made)
appropriate notations on the grid attached to the Notes (or on any
continuation of such grid) or in other books and records maintained by the
Lender, which notations, if made, shall evidence, inter alia, the date of,
the outstanding principal of, and the interest rate applicable to the Loans
evidenced thereby (the Borrower may from time to time reasonably request a
copy of such grid). Such notations shall be rebuttable presumptive evidence
of the matters described therein; provided, however, that the failure of the
Lender to make any such notations shall not limit or otherwise affect any
Obligations of the Borrower or any other Obligor.
SECTION II.5. Borrowing Base Redetermination.
(a) Within thirty (30) days after receipt of the Engineering
Report required to be delivered semi-annually, commencing with the
Engineering Report required to be delivered sixty (60) days after January
1, 1999, the Lender shall notify the Borrower in writing of the Borrowing
Base determined by the Lender on the basis of such Engineering Report.
Borrower or Lender may request, and Lender will consider, one additional
determination of the Borrowing Base at any time during each calendar year
following the Effective Date. Each such determination is herein called a
"Borrowing Base Redetermination". Each Borrowing Base Redetermination shall
be effective as of April 1st (with respect to Engineering Reports effective
January 1st), October 1st (with respect to Engineering Reports effective
July 1st) or upon notice from the Lender (with respect to any requested
redetermination) when the Borrower is notified of the amount of the
redetermined Borrowing Base by the Lender.
(b) The Borrowing Base is also subject to adjustment as provided
for in Section 3.1.2.
SECTION II.6. Purposes. The Borrower shall apply the proceeds of each Loan
only for general business purposes including Acquisitions and the development
of Oil and Gas Properties.
ARTICLE III
REPAYMENTS, PREPAYMENTS, INTEREST AND FEES
SECTION III.1. Repayments and Prepayments and Certain Borrowing Base
Matters. The Borrower shall repay the unpaid principal amount of the Loans as
set forth in this Section 3.1.
SECTION III.1.1. Repayments and Prepayments. The Borrower shall repay in
full the unpaid principal amount of each Revolving Loan, and each Revolving
Loan shall mature and be due and payable, on the Availability Termination Date;
provided, however, that if no Event of Default has occurred and is continuing,
the unpaid principal amount of the Revolving Loans shall, on the Availability
Termination Date, not be due and payable but shall convert to Term Loans. The
Borrower shall repay in full the unpaid principal amount of each Loan upon the
Stated Maturity Date. Prior thereto, the Borrower
(a) may, from time to time on any Business Day, make a voluntary
prepayment, in whole or in part, of the outstanding principal amount of any
Loans; provided, however, that
(i) all such voluntary prepayments shall require at least
three but no more than five Business Days' prior written notice to
the Lender (which notice is irrevocable); and
(ii) all such voluntary partial prepayments shall be in an
aggregate minimum amount of $100,000 and an integral multiple of
$50,000;
(b) shall, on each date when any reduction in any Commitment
Amount shall become effective, including pursuant to Section 2.2, make a
mandatory prepayment (which shall be applied (or held for application, as
the case may be) by the Lender to the payment of the aggregate unpaid
principal amount of those Loans then outstanding and then to the payment of
the then Letter of Credit Outstandings) equal to the excess, if any, of the
aggregate outstanding principal amount of all Loans and Letter of Credit
Outstandings over such Commitment Amount as so reduced;
(c) shall make prepayments as specified in Section 3.1.2;
(d) shall, on each Quarterly Payment Date after the Availability
Termination Date, make a payment in an amount equal to that necessary to
amortize the principal of all Loans equally over the remaining Quarterly
Payment Dates and the Stated Maturity Date; and
(e) shall, immediately upon any acceleration of the Loans
pursuant to Section 9.2 or Section 9.3, repay all Loans, unless, pursuant
to Section 9.3, only a portion of all Loans is so accelerated.
Each payment or prepayment of any Loans made pursuant to this Section shall be
without premium or penalty, and shall be applicable, to the extent of such
prepayment, in the inverse order of maturity. No voluntary prepayment of
principal of any Loans or any prepayment pursuant to the preceding clause (c)
shall cause a reduction in any Commitment Amount.
SECTION III.1.2. Borrowing Base Deficiencies and Asset Sales.
(a) Upon the occurrence of a Borrowing Base Deficiency, the
Lender may notify the Borrower of such Borrowing Base Deficiency. Within
ten (10) days from and after the Borrowing Base Deficiency Notification
Date, the Borrower shall notify the Lender that it shall take one of the
following actions:
(i) execute and deliver to the Lender supplemental or
additional Security Documents, in form and substance reasonably
satisfactory to the Lender and its counsel, securing payment of the
Notes and the other Obligations and covering additional Oil and Gas
Properties directly owned by the Borrower and its Subsidiaries which
are not then covered by any Loan Document and which are of a type and
nature satisfactory to the Lender, and having a value, in addition to
other Oil and Gas Properties already subject to a Mortgage,
sufficient to eliminate the Borrowing Base Deficiency, all as more
particularly described in Section 8.1.7(a) and (b); or
(ii) make a payment with respect to the Obligations, (which
shall be applied (or held for application, as the case may be) by the
Lender to the payment of the aggregate unpaid principal amount of
those Loans then outstanding and then to the payment of the then
Letter of Credit Outstandings) in an aggregate principal amount
sufficient to eliminate such Borrowing Base Deficiency within sixty
(60) days after the Borrowing Base Deficiency Notification.
If the Borrower shall elect to execute and deliver (or cause its
Subsidiaries to execute and deliver) supplemental or additional Security
Documents to the Lender pursuant to clause (i), it shall provide the Lender
with descriptions of the additional assets to be collaterally assigned
(together with current valuations, Engineering Reports, Security Documents
described in clause (i) and title evidence applicable thereto, each of which
shall be in form and substance reasonably satisfactory to the Lender) within
sixty (60) days after the Borrowing Base Deficiency Notification Date. Such
supplemental or additional Security Documents shall be subject to the terms
of Section 8.1.7. If the Borrower fails to take any of the actions
described in clauses (i) or (ii) above within such ten (10) day period, then
without any necessity for notice to the Borrower or any other person, the
Borrower shall become obligated immediately to pay Obligations in an
aggregate principal amount equal to the applicable Borrowing Base
Deficiency.
(b) If the Borrower or any Subsidiary sells, transfers or
otherwise disposes of Oil and Gas Properties included in the most recent
determination of the Borrowing Base and that have a fair market value in the
aggregate for the Borrower and such Subsidiaries in excess of $500,000
during the period from the effective date of the most recent Borrowing Base
Redetermination until the effective date of the next Borrowing Base
Redetermination, the Borrowing Base shall be immediately reduced, until the
effective date of the next Borrowing Base Redetermination, by an amount as
reasonably determined by the Lender, or if the value of the applicable Oil
and Gas Properties cannot be readily determined by the Lender, by the net
sales proceeds realized from the sale, transfer or other disposition of such
assets.
If such reduction shall result in a Borrowing Base Deficiency, then in lieu
of the provisions of clause (a) of Section 3.1.2, the Borrower shall
immediately make a payment with respect to the Obligations in an amount
equal to such Borrowing Base Deficiency. In addition to and cumulative of
the foregoing , if a Borrowing Base Deficiency exists prior to such sale,
transfer or other disposition of assets, then in lieu of the provisions of
clause (a) of Section 3.1.2, the Borrower shall, with the written consent
of the Lender, immediately make a payment with respect to the Obligations
(which shall be applied (or held for application, as the case may be) by the
Lender first to the payment of the aggregate unpaid principal amount of
those Loans then outstanding, and then to the payment of the then Letter of
Credit Outstandings) in an aggregate principal amount equal to the lesser
of the amount of the Borrowing Base Deficiency (after giving effect to the
applicable sale, transfer or other disposition) or 100% of the net sales
proceeds realized from the applicable sale, transfer or other disposition.
(c) In addition, if the Borrower or any of its Subsidiaries
raises capital through the issuance of any type of equity or issues any
subordinated debt or senior unsecured debt, the proceeds of such issuance
will first be applied to cure any Borrowing Base Deficiency.
SECTION III.2. Interest Provisions. Interest on the outstanding principal
amount of Loans shall accrue and be payable in accordance with this
Section 3.2.
SECTION III.2.1. Rate. All Loans shall accrue interest at a rate per annum
equal to the Alternate Base Rate from time to time in effect.
SECTION III.2.2. Post-Maturity Rates, etc. After (w) the date any
principal amount of any Loan shall have become due and payable (whether on the
Stated Maturity Date, upon acceleration or otherwise), (x) the date any other
monetary Obligation of the Borrower shall have become due and payable, (y) the
date any other Event of Default shall have occurred (and so long as such Event
of Default shall be continuing), and (z) the date that is sixty (60) days after
a Borrowing Base Deficiency Notification Date, if the applicable Borrowing Base
Deficiency has not been cured, the Borrower shall pay, but only to the extent
permitted by Applicable Law, interest (after as well as before judgment) on all
Obligations at a rate per annum equal to the sum of the Alternate Base Rate
plus a margin of 3%.
SECTION III.2.3. Payment Dates. Interest accrued on each Loan shall be
payable, without duplication:
(a) on the Stated Maturity Date;
(b) on the date of any optional or required payment or
prepayment, in whole or in part, of principal outstanding on such Loan and
on that portion of such Loan so paid or prepaid;
(c) on each Quarterly Payment Date occurring after the Effective
Date; and
(d) on that portion of any Loans which is accelerated pursuant to
Section 9.2 or Section 9.3, immediately upon such acceleration.
Interest accrued on Loans or other monetary Obligations arising under this
Agreement or any other Loan Document after the date such amount shall have
become due and payable (whether on the Stated Maturity Date, upon acceleration
or otherwise) shall be payable upon demand.
SECTION III.2.4. Maximum Interest. It is the intention of the parties
hereto to conform strictly to applicable usury laws and, anything herein to the
contrary notwithstanding, the Obligations of the Borrower to the Lender under
this Agreement shall be subject to the limitation that payments of interest
shall not be required to the extent that receipt thereof would be contrary to
provisions of Applicable Law limiting rates of interest which may be charged or
collected by the Lender. Accordingly, if the transactions contemplated hereby
would be usurious under Applicable Law with respect to the Lender then, in that
event, notwithstanding anything to the contrary in this Agreement, it is agreed
as follows:
(a) the provisions of this Section 3.2.4 shall govern and
control;
(b) the aggregate of all consideration which constitutes interest
under Applicable Law that is contracted for, charged or received under this
Agreement, or under any of the other aforesaid agreements or otherwise in
connection with this Agreement by the Lender shall under no circumstances
exceed the maximum amount of interest allowed by Applicable Law (such
maximum lawful interest rate, if any, with respect to the Lender herein
called the "Highest Lawful Rate"), and any excess shall be credited to the
Borrower by the Lender (or, if such consideration shall have been paid in
full, such excess refunded to the Borrower);
(c) all sums paid, or agreed to be paid, to the Lender for the
use, forbearance and detention of the indebtedness of the Borrower to the
Lender hereunder shall, to the extent permitted by Applicable Law, be
amortized, prorated, allocated and spread throughout the full term of such
indebtedness until payment in full so that the actual rate of interest is
uniform throughout the full term thereof; and
(d) if at any time the interest provided pursuant to
Sections 3.2.1 and 3.2.2 together with any other fees payable pursuant to
this Agreement and deemed interest under Applicable Law, exceeds that amount
which would have accrued at the Highest Lawful Rate, the amount of interest
and any such fees to accrue to the Lender pursuant to this Agreement shall
be limited, notwithstanding anything to the contrary in this Agreement, to
that amount which would have accrued at the Highest Lawful Rate, but any
subsequent reductions, as applicable, shall not reduce the interest to
accrue to such Lender pursuant to this Agreement below the Highest Lawful
Rate until the total amount of interest accrued pursuant to this Agreement
and such fees deemed to be interest equals the amount of interest which
would have accrued to such Lender if a varying rate per annum equal to the
interest provided pursuant to Sections 3.2.1 and 3.2.2 had at all times been
in effect, plus the amount of fees which would have been received but for
the effect of this Section 3.2.4.
SECTION III.3. Fees. The Borrower agrees to pay the fees set forth in this
Section 3.3. All such fees shall be non-refundable.
SECTION III.3.1. Structuring Fee. The Borrower has paid to the Lender upon
execution of that certain commitment letter and term sheet dated as of July 28,
1998, a structuring fee in the amount of $50,000. As of the Effective Date,
such fee shall be credited against the closing fee provided for in Section
3.3.2.
SECTION III.3.2. Closing Fee. On the Effective Date, the Borrower agrees
to pay to the Lender a closing fee in the amount of $105,000.
SECTION III.3.3. Engineering and Redetermination Fee. The Borrower shall
pay to the Lender an annual engineering and redetermination fee of $25,000, a
prorated portion of which shall be payable quarterly in arrears on each
Quarterly Payment Date and on the earlier of the Commitment Termination Date or
the Availability Termination Date.
SECTION III.3.4. Commitment Fees. The Borrower shall pay to the Lender a
commitment fee, for the period from and including the Effective Date to but not
including the earlier to occur of (x) the Availability Termination Date, and
(y) the Commitment Termination Date, equal to (i) 0.5 of 1% per annum of the
average of the actual daily unused Commitment Availability, based on a year
comprised of three hundred sixty (360) days. Accrued commitment fees shall be
payable in arrears on each Quarterly Payment Date and on the earlier of the
Commitment Termination Date or the Availability Termination Date.
SECTION III.3.5. Letter of Credit Stated Amount Fee. The Borrower agrees
to pay to the Issuer a fee for each Letter of Credit for the period from and
including the date of the issuance of such Letter of Credit to (but not
including) the date upon which such Letter of Credit expires, at a rate per
annum equal to 1% of the Stated Amount of such Letter of Credit, based on a
year comprised of three-hundred and sixty (360) days. A prorated portion of
such fee shall be payable by the Borrower in arrears on each Quarterly
Payment Date, and on the earlier of the Availability Termination Date or the
Commitment Termination Date for any period then ending for which such fee
shall not theretofore have been paid, commencing on the first such date
after the issuance of such Letter of Credit.
SECTION III.3.6. Letter of Credit Issuance Fee. The Borrower agrees to pay
to the Issuer an issuance fee for each Letter of Credit issued by the Issuer
for the period from and including the date of issuance of such Letter of
Credit to (but not including) the date upon which such Letter of Credit
expires, the greater of (x) 0.25% of the Stated Amount of such Letter of
Credit or (y) $300. Such fee shall be payable by the Borrower in arrears on
each Quarterly Payment Date and on the date of issuance of such Letter of
Credit.
SECTION III.3.7. Letter of Credit Administrative Fees. The Borrower agrees
to pay to the Lender, the amounts described in Section 4.3.
SECTION III.3.8. Borrowing Base Fee. The Borrower agrees to pay to the
Lender a Borrowing Base fee in the amount of $45,000 at the first time that the
Borrowing Base is redetermined at an amount in excess of $10,500,000 and in the
amount of $50,000 at the first time that the Borrowing Base is redetermined at
an amount in excess of $15,000,000.
SECTION III.4. Proceeds Account. The Security Documents contain an
assignment to the Lender by the Borrower or its Subsidiaries, as applicable, of
all production of Hydrocarbons and all proceeds attributable thereto properly
allocable to the Mortgaged Properties. Notwithstanding such assignment of
production, the Borrower may, until the Lender shall give notice to the
contrary, receive such proceeds. Thereafter, all such proceeds from the
sale of such production shall be paid directly into an account of the Borrower
maintained with the Lender (the "Proceeds Account"). The Borrower hereby
grants to the Lender, subject to the prior assignment in favor of the Lender
of such production and its proceeds, a security interest in the Proceeds
Account and all proceeds thereof.
ARTICLE IV
LETTERS OF CREDIT
SECTION IV.1. Issuance Requests. By delivering to the Issuer an Issuance
Request on or before 12:00 noon (Chicago time), the Borrower may request, from
time to time prior to the earlier to occur of (x) the Availability Termination
Date and (y) the Commitment Termination Date, and on not less than three (3)
nor more than ten (10) Business Days' notice, that the Issuer issue an
irrevocable standby letter of credit in substantially the form of Exhibit L
hereto, or in such other form as may be mutually agreed by the Borrower and
the Issuer (each a "Letter of Credit"), in support of financial obligations
of the Borrower incurred in the Borrower's ordinary course of business and
which are described in such Issuance Request. Each Letter of Credit shall
by its terms:
(a) be issued in a Stated Amount which
(i) is at least $50,000;
(ii) does not exceed (or would not exceed) the then Letter
of Credit Availability;
(b) be stated to expire on a date (its "Stated Expiry Date") no
later than the earlier of (i) one (1) year after its date of issuance, or
(ii) one (1) year after the Availability Termination Date; and
(c) on or prior to its Stated Expiry Date
(iA terminate immediately upon notice to the Issuer from
the beneficiary thereunder that all obligations covered thereby have
been terminated, paid, or otherwise satisfied in full,
(iiA reduce in part immediately and to the extent the
beneficiary thereunder has notified the Issuer that the obligations
covered thereby have been paid or otherwise satisfied in part, or
(iiiA terminate thirty (30) Business Days after notice to
the beneficiary thereunder from the Lender that an Event of Default
has occurred and is continuing.
So long as no Default has occurred and is continuing, by delivery to the Issuer
of an Issuance Request at least three (3) but not more than ten (10) Business
Days prior to the Stated Expiry Date of any Letter of Credit, the Borrower may
request the Issuer to extend the Stated Expiry Date of such Letter of Credit
for an additional period not to exceed the earlier of one (1) year from its
date of extension, the Availability Termination Date or the Commitment
Termination Date.
SECTION IV.2. Issuances and Extensions. On the terms and subject to the
conditions of this Agreement (including Article VI), the Issuer shall issue
Letters of Credit, and extend the Stated Expiry Dates of outstanding Letters of
Credit, in accordance with the Issuance Requests made therefor. The Issuer
will make available the original of each Letter of Credit which it issues in
accordance with the Issuance Request therefor to the beneficiary thereof and
will notify the beneficiary under any Letter of Credit of any extension of the
Stated Expiry Date thereof. Upon the expiration of any Letter of Credit, the
Borrower may re-use any portion of the Letter of Credit Availability for the
issuance of new Letters of Credit prior to the earlier to occur of the
Availability Termination Date or the Commitment Termination Date.
The Issuer is under no obligation to issue any Letter of Credit if:
(iA any order, judgment or decree of any Government Agency or
arbitrator shall by its terms purport to enjoin or restrain the Issuer from
issuing such Letter of Credit, or any requirement of Applicable Law or any
request or directive (whether or not having the force of law) from any
Government Agency with jurisdiction over the Issuer shall prohibit, or
request that the Issuer refrain from, the issuance of letters of credit
generally or such Letter of Credit in particular or shall impose upon the
Issuer with respect to such Letter of Credit any restriction, reserve or
capital requirement (for which the Issuer is not otherwise compensated
hereunder) not in effect on the Effective Date, or shall impose upon the
Issuer any unreimbursed loss, cost or expense which was not applicable on
the Effective Date and which the Issuer in good ▇▇▇▇▇ ▇▇▇▇▇ material to it;
(iiA one or more of the applicable conditions contained in
Article VI is not then satisfied;
(iiiA the expiry date of any requested Letter of Credit is prior
to the maturity date of any financial obligation to be supported by the
requested Letter of Credit;
(ivA any requested Letter of Credit does not provide for drafts,
or is not otherwise in form and substance acceptable to the Issuer, or the
issuance of a Letter of Credit shall violate any applicable policies of the
Issuer;
(vA any standby Letter of Credit is for the purpose of supporting
the issuance of any letter of credit by any other Person; or
(viA such Letter of Credit is in a face amount denominated in a
currency other than Dollars.
The Uniform Customs and Practice for Documentary Credits most recently
published by the International Chamber of Commerce at the time of issuance
of any Letter of Credit shall (unless otherwise expressly provided in the
Letters of Credit) apply to the Letters of Credit.
SECTION IV.3. Expenses. The Borrower agrees to pay to the Issuer all
reasonable administrative expenses of the Issuer in connection with the
issuance, maintenance, modification (if any) and administration of each Letter
of Credit issued by the Issuer upon demand from time to time.
SECTION IV.4. Disbursements. The Issuer will notify the Borrower promptly
of the presentment for payment of any Letter of Credit, together with notice of
the date (the "Disbursement Date") such payment shall be made. Subject to the
terms and provisions of such Letter of Credit, the Issuer shall make such
payment to the beneficiary (or its designee) of such Letter of Credit. In
paying any drawing under a Letter of Credit, the Issuer shall not have any
responsibility to obtain any document (other than to obtain and review any
sight draft and certificates expressly required by the Letter of Credit) or to
ascertain or inquire as to the validity or accuracy of any such document or the
authority of the Person executing or delivering any such document. Prior to
12:00 noon (Chicago time) on the Disbursement Date, the Borrower will reimburse
the Issuer for all amounts which it has disbursed under the Letter of Credit.
To the extent the Issuer is not reimbursed in full in accordance with the
preceding sentence, the Borrower's Reimbursement Obligation shall accrue
interest at a fluctuating rate equal to the lesser of (i) the Highest Lawful
Rate or (ii) the Alternate Base Rate, plus a margin of 3% per annum, payable on
demand. In the event the Issuer is not reimbursed by the Borrower on the
Disbursement Date, or if the Issuer must for any reason return or disgorge such
reimbursement, the Lender shall, on the terms and subject to the conditions of
this Agreement, fund the Reimbursement Obligation therefor by making, on the
next Business Day, Loans as provided in Section 2.1.1 (the Borrower being
deemed to have given a timely Borrowing Request therefor for such amount);
provided, however, for the purpose of determining the availability of the
Commitments to make Loans immediately prior to giving effect to the
application of the proceeds of such Loans, such Reimbursement Obligation
shall be deemed not to be outstanding at such time.
SECTION IV.5. Reimbursement. The Borrower's obligation (a "Reimbursement
Obligation") under Section 4.4 to reimburse the Issuer with respect to each
Disbursement (including interest thereon) shall be absolute and unconditional
under any and all circumstances and irrespective of any setoff, counterclaim,
or defense to payment which the Borrower may have or have had against the
Lender, the Issuer or any beneficiary of a Letter of Credit, including any
defense based upon the occurrence of any Default, any draft, demand or
certificate or other document presented under a Letter of Credit proving to
be forged, fraudulent, invalid or insufficient, the failure of any
Disbursement to conform to the terms of the applicable Letter of Credit (if,
in the Issuer's good faith opinion, such Disbursement is determined to be
appropriate) or any non-application or misapplication by the beneficiary of
the proceeds of such Disbursement, or the legality, validity, form,
regularity, or enforceability of such Letter of Credit; provided, however,
that nothing herein shall adversely affect the right of the Borrower to
commence any proceeding against the Issuer for any wrongful Disbursement
made by the Issuer under a Letter of Credit as a result of acts or omissions
constituting gross negligence or wilful misconduct on the part of the
Issuer.
SECTION IV.6. Deemed Disbursements. Upon the occurrence and during the
continuation of any Event of Default or the occurrence of the Commitment
Termination Date, an amount equal to that portion of Letter of Credit
Outstandings attributable to outstanding and undrawn Letters of Credit shall,
at the election of the Lender, and without demand upon or notice to the
Borrower, be deemed to have been paid or disbursed by the Lender under such
Letters of Credit (notwithstanding that such amount may not in fact have
been so paid or disbursed), and, upon notification by the Lender to the
Borrower of its obligations under this Section, the Borrower shall be
immediately obligated to reimburse the Lender the amount deemed to have been
so paid or disbursed by the Lender. Any amounts so received by the Lender
from the Borrower pursuant to this Section shall be held as collateral
security for the repayment of the Borrower's obligations in connection with
the Letters of Credit issued by the applicable Issuer. At any time when
such Letters of Credit shall terminate and all Obligations to the Lender are
either terminated or paid or reimbursed to the Lender in full, the
Obligations of the Borrower under this Section shall be reduced accordingly
(subject, however, to reinstatement in the event any payment
in respect of such Letters of Credit is recovered in any manner from the Lender
or the Issuer), and the Lender will return to the Borrower the excess, if any,
of
(ai the aggregate amount deposited by the Borrower with the
Lender and not theretofore applied by the Lender to any Reimbursement
Obligation
over
(bi the aggregate amount of all Reimbursement Obligations to the
Lender pursuant to this Section, as so adjusted.
At such time when all Events of Default shall have been cured or waived, the
Lender shall return to the Borrower all amounts then on deposit with the Lender
pursuant to this Section. All amounts on deposit pursuant to this Section
shall, until their application to any Reimbursement Obligation or their return
to the Borrower, as the case may be, bear interest for the Borrower's account
at the daily average Federal Funds Rate from time to time in effect (net of
the costs of any reserve requirements, in respect of amounts on deposit
pursuant to this Section, pursuant to F.R.S. Board Regulation D), which
interest shall be held by the Lender as additional collateral security for
the repayment of the Borrower's Obligations in connection with the Letters
of Credit issued by the Lender.
SECTION IV.7. Nature of Reimbursement Obligations. The Borrower shall
assume all risks of the acts, omissions, or misuse of any Letter of Credit by
the beneficiary thereof. Neither the Lender nor any Issuer (except to the
extent of its own gross negligence or willful misconduct) shall be responsible
for:
(ai the form, validity, sufficiency, accuracy, genuineness, or
legal effect of any Letter of Credit or any document submitted by any party
in connection with the application for and issuance of a Letter of Credit,
even if it should in fact prove to be in any or all respects invalid,
insufficient, inaccurate, fraudulent, or forged;
(bi the form, validity, sufficiency, accuracy, genuineness, or
legal effect of any instrument transferring or assigning or purporting to
transfer or assign a Letter of Credit or the rights or benefits thereunder
or proceeds thereof in whole or in part, which may prove to be invalid or
ineffective for any reason;
(ci failure of the beneficiary to comply fully with conditions
required in order to demand payment under a Letter of Credit;
(di errors, omissions, interruptions, or delays in transmission
or delivery of any messages, by mail, cable, telegraph, telex, facsimile or
otherwise;
(ei any loss or delay in the transmission or otherwise of any
document or draft required in order to make a Disbursement under a Letter
of Credit or of the proceeds thereof;
(fi any change in the time, manner or place of payment of, or in
any other term of, all or any of the obligations of the Borrower in respect
of any Letter of Credit;
(gi the existence of any claim, set-off, defense or other right
that the Borrower may have at any time against any beneficiary or any
transferee of any Letter of Credit (or any Person for whom any such
beneficiary or any such transferee may be acting), the Issuer (if other than
the Lender or its Affiliates) or any other Person, whether in connection
with this Agreement, the transactions contemplated hereby or by the Letters
of Credit or any unrelated transaction;
(hi any payment by an Issuer under any Letter of Credit against
presentation of a draft or certificate that does not strictly comply with
the terms of any Letter of Credit; or any payment made by an Issuer under
any Letter of Credit to any Person purporting to be a trustee in bankruptcy,
debtor-in-possession, assignee for the benefit of creditors, liquidator,
receiver or other representative of or successor to any beneficiary or any
transferee of any Letter of Credit, including any arising in connection with
any insolvency proceeding; or
(ii any other circumstance or happening whatsoever, whether or
not similar to any of the foregoing, including any other circumstance that
might otherwise constitute a defense available to, or a discharge of, the
Borrower or a guarantor.
None of the foregoing shall affect, impair, or prevent the vesting of any of
the rights or powers granted the Lender or the Issuer hereunder. In
furtherance and extension, and not in limitation or derogation, of any of
the foregoing, any action taken or omitted to be taken by the Lender or the
Issuer in good faith and not constituting gross negligence or willful
misconduct shall be binding upon the Borrower and shall not put the Lender or
the Issuer under any resulting liability to the Borrower.
SECTION IV.8. Increased Costs; Indemnity. If by reason of
(ai any change in Applicable Law after the Effective Date or any
change in the interpretation or application by any judicial or regulatory
authority of any Applicable Law, or
(bi compliance by the Lender with any direction, request or
requirement (whether or not having the force of law) of any Government
Agency, including Regulation D of the F.R.S. Board:
(iA the Lender shall be subject to any tax (other than
taxes on net income and franchises), levy, charge or withholding of
any nature or to any variation thereof or to any penalty with respect
to the maintenance or fulfillment of its obligations under this
Article IV, whether directly or by such being imposed on or suffered
by the Lender;
(iiA any reserve, deposit or similar requirement is or
shall be applicable, increased, imposed or modified in respect of any
Letters of Credit issued by an Issuer; or
(iiiA there shall be imposed on the Lender any other
condition regarding this Article IV or any Letter of Credit,
and the result of the foregoing is directly or indirectly to increase the cost
to the Lender or the Issuer of issuing or maintaining any Letter of Credit or
to reduce any amount receivable in respect thereof by the Lender or the Issuer,
then and in any such case may, at any time after the additional cost is
incurred or the amount received is reduced, notify the Borrower thereof, and
the Borrower shall pay on demand such amounts as the Lender or the Issuer may
specify to be necessary to compensate the Lender or the Issuer for such
additional cost or reduced receipt, together with interest on such amount
from the date demanded until payment in full thereof at a rate equal at all
times to the Alternate Base Rate plus three percent (3%) per annum. The
determination by the Lender or the Issuer, as the case may be, of any amount
due pursuant to this Section, as set forth in a statement setting forth the
calculation thereof in reasonable detail shall, in the absence of manifest
error, be final and conclusive and binding on all of the parties hereto.
(ci In addition to amounts payable as elsewhere provided in this
Article IV, the Borrower hereby indemnifies, exonerates and holds the Lender
and each Issuer harmless from and against any and all actions, causes of
action, suits, losses, costs, liabilities and damages, and expenses incurred
in connection therewith (irrespective of whether the Lender or the Issuer
is a party to the action for which indemnification is sought), including
reasonable attorneys' fees and disbursements, which the Lender or the Issuer
may incur or be subject to as a consequence, direct or indirect, of
(iA the issuance of the Letters of Credit, other than as a
result of the gross negligence or wilful misconduct of the Issuer as
determined by a court of competent jurisdiction, or
(iiA the failure of the Issuer to honor a drawing under any
Letter of Credit as a result of any act or omission, whether rightful
or wrongful, of any present or future de jure or de facto Government
Agency.
ARTICLE V
CERTAIN INTEREST RATE AND OTHER PROVISIONS
SECTION V.1. Increased Capital Costs. If any change in, or the
introduction, adoption, effectiveness, interpretation, reinterpretation or
phase-in of, any Applicable Law of any Government Agency, affects or would
affect the amount of capital required or expected to be maintained by the
Lender or any Person controlling the Lender, and the Lender determines (in
its sole and absolute discretion) that the rate of return on its or such
controlling Person's capital as a consequence of its Commitments hereunder,
issuance of Letters of Credit or the Loans made by the Lender is reduced to
a level below that which the Lender or such controlling Person could have
achieved but for the occurrence of any such circumstance, then, in any such
case upon notice from time to time by the Lender to the Borrower, the
Borrower shall immediately pay directly to the Lender additional amounts
sufficient to compensate the Lender or such controlling Person for such
reduction in rate of return. A statement of the Lender as to any such
additional amount or amounts (including calculations thereof in reasonable
detail) shall, in the absence of manifest error, be conclusive and binding
upon the Borrower. In determining such amount, the Lender may use any
method of averaging and attribution that it (in its reasonable discretion)
shall deem applicable.
SECTION V.2. Taxes. All payments by the Borrower of principal of, and
interest on, the Loans and all other amounts payable hereunder shall be made
free and clear of and without deduction for any present or future income,
excise, stamp or franchise taxes and other taxes, levies, assessments, imposts,
deductions, fees, duties, withholdings or other charges and all liabilities
with respect thereto of any nature whatsoever imposed by any taxing
authority, but excluding franchise taxes and taxes imposed on or measured by
the Lender's net income or receipts (such non-excluded items being called
"Taxes"). In the event that any withholding or deduction from any payment
to be made by the Borrower hereunder is required in respect of any Taxes
pursuant to any Applicable Law then (unless the Borrower already knows of
such withholding or deduction, upon notice thereof from the Lender) the
Borrower will
(ai pay directly to the relevant authority the full amount
required to be so withheld or deducted;
(bi promptly forward to the Lender an official receipt or other
documentation satisfactory to the Lender evidencing such payment to such
authority; and
(ci pay to the Lender such additional amount or amounts as is
necessary to ensure that the net amount actually received by the Lender will
equal the full amount the Lender would have received and retained had no
such withholding or deduction been required.
Moreover, if any Taxes are directly asserted against the Lender with respect to
any payment received by the Lender hereunder, the Lender may pay such Taxes and
the Borrower will promptly pay such additional amounts (including any
penalties, interest or expenses) as is necessary in order that the net
amount received by such person after the payment of such Taxes (including
any Taxes on such additional amount) shall equal the amount such person
would have received had not such Taxes been asserted.
If the Borrower fails to pay any Taxes when due to the appropriate taxing
authority or fails to remit to the Lender the required receipts or other
required documentary evidence, the Borrower shall indemnify the Lender for any
incremental Taxes or other liability (including interest, expenses or
penalties) that may become payable by the Lender as a result of any such
failure, whether or not such Taxes or liabilities were correctly or legally
asserted. Payment under this indemnity shall be made within thirty (30)
days after the date the Lender makes written demand therefor.
Upon the request of the Borrower, each Assignee Lender that is organized
under the laws of a jurisdiction other than the United States shall, prior to
the due date of any payment in respect of the Borrowings, execute and deliver
to the Borrower, on or about January 15 of each calendar year, one or more
(as the Borrower may reasonably request) United States Internal Revenue
Service Forms 4224 or Forms 1001 or such other forms or documents (or
successor forms or documents), appropriately completed, as may be applicable
to establish the extent, if any, to which a payment to such Assignee Lender
is exempt from withholding or deduction of Taxes.
SECTION V.3. Payments, Computations, etc. Unless otherwise expressly
provided, all payments by the Borrower pursuant to this Agreement, the Note or
any other Loan Document shall be made by the Borrower without setoff, deduction
or counterclaim, not later than 11:00 a.m. (Chicago time) on the date due, in
U.S. Dollars in same day or immediately available funds, to such account with
the Lender in Chicago, Illinois as the Lender shall specify from time to time
by notice to the Borrower. Funds received after that time shall be deemed
to have been received by the Lender on the next succeeding Business Day and
any applicable interest or fee shall continue to accrue. All interest shall be
computed on the basis of the actual number of days (including the first day but
excluding the last day) occurring during the period for which such interest is
payable over a year comprised of three hundred sixty-five (365) days or, if
appropriate, three hundred sixty-six (366) days. Whenever any payment to be
made shall otherwise be due on a day which is not a Business Day, such payment
shall be made on the next succeeding Business Day and such extension of time
shall be included in computing interest and fees, if any, in connection with
such payment.
SECTION V.4. Setoff. The Lender shall, upon the occurrence of any Default
described in clauses (a) through (d) of Section 9.1.9 or upon the occurrence of
any other Event of Default, have the right to appropriate and apply to the
payment of the Obligations owing to it (whether or not then due), and (as
security for such Obligations) the Borrower hereby grants to the Lender a
continuing security interest in, any and all balances, credits, deposits,
accounts or moneys of the Borrower then or thereafter maintained with or
otherwise held by the Lender, including without limitation, the Proceeds
Account. The Lender agrees promptly to notify the Borrower after any such
setoff and application made by the Lender; provided, however, that the failure
to give such notice shall not affect the validity of such setoff and
application. The rights of the Lender under this Section 5.4 are in addition
to other rights and remedies (including other rights of setoff under
Applicable Law or otherwise) which the Lender may have.
SECTION V.5. Use of Proceeds. The Borrower shall apply the proceeds of
each borrowing in accordance with Section 2.6; without limiting the foregoing,
no proceeds of any Loan will be used to acquire any equity security of a class
which is registered pursuant to Section 12 of the Securities Exchange Act of
1934 or any "margin stock", as defined in F.R.S. Board Regulation U, X or G.
ARTICLE VI
CONDITIONS PRECEDENT
SECTION VI.1. Initial Credit Extension. The obligation of the Lender to
make the initial Credit Extension shall be subject to the prior or concurrent
satisfaction of each of the conditions precedent set forth in this Section 6.1.
SECTION VI.1.1. Resolutions, etc. The Lender shall have received from the
Borrower a certificate, dated not later than the date of the initial Credit
Extension, of the respective Secretary or Assistant Secretary of each of the
Borrower, Future California and the Partners, for themselves and on behalf of
the Partnership Subsidiaries, as to
(ai resolutions of the respective Boards of Directors of the
Borrower, Future California and the Partners then in full force and effect
authorizing the execution, delivery and performance of this Agreement, the
Notes and each other Loan Document to be executed by it;
(bi the incumbency and signatures of those of its officers or
Persons authorized to act with respect to this Agreement, the Notes and each
other Loan Document executed by it;
(ci the Organic Documents of the Borrower, Future California, the
Partners and the Partnership Subsidiaries; and
(di evidence that each of the Borrower, Future California, the
Partners and the Partnership Subsidiaries are in good standing under the
laws of the jurisdiction of its respective organization and, as to the
Partnership Subsidiaries, in each of the jurisdictions where the Mortgaged
Properties are located,
upon which certificates the Lender may conclusively rely until it shall have
received a further certificate of the Borrower canceling or amending such prior
certificate.
SECTION VI.1.2. Delivery of Notes. The Lender shall have received the
Notes duly executed and delivered by the Borrower.
SECTION VI.1.3. Guaranties. The Lender shall have received executed
counterparts of the Guaranties, dated as of the date hereof, duly executed by
each of the Borrower's Subsidiaries.
SECTION VI.1.4. Pledge Agreements. The Lender shall have received executed
counterparts of the Pledge Agreements dated as of the date hereof, duly
executed by (a) the Principal Shareholders pledging all of their interests
in the capital stock of the Borrower, (b) the Borrower pledging all of its
interest in the capital stock of each of the Partners and Future California,
and (c) each of the Partners pledging all of its respective partnership
interests in the Partnership Subsidiaries, in each case together with the
certificates, evidencing all of the issued and outstanding shares of capital
stock or partnership interests pledged pursuant to the Pledge Agreements,
which certificates shall in each case be accompanied by undated stock powers
duly executed in blank, or, if any securities pledged pursuant to the Pledge
Agreements are uncertificated securities, confirmation and evidence
satisfactory to the Lender that the security interest in such uncertificated
securities has been transferred to and perfected by the Lender in accordance
with Section 8-313 and Section 8-321 of the Uniform Commercial Code, as in
effect in the State of Illinois, and, as applicable, with the evidence of
completion (or satisfactory arrangement for the completion) of all filings
and recordings of the Pledge Agreements as may be necessary, or in the
reasonable opinion of the Lender, desirable, effectively to create a valid,
perfected first priority lien against and security interest in
the collateral covered thereby.
SECTION VI.1.5. Security Agreement. The Lender shall have received
executed counterparts of a Security Agreement, dated as of the date hereof,
duly executed by the Borrower and each of its Subsidiaries, as applicable,
together with
(ai executed copies of Uniform Commercial Code financing
statements (Form UCC-1), in proper form for filing, naming the Borrower (or
its Subsidiary, as applicable) as the debtor and the Lender as the secured
party, or other similar instruments or documents, filed under the Uniform
Commercial Code of all jurisdictions as may be necessary or, in the opinion
of the Lender, desirable to perfect the security interest of the Lender
pursuant to such Security Agreement; and
(bi executed copies of proper Uniform Commercial Code Form UCC-3
termination statements, if any, necessary to release all Liens and other
rights of any Person in any collateral described in such Security Agreement
previously granted by any Person together with such other Uniform Commercial
Code Form UCC-3 termination statements as the Lender may reasonably request
from the Borrower.
SECTION VI.1.6. Consents and Mortgage Consents. The Lender shall have
received true and correct copies, certified by the Borrower, of all Mortgage
Consents and Consents required in connection with the Properties to be
encumbered by Mortgages delivered pursuant to Section 6.1.7 or the Security
Agreements delivered pursuant to Section 6.1.5, respectively.
SECTION VI.1.7. Mortgage. The Lender shall have received counterparts of
a Mortgage relating to the Hydrocarbon Interests and related Oil and Gas
Properties of the Borrower and its Subsidiaries that are included in the
Lender's determination of the initial Borrowing Base, dated as of a recent
date, duly executed by the Borrower and/or its Subsidiaries, as applicable,
together with
(ai evidence of the completion (or satisfactory arrangements for
the completion) of all recordings and filings of such Mortgage as may be
necessary or, in the reasonable opinion of the Lender, desirable effectively
to create a valid, perfected first priority Lien against the Properties
purported to be covered thereby;
(bi favorable mortgagee's title opinions in favor of the Lender
(in form and substance and issued by title counsel reasonably satisfactory
to the Lender, substantially in the form of Exhibit I-2 hereto), with
respect to the Property purporting to be covered by the Mortgage setting
forth the working interest and net revenue interest of the Borrower and/or
its Subsidiaries in such Properties and opining that the Borrower's and/or
its Subsidiaries' title to such property is good and marketable and valid
and that the interests created by the Mortgage constitute valid first Liens
thereon free and clear of all defects and encumbrances other than as
approved by the Lender; and
(ci such other approvals, opinions, or documents as the Lender
may reasonably request.
SECTION VI.1.8. Opinions of Counsel. The Lender shall have received
opinions, dated the date of the initial borrowing and addressed to the Lender,
from
(▇▇ ▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇▇▇▇, L.L.C., counsel to the Borrower,
Future California, the Partners, the Partnership Subsidiaries, ▇▇▇▇ ▇▇▇▇▇
and ▇▇▇ ▇▇▇▇▇▇▇▇, substantially in the form of Exhibit H hereto;
(bi ▇▇▇▇▇▇▇▇ & Knight, P.C., counsel to EnCap Equity 1994 Limited
Partnership, substantially in the form of Exhibit H hereto;
(▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇, L.L.P., counsel to ▇▇▇▇▇ Energy Resources,
Ltd., substantially in the form of Exhibit H hereto;
(▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇, counsel to Energy Capital
Investment Company PLC, substantially in the form of Exhibit H hereto; and
(▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇, as to the Mortgaged Properties located in
the South Coles Levee Unit, and ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇▇, as to the Mortgaged
Properties located in Midland County, Texas, ▇▇▇▇▇ County, Texas, and Grant
County, Oklahoma, special title counsel to the Borrower, substantially in
the form of Exhibit I-1 hereto.
SECTION VI.1.9. UCC-11s. The Lender shall have received certified copies
of Uniform Commercial Code Requests for Information or Copies (Form UCC-11), or
a similar search report certified by a party acceptable to the Lender, dated a
date reasonably near to the date of the initial borrowing, listing all
effective financing statements which name the Borrower, its Subsidiaries,
and each other Obligor (under their present names and any previous names) as
the debtor and which are filed in the jurisdictions in the States of Texas
and the State of residence (if outside the State of Texas) and the Borrower
and its Subsidiaries in the States of Utah, Oklahoma, New Mexico and
California, together with copies of such financing statements (none of which
shall cover any collateral described in the Existing Mortgages).
SECTION VI.1.10. Evidence of Insurance. The Lender shall have received
certificates of insurance satisfactory to it evidencing the existence of all
insurance required to be maintained by the Borrower by this Agreement and the
other Loan Documents.
SECTION VI.1.11. Engineering Reports. The Lender shall have received an
Engineering Report, dated as of August 1, 1998 from ▇.▇. ▇▇▇▇▇ & Company,
as to Mortgaged Properties.
SECTION VI.1.12. Environmental Report. The Lender shall have received the
Phase I environmental assessments prepared by Grace, Shursen, ▇▇▇▇▇ &
Associates, Inc., EA Services, Inc., E&P Industry Compliance Services, Inc. and
Pilko & Associates, Inc. with respect to the Mortgaged Properties located in
Texas, New Mexico and Oklahoma, and Environmental Compliance Associates with
respect to the Mortgaged Properties located in the ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇; a completed environmental disclosure questionnaire and such
other information with respect to the ownership and past use of the Mortgaged
Properties as the Lender may reasonably request, and such reports and
questionnaire shall be satisfactory in form, substance and scope to the Lender.
SECTION VI.1.13. Budget. The Lender shall have received a budget for the
Borrower for the twelve (12) months immediately following the Effective Date,
in form, scope and detail reasonably satisfactory to the Lender.
SECTION VI.1.14. Intercreditor Agreement. The Lender shall have received
executed counterparts of an intercreditor agreement, dated as of the date
hereof, and satisfactory in form and substance to the Lender, duly executed by
the Borrower and each of its Subsidiaries, as applicable, and each of the
Existing Creditors together with such subordination agreements and related
documents and agreements as are necessary to implement such intercreditor
agreement.
SECTION VI.1.15. Closing of the Future California Merger. The closing
under the Agreement and Plan of Merger among ▇▇▇▇▇ Energy Resources, Ltd., SCL-
CAL Company, the Borrower and Future California shall have occurred such that
Future California shall have acquired the South Coles Levee Unit property.
SECTION VI.1.16. Closing Fees, Expenses, etc. The Lender shall have
received all reasonable costs and expenses due and payable pursuant to
Sections 3.3 and 10.3, if then invoiced.
SECTION VI.1.17. Other Documents. The Lender shall have received such
other documents, including Approvals, as it may reasonably request.
SECTION VI.2. Inclusion of Hydrocarbon Interests in the Borrowing Base.
The inclusion of any additional Hydrocarbon Interests in the Borrowing Base is
subject to the following conditions having been satisfied and receipt by the
Lender of the following documents, in each case with respect to each
Hydrocarbon Interests and related Oil and Gas Properties which the Borrower
requests be included in the Borrowing Base, and each of which conditions and
documents shall be satisfactory to the Lender in form and substance:
SECTION VI.2.1. Environmental Report. The Lender shall have
received Phase I environmental assessments as of a recent date prepared by an
environmental consulting firm as shall be acceptable to the Lender, a completed
environmental disclosure questionnaire and such other information with respect
to the ownership and past use of the Mortgaged Properties relating to such
Hydrocarbon Interests as the Lender may reasonably request, and such reports
and questionnaire shall be satisfactory in form, substance and scope to the
Lender.
SECTION VI.2.2. Mortgage. The Lender shall have received counterparts of
a Mortgage relating to such Hydrocarbon Interests and related Oil and Gas
Properties, dated as of a recent date, duly executed by the Borrower and/or its
Subsidiaries, as applicable, together with
(ai evidence of the completion (or satisfactory arrangements for
the completion) of all recordings and filings of such Mortgage as may be
necessary or, in the reasonable opinion of the Lender, desirable effectively
to create a valid, perfected first priority Lien against the Properties
purported to be covered thereby;
(bi favorable mortgagee's title opinions in favor of the Lender
(in form and substance and issued by title counsel reasonably satisfactory
to the Lender, substantially in the form of Exhibit I-2 hereto), with
respect to the Property purporting to be covered by the Mortgage setting
forth the working interest and net revenue interest of the Borrower and/or
its Subsidiaries in such Properties and opining that the Borrower's and/or
its Subsidiaries' title to such property is good and marketable and valid
and that the interests created by the Mortgage constitute valid first Liens
thereon free and clear of all defects and encumbrances other than as
approved by the Lender; and
(ci such other approvals, opinions, or documents as the Lender
may reasonably request.
SECTION VI.2.3. UCC-11s. The Lender shall have received certified copies
of Uniform Commercial Code Requests for Information or Copies (Form UCC-11), or
a similar search report certified by a party acceptable to the Lender, dated as
of a recent date, listing all effective financing statements which name the
Borrower or its Subsidiaries (under their present names and any previous names)
as the debtor and which are filed in the jurisdictions in the State of Texas or
the state in which such Oil and Gas Properties are located and in which the
Mortgage referenced in Section 6.2.2. is to be filed, together with copies of
such financing statements (none of which shall cover any collateral described
in any such Mortgage).
SECTION VI.2.4. Evidence of Insurance. The Lender shall have received
certificates of insurance satisfactory to it evidencing the existence of all
insurance required to be maintained by the Borrower by this Agreement and the
other Loan Documents with respect to the Hydrocarbon Interests and related Oil
and Gas Properties being added to the Borrowing Base.
SECTION VI.2.5. Engineering Reports. The Lender shall have received an
Engineering Report, dated as of a recent date from a petroleum engineer
reasonably acceptable to the Lender, as to the Hydrocarbon Interests being
added to the Borrowing Base.
SECTION VI.2.6. Material Contracts and Related Consents; Security
Agreement. The Lender shall have received true and correct copies, certified
by the Borrower, and approved the form and substance of, each Material Contract
related to the Hydrocarbon Interests being added to the Borrowing Base. In
addition, the Lender shall have received duly executed counterparts of a
Security Agreement or, if applicable, amendments to an existing Security
Agreement which add any such Material Contract to the Collateral (as defined in
the Security Agreement), a Consent and, as applicable, a Mortgage Consent, for
each such Material Contract, dated as of a recent date.
SECTION VI.2.7. Guaranties. The Lender shall have received duly executed
counterparts of a Guaranty from any Subsidiary which is adding Hydrocarbon
Interests to the Borrowing Base, unless such a Guaranty has already been
delivered to the Lender in connection with a previous addition to the Borrowing
Base or on the Effective Date.
SECTION VI.2.8. Additional Stock or Partnership Pledge. The Lender shall
have received executed counterparts of the Pledge Agreement, dated not later
than the date of such Loan, duly executed by the Borrower or the applicable
Guarantor pledging its interest in the capital stock or partnership interest,
as the case may be, of any Subsidiary which is adding Hydrocarbon Interests
to the Borrowing Base, unless such Pledge Agreement has already been
delivered to the Lender, accompanied by the original share certificate
evidencing such capital stock and executed stock powers (in blank) and the
evidence of satisfactory arrangement for the completion of all filings and
recordings of the Pledge Agreement as may be necessary or, in the reasonable
opinion of the Lender, desirable, effectively to create a valid, perfected
first priority lien against and security interest in the collateral covered
thereby.
SECTION VI.2.9. Other Documents. The Lender shall have received such other
documents as it may reasonably request.
SECTION VI.3. All Credit Extensions. The obligation of the Lender to make
any Credit Extension shall be subject to the satisfaction of each of the
conditions precedent set forth in this Section 6.3.
SECTION VI.3.1. Compliance with Warranties, No Default, etc. Both before
and after giving effect to any Credit Extension (but, if any Default of the
nature referred to in Section 9.1.5 shall have occurred with respect to any
other Indebtedness, without giving effect to the application, directly or
indirectly, of the proceeds of any borrowing) the following statements shall
be true and correct
(ai the representations and warranties set forth in Article VII
(excluding, however, those contained in Section 7.9) shall be true and
correct with the same effect as if then made (unless stated to relate solely
to an earlier date, in which case such representations and warranties shall
be true and correct as of such earlier date);
(bi except as disclosed by the Borrower to the Lender pursuant to
Section 7.9
(iA no labor controversy, litigation, arbitration or
governmental investigation or proceeding shall be pending or, to the
knowledge of the Borrower, threatened against the Borrower or any of
its Subsidiaries which has or might reasonably be expected to have a
Material Adverse Effect; and
(iiA no development shall have occurred in any labor
controversy, litigation, arbitration or governmental investigation or
proceeding disclosed pursuant to Section 7.9 which has or might
reasonably be expected to have a Material Adverse Effect; and
(ci no Default shall have then occurred and be continuing, and
neither the Borrower nor any other Obligor are in material violation of any
Applicable Law or court order or decree if such violation has or might
reasonably be expected to have a Material Adverse Effect.
SECTION VI.3.2. Credit Request. The Lender shall have received a Borrowing
Request or Issuance Request, as the case may be, for such Credit Extension.
Each of the delivery of a Borrowing Request or an Issuance Request and the
acceptance by the Borrower of the proceeds of the borrowing or the issuance of
the Letter of Credit as applicable, shall constitute a representation and
warranty by the Borrower that on the date of such borrowing (both immediately
before and after giving effect to such borrowing and the application of the
proceeds thereof) or the issuance of the Letter of Credit, as applicable, the
statements made in Section 6.3.1 are true and correct.
SECTION VI.3.3. Satisfactory Legal Form. All documents executed or
submitted pursuant hereto by or on behalf of the Borrower or any of its
Subsidiaries shall be reasonably satisfactory in form and substance to the
Lender and its counsel; the Lender and its counsel shall have received all
information, approvals, opinions, documents or instruments as the Lender or its
counsel may reasonably request.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
In order to induce the Lender to enter into this Agreement and to make Loans
and to issue Letters of Credit hereunder, the Borrower represents and warrants
unto the Lender as set forth in this Article VII.
SECTION VII.1. Organization, etc. The Borrower is a Utah corporation and
each of the Subsidiaries is a corporation or limited partnership, validly
organized and existing and in good standing under the laws of the jurisdiction
of its organization, is duly qualified to do business and is in good standing
as a foreign limited partnership or corporation, as the case may be, in each
jurisdiction where the nature of its business requires such qualification,
where the failure so to qualify would have a Material Adverse Effect, and
has full power and authority and holds all requisite governmental licenses,
permits and other approvals to enter into and perform its Obligations under
this Agreement, the Notes and each other Loan Document to which it is a
party and to own and hold under lease its Property and to conduct its
business substantially as currently conducted by it, in each case where the
failure so to do would have a Material Adverse Effect. As of the Effective
Date, the Principal Shareholders are the owners of 83% of the issued and
outstanding shares of the Borrower. The Borrower is the sole shareholder of
Future California and of each Partner. The Partners are the sole partners
of the Partnership Subsidiaries. As of the Effective Date, the Borrower has
no Subsidiaries other than as listed in Schedule IV.
SECTION VII.2. Due Authorization, Non-Contravention, etc. The execution,
delivery and performance by the Borrower and each other Obligor of this
Agreement, the Notes and each other Loan Document executed or to be executed by
it are within the Borrower's and each such Obligor's partnership (or corporate
or other, as the case may be) powers, have been duly authorized by all necessary
partnership (or corporate or other, as the case may be) action, and do not
(ai contravene the Borrower's or such Obligor's Organic
Documents;
(bi contravene or result in any violation of or default under any
Applicable Law or any material contractual restriction, court decree or
order, in each case binding on or affecting the Borrower or any other
Obligor or any Properties, businesses, assets or revenues of the Borrower;
(ci result in, or require the creation or imposition of, any Lien
on (except for the Liens of the Loan Documents) any of the Borrower's or any
other Obligor's Properties, businesses, assets or revenues.
SECTION VII.3. Government Approval, Regulation, etc. No authorization or
approval or other action by, and no notice to or filing with, any Government
Agency or other Person is required for the due execution, delivery or
performance by the Borrower or any other Obligor of this Agreement, the Notes
or any other Loan Document to which it is a party.
SECTION VII.4. Investment Company Act. Neither the Borrower, its
Subsidiaries nor any Affiliate thereof, is an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
SECTION VII.5. Public Utility Holding Company Act. Neither the Borrower
nor any of its Subsidiaries is a "holding company" or a "subsidiary company" of
a "holding company", or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company", within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
SECTION VII.6. Validity, etc. This Agreement constitutes, and the Notes
and each other Loan Document executed by the Borrower or any of its
Subsidiaries will, on the due execution and delivery thereof, constitute,
the legal, valid and binding obligations of the Borrower and such
Subsidiaries, as applicable, enforceable in accordance with their respective
terms, and each Loan Document executed pursuant hereto by each other Obligor
will, on the due execution and delivery thereof by such Obligor, be the
legal, valid and binding obligation of such Obligor enforceable in accordance
with its terms, in each case subject to the effect of any applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally.
SECTION VII.7. Financial Information. The audited consolidated balance
sheets of the Borrower and each of its consolidated Subsidiaries as at
December 31, 1997 and the related consolidated unaudited statements of
operations and cash flow of the Borrower and each of its Subsidiaries, copies
of which have been furnished to the Lender, have been prepared in accordance
with GAAP consistently applied, and present fairly the consolidated financial
condition of the partnerships and corporations covered thereby as at the date
thereof and the results of their unaudited operations for the period then
ended, and show all material Indebtedness of the Borrower and its consolidated
Subsidiaries, as of the date thereof, including liabilities for taxes, material
commitments and Contingent Liabilities.
SECTION VII.8. No Material Adverse Change. Since the date of the audited
financial statements described in Section 7.7, there has been no change in the
financial condition, operations, assets, business, Properties or prospects of
the Borrower or its Subsidiaries that has or might reasonably be expected to
have a Material Adverse Effect.
SECTION VII.9. Litigation, Labor Controversies, etc. There is no pending
or, to the knowledge of the Borrower, threatened litigation, action,
proceeding, or labor controversy affecting the Borrower or any of its
Subsidiaries, or any of their respective Properties, businesses, assets or
revenues, which has or might reasonably be expected to have a Material
Adverse Effect, except as disclosed in Item 7.9 ("Litigation") of the
Disclosure Schedule.
SECTION VII.10. Ownership of Properties. Each of the Borrower and each of
its Subsidiaries has good and merchantable title to its Properties (including,
without limitation, all Hydrocarbon Interests), free and clear of all Liens
except (a) those referred to in the financial statements referred to in Section
7.7, (b) as disclosed to the Lender in the Disclosure Schedule or (c) as
permitted by Section 8.2.3. After giving full effect to all Liens permitted
under Section 8.2.3, the Borrower and its Subsidiaries own the net interests in
Hydrocarbons produced from the Oil and Gas Properties as reflected in the most
recent Engineering Report, and neither the Borrower nor any of its Subsidiaries
is obligated to bear costs or expenses in respect of the Oil and Gas Properties
in excess of its working interest percentage as reflected in the most recent
Engineering Report.
SECTION VII.11. Taxes. Each of the Borrower and its Subsidiaries has filed
all Federal and other tax returns and reports required by Applicable Law to
have been filed by it and has paid all taxes and other governmental charges
thereby shown to be owing, except any such taxes or charges which are being
diligently contested in good faith by appropriate proceedings and for which
adequate reserves in accordance with GAAP shall have been set aside on its
books.
SECTION VII.12. Pension and Welfare Plans. During the twelve-consecutive-
month period prior to the Effective Date and prior to the date of any borrowing
hereunder, no steps have been taken to terminate any Pension Plan, and no
contribution failure has occurred with respect to any Pension Plan sufficient
to give rise to a Lien under section 302(f) of ERISA. No condition exists or
event or transaction has occurred with respect to any Pension Plan which
might result in the incurrence by the Borrower or any member of the
Controlled Group of any material liability, fine or penalty. Except as
disclosed in Item 7.12 ("Employee Benefit Plans") of the Disclosure Schedule
or as otherwise reflected in the Financial Statements of the Borrower and
its consolidated Subsidiaries, neither the Borrower nor any member of the
Controlled Group has any contingent liability with respect to any post-
retirement benefit under a Welfare Plan, other than liability for
continuation coverage described in Part 6 of Title I of ERISA.
SECTION VII.13. Compliance with Law. Neither the Borrower nor any of its
Subsidiaries (a) is in violation of any Applicable Law of, or the terms of any
Approval issued by, any Government Agency; or (b) has failed to obtain any
Approval necessary to ownership of any of its properties or the conduct of its
business (including without limitation any such authorization from the Federal
Energy Regulatory Commission or any state conservation commission or similar
body); which violation or failure could reasonably be expected to have a
Material Adverse Effect.
SECTION VII.14. Claims and Liabilities. Except as disclosed to the Lender
in Item 7.14 ("Claims and Liabilities") of the Disclosure Schedule, neither the
Borrower nor any of its Subsidiaries has accrued any liabilities under gas
purchase contracts for gas not taken, but for which it is liable to pay if not
made up and which, if not paid, would have a Material Adverse Effect. Except as
disclosed to the Lender in Item 7.14 of the Disclosure Schedule, no claims exist
against the Borrower or any of its Subsidiaries for gas imbalances which claims
if adversely determined would have a Material Adverse Effect. No purchaser of
product supplied by the Borrower or any of its Subsidiaries has any claim
against the Borrower or any of its Subsidiaries for product paid for, but for
which delivery was not taken as and when paid for, which claim if adversely
determined would have a Material Adverse Effect.
SECTION VII.15. No Prohibition on Perfection of Security Documents. None
of the terms or provisions of any indenture, mortgage, deed of trust, agreement
or other instrument to which the Borrower or any of its Subsidiaries is a party
or by which the Borrower or any of its Subsidiaries or the property of the
Borrower or any of its Subsidiaries is bound prohibit the filing or recordation
of any of the Loan Documents or any other action which is necessary or
appropriate in connection with the perfection of the Liens evidenced and
created by any of the Loan Documents.
SECTION VII.16. Solvency. Neither the Borrower nor any of its Subsidiaries
is "insolvent", as such term is used and defined in the United States
Bankruptcy Code, 11 U.S.C. 101, et seq.
SECTION VII.17. Environmental Warranties. As a reasonable and prudent
operator of oil and gas producing properties, in the ordinary course of its
business, the Borrower has conducted, with respect to the Acquired Properties
and its existing Oil and Gas Properties, and, on an ongoing basis, conducts a
review of the effect of Environmental Laws on business, operations and
Properties of the Borrower and its Subsidiaries, in the course of which it
identifies and evaluates associated liabilities and costs (including any
capital or operating expenditures required for Remedial Action or other
clean-up or closure of Properties presently owned or operated, any capital
or operating expenditures required for Remedial Action or otherwise to
achieve or maintain compliance with environmental protection standards
imposed by any Environmental Law or as a condition of any Approval, license,
permit or contract, any related constraints on operating activities,
including any periodic or permanent shutdown of any facility or reduction in
the level of or change in the nature of operations conducted thereat and any
actual or potential liabilities to third parties, including employees, and
any related costs and expenses). On the basis of this review, the Borrower
has reasonably concluded that, except as disclosed in Item 7.17
("Environmental Matters") of the Disclosure Schedule, to the best
of its knowledge after due inquiry:
(a) all facilities and Property (including underlying
groundwater) owned, leased or operated by the Borrower or any of its
Subsidiaries have been, and continue to be, owned, leased or operated by the
Borrower or any of its Subsidiaries in compliance with all Environmental
Laws where the failure to do so could reasonably be expected to have a
Material Adverse Effect;
(b) there have been no past, and there are no pending or
threatened
(i) claims, complaints, notices or inquiries to, or
requests for information received by, the Borrower or any of its
Subsidiaries with respect to any alleged violation of any
Environmental Law, that, singly or in the aggregate, have or may
reasonably be expected to have a Material Adverse Effect, or
(ii) claims, complaints, notices or inquiries to, or
requests for information received by, the Borrower or any of its
Subsidiaries regarding potential liability under any Environmental
Law or under any common law theories relating to operations or the
condition of any facilities or Property (including underlying
groundwater) owned, leased or operated by the Borrower or any of its
Subsidiaries that, singly or in the aggregate, have, or may
reasonably be expected to have a Material Adverse Effect;
(c) there have been no Releases of Hazardous Materials at, on or
under any Property now or previously owned or leased by the Borrower or any
of its Subsidiaries that, singly or in the aggregate, have, or may
reasonably be expected to have, a Material Adverse Effect;
(d) each of the Borrower or any of its Subsidiaries, as
applicable, has been issued and is in compliance with all permits,
certificates, approvals, licenses and other authorizations relating to
environmental matters and necessary or desirable for its business where the
failure to do so could reasonably be expected to have a Material Adverse
Effect;
(e) no Property now or previously owned, leased or operated by
the Borrower or any of its Subsidiaries is listed or proposed for listing
on the National Priorities List pursuant to CERCLA, or, to the extent that
such listing may, singly or in the aggregate, have, or may reasonably be
expected to have a Material Adverse Effect, on the CERCLIS or on any other
similar federal or state list of sites requiring investigation or clean-up;
(f) there are no underground storage tanks, active or abandoned,
including petroleum storage tanks, on or under any Property now or
previously owned, leased or operated by the Borrower or any of its
Subsidiaries that, singly or in the aggregate, have, or may reasonably be
expected to have, a Material Adverse Effect;
(g) neither the Borrower nor any Subsidiaries of the Borrower has
directly transported or directly arranged for the transportation of any
Hazardous Material to any location which is listed or proposed for listing
on the National Priorities List pursuant to CERCLA, or, to the extent that
such listing may, singly or in the aggregate, have, or may reasonably be
expected to have a Material Adverse Effect, on the CERCLIS or on any similar
federal or state list or which is the subject of federal, state or local
enforcement actions or other investigations which may lead to material
claims against the Borrower or any of its Subsidiaries for any remedial
work, damage to natural resources or personal injury, including claims under
CERCLA;
(h) there are no polychlorinated biphenyls, radioactive materials
or friable asbestos present at any Property now or previously owned or
leased by the Borrower or any of its Subsidiaries that, singly or in the
aggregate, have, or may reasonably be expected to have, a Material Adverse
Effect; and
(i) no condition exists at, on or under any property now or
previously owned or leased by the Borrower or any of its Subsidiaries which,
with the passage of time, or the giving of notice or both, would give rise
to material liability under any Environmental Law that, singly or in the
aggregate have, or may reasonably be expected to have a Material Adverse
Effect.
SECTION VII.18. Regulations G, U and X. Neither the Borrower nor any of
its Subsidiaries is engaged in the business of extending credit for the purpose
of purchasing or carrying margin stock, and no proceeds of any Loans will be
used for a purpose which violates, or would be inconsistent with, F.R.S. Board
Regulation G, U or X. Terms for which meanings are provided in F.R.S. Board
Regulation G, U or X or any regulations substituted therefor, as from time to
time in effect, are used in this Section with such meanings.
SECTION VII.19. Year 2000 Compliance.
(a) The Borrower is: (i) developing a review and assessment
program of all areas with its and each of its Subsidiaries' businesses and
operations (including those affected by suppliers and vendors) that could be
adversely affected by the "Year 2000 Problem" (that is, the risk that computer
applications (as well as imbedded microchips) used by the Borrower or any of
its Subsidiaries (or any of their suppliers and vendors) may be unable to
recognize and perform properly date-sensitive functions involving certain
dates prior to and any date after December 31, 1999); (ii) developing a
plan and a timetable for addressing the Year 2000 Problem on a timely basis;
and (iii) to date, implementing that plan in accordance with that timetable.
(b) The Borrower reasonably believes that all computer
applications (including those of their suppliers and vendors) that are material
to its or its Subsidiaries' businesses and operations will, on a timely basis,
be able to perform properly date-sensitive functions for all dates before and
after January 1, 2000, (that is, be "Year 2000 Compliant"), except to the
extent that a failure to do so could not reasonably be expected to have a
Material Adverse Effect."
SECTION VII.20. Insurance. The Borrower and its Subsidiaries have the
benefit of the insurance coverage described in the certificates of insurance
delivered pursuant to Section 6.1.10 and required to be maintained pursuant to
Section 8.1.4.
SECTION VII.21. Accuracy of Information. All factual information
heretofore or contemporaneously furnished by or on behalf of the Borrower or
any of its Subsidiaries in writing to the Lender for purposes of or in
connection with this Agreement or any transaction contemplated hereby
(including without limitation each Engineering Report) is, and all other
such factual information hereafter furnished by or on behalf of the Borrower
or any of its Subsidiaries to the Lender will be, true and accurate in every
material respect on the date as of which such information is dated or
certified and as of the date of execution and delivery of this Agreement by
the Lender, and such information is not, or shall not be, as the case may be,
incomplete by omitting to state any material fact necessary to make such
information not misleading.
ARTICLE VIII
COVENANTS
SECTION VIII.1. Affirmative Covenants. The Borrower agrees with the Lender
that, until all Commitments have terminated and all Obligations have been paid
and performed in full, the Borrower and each of its Subsidiaries will perform
the obligations set forth in this Section 8.1.
SECTION VIII.1.1. Financial Information, Reports, Notices, etc.
The Borrower will furnish, or will cause to be furnished, to the Lender copies
of the following financial statements, reports, notices and information:
(a) as soon as available and in any event within 45 days after
the end of each of the first three Fiscal Quarters of each Fiscal Year of
the Borrower, consolidated and consolidating balance sheets of the Borrower
and its consolidated Subsidiaries as of the end of such Fiscal Quarter and
consolidated and consolidating statements of operations and cash flow of the
Borrower and its consolidated Subsidiaries for such Fiscal Quarter and for
the period commencing at the end of the previous Fiscal Year and ending with
the end of such Fiscal Quarter, certified by the chief financial Authorized
Officer of the Borrower;
(b) as soon as available and in any event within 90 days after
the end of each Fiscal Year of the Borrower, a copy of the annual audit
report for such Fiscal Year for the Borrower and its consolidated
Subsidiaries, including therein the audited consolidated and consolidating
balance sheets of the Borrower and its consolidated Subsidiaries as of the
end of such Fiscal Year and audited statements of operations and cash flow
of the Borrower and its consolidated Subsidiaries for such Fiscal Year, in
the case of such audited financials, each case certified (without any
Impermissible Qualification) in a manner reasonably acceptable to the Lender
by an independent public accountant acceptable to the Lender, together with
a certificate from the Chief Financial Officer of the Borrower from such
accountants containing a computation of, and showing compliance with, each
of the financial ratios and restrictions contained in Section 8.2.4 and to
the effect that, in making the examination necessary for the signing of such
annual report by such accountants, they have not become aware of any Default
that has occurred and is continuing, or, if they have become aware of such
Default, describing such Default and the steps, if any, being taken to cure
it;
(c) concurrently with the delivery of the financial statements
referred to is clauses (a) and (b), a certificate, executed by an Authorized
Officer of the Borrower, showing (in reasonable detail and with appropriate
calculations and computations in all respects reasonably satisfactory to the
Lender) compliance with the financial covenants set forth in Section 8.2.4
and also certifying, to such Authorized Officer's best knowledge, that no
Default has occurred and is then outstanding;
(d) on or prior to December 31st of each calendar year, a budget
for the Borrower for the following calendar year, in form, scope and detail
reasonably satisfactory to the Lender;
(e) as soon as possible and in any event within five (5) Business
Days after any responsible officer of the Borrower becomes aware of the
occurrence of each Default and any event which has or is reasonably likely
to have a Material Adverse Effect, a statement of an Authorized Officer of
the Borrower setting forth details of such Default or event and the action
which the Borrower has taken and proposes to take with respect thereto;
(f) as soon as possible and in any event within five (5) Business
Days after any responsible officer of the Borrower becomes aware of (x) the
occurrence of any adverse development with respect to any litigation,
action, proceeding or labor controversy described in Section 7.9 or (y) the
commencement of any litigation, action, proceeding or labor controversy of
the type described in Section 7.9, notice thereof and, to the extent
reasonably requested by the Lender, copies of all documentation relating
thereto not subject to the attorney-client privilege;
(g) as soon as possible and in any event within ten (10) days
after any responsible officer of the Borrower or any of its Subsidiaries has
actual knowledge thereof, notice of
(i) any claim by any Person against the Borrower or any of
its Subsidiaries of nonpayment of, or
(ii) any attempt by any Person to collect upon or enforce
any accounts payable of the Borrower or any of its Subsidiaries, in the case
of any single account payable in excess of $50,000, or in the case of all
accounts payable in the aggregate in excess of $100,000;
(h) upon, but in no event later than ten (10) days after, any
responsible officer of the Borrower or any of its Subsidiaries becomes aware
of (i) any and all enforcement, cleanup, removal or other governmental or
regulatory actions instituted, completed or threatened or other
environmental claims against the Borrower or any Subsidiary or any of its
Properties pursuant to any applicable Environmental Laws which could have
a Material Adverse Effect, and (ii) any environmental or similar condition
on any real property adjoining or in the vicinity of the property of the
Borrower or any Subsidiary that could reasonably be anticipated to cause
such property or any part thereof to be subject to any restrictions on the
ownership, occupancy, transferability or use of such property under any
Environmental Laws;
(i) as soon as available and in any event within sixty (60) days
after January 1, 1999 and January 1st of each calendar year, an Engineering
Report from an independent petroleum engineering firm acceptable to the
Lender in its reasonable judgment, and as soon as available and in any event
within sixty (60) days after July lst of each calendar year commencing in
1999, an Engineering Report from the Borrower's internal reserve engineers,
unless the Lender, at least sixty (60) days before the required delivery
date of such Engineering Report, has requested that it be prepared by an
independent petroleum engineering firm reasonably acceptable to the Lender;
(j) promptly after (i) the sending or filing thereof, copies of
all reports which the Borrower sends to any of its security holders,
(ii) the sending or filing thereof, all material reports and registration
statements which the Borrower or any of its Subsidiaries files with the
Securities and Exchange Commission or any national securities exchange,
(iii) the filing thereof, copies of all tariff and rate cases and other
material reports filed with any regulatory authority (other than routine
operating reports), and (iv) receipt thereof, copies of all notices received
from any regulatory authority concerning material noncompliance by the
Borrower or any of its Subsidiaries with any applicable regulations;
(k) immediately upon becoming aware of the institution of any
steps by the Borrower or any other Person to terminate any Pension Plan, or
the failure to make a required contribution to any Pension Plan if such
failure is sufficient to give rise to a Lien under section 302(f) of ERISA,
or the taking of any action with respect to a Pension Plan which could
result in the requirement that the Borrower furnish a bond or other security
to the PBGC or such Pension Plan, or the occurrence of any event with
respect to any Pension Plan which could result in the incurrence by the
Borrower of any material liability, fine or penalty, or any material
increase in the contingent liability of the Borrower with respect to any
post-retirement Welfare Plan benefit, notice thereof and copies of all
documentation relating thereto;
(l) promptly after the Borrower discovers or determines that any
computer application (including those of its suppliers or vendors) that is
material to the businesses or operations of the Borrower and its
Subsidiaries taken as a whole will not be Year 2000 Compliant on a timely
basis, notice thereof and a copy of the Borrower's plan for dealing with
such problem except to the extent such failure could not reasonably be
expected to have a Material Adverse Effect; and
(m) such other information respecting the condition or
operations, financial or otherwise, of the Borrower or any of its
Subsidiaries as the Lender may from time to time reasonably request
including operational and accounting information with respect to the
Mortgaged Properties including production volumes, revenues, operating
costs, drilling and completion reports and well test data.
SECTION VIII.1.2. Compliance with Laws, etc. The Borrower will, and will
cause each of its Subsidiaries to, comply with all Applicable Laws, except
where failure to so comply would not be reasonably expected to have a
Material Adverse Effect, such compliance to include (without limitation):
(a) the maintenance and preservation of its limited partnership
or corporate existence, as the case may be, and qualification as a foreign
limited partnership or corporation, as the case may be; and
(b) the payment, before the same become delinquent, of all taxes,
assessments and governmental charges imposed upon it or upon its property
except to the extent being diligently contested in good faith by appropriate
proceedings and for which adequate reserves in accordance with GAAP shall
have been set aside on its books.
SECTION VIII.1.3. Maintenance and Development of Properties.
(a) The Borrower will, and will cause each of its Subsidiaries
to, maintain (subject to any disposition permitted by Section 8.2.9),
preserve, protect and keep its Properties in good repair, working order and
condition (ordinary wear and tear excepted), and make necessary and proper
repairs, renewals and replacements so that its business carried on in
connection therewith may be properly conducted at all times in accordance
with standard industry practices. In particular, the Borrower will, and
will cause each of its Subsidiaries to, operate or cause to be operated its
Oil and Gas Properties as a reasonable and prudent operator.
(b) The Borrower shall use all reasonable efforts to develop and
bring into production in a prudent and businesslike manner all proved
developed non-producing reserves that the Lender has considered in its
determination of the Borrowing Base.
(c) The Borrower shall ensure that at all times it has available
to it, either through its employees or through independent contractors,
petroleum engineers with appropriate experience and expertise in the proper
operation and development of properties similar to the Mortgaged Properties.
SECTION VIII.1.4. Insurance. The Borrower will, and will cause each of its
Subsidiaries to, maintain or cause to be maintained with responsible insurance
companies insurance with respect to its properties and business against such
casualties and contingencies and of such types and in such amounts as is
customary in the case of similar businesses (including, where appropriate, well
control, operator's extra expense and remediation insurance) and will furnish
to the Lender at reasonable intervals at the request of the Lender a
certificate of an Authorized Officer of the General Partner setting forth
the nature and extent of all insurance maintained by the Borrower and its
Subsidiaries in accordance with this Section. The following shall apply to
the insurance required by this Section 8.1.4:
(a) Each policy for property insurance covering the Mortgaged
Property shall show the Lender as loss payee;
(b) Each policy for liability insurance covering the Mortgaged
Property shall show the Lender as additional insured;
(c) Each insurance policy covering the Mortgaged Property shall
provide that at least thirty (30) days prior written notice of cancellation,
reduction in amount or other change in coverage, or of lapse shall be given
to the Lender by the insurer; and
(d) The Borrower shall, if so requested by the Lender, deliver to
the Lender the original or a certified copy of each insurance policy
covering the Mortgaged Property.
SECTION VIII.1.5. Books and Records. The Borrower will, and will cause
each of its Subsidiaries to, keep books and records which accurately reflect
all of its material business affairs and transactions and permit the Lender
or any of its respective representatives, at reasonable times (but in any
event, within three (3) Business Days after notice from the Lender and
during all normal business hours) and at reasonable intervals, to visit all
of its offices, to discuss its financial matters with its officers, directors
and, after forty-eight (48) hours notice to the Borrower and independent
public accountant (and the Borrower hereby authorizes such independent public
accountant to discuss the Borrower's and its Subsidiaries' financial matters
with the Lender or its representatives whether or not any representative of
the Borrower is present) and to examine (and, at the expense of the Borrower,
photocopy extracts from) any of its books or other corporate records. The
Borrower shall pay any reasonable fees of such independent public accountant
incurred in connection with the Lender's exercise of its rights pursuant to
this Section. Furthermore, the Borrower will permit the Lender, or its
agents, at the cost and expense of the Borrower, to enter upon the Oil and
Gas Properties and all parts thereof, for the purpose of investigating and
inspecting the condition and operation thereof, and shall permit reasonable
access to the field offices and other offices, including the principal place
of business, of the Borrower to inspect and examine the Oil and Gas
Properties.
SECTION VIII.1.6. Environmental Covenant. The Borrower will, and will
cause each of its Subsidiaries to,
(a) use, operate and maintain all of its facilities and
Properties in compliance with all Environmental Laws, keep all necessary
permits, approvals, certificates, licenses and other authorizations relating
to environmental matters in effect and remain in compliance therewith, and
handle all Hazardous Materials in compliance with all applicable
Environmental Laws where failure to do so would reasonably be expected to
have a Material Adverse Effect;
(b) (i) promptly notify the Lender, and if requested by the
Lender, and provide copies of all written claims, complaints, notices or
inquiries relating to the condition of its facilities and Properties or
compliance with Environmental Laws, (ii) use all reasonable efforts within
ninety (90) days to have dismissed with prejudice any actions or proceedings
relating to compliance with Environmental Laws which would or could in the
reasonable opinion of the Lender have a Material Adverse Effect, and
(iii) diligently pursue cure of any material underlying environmental
problem which forms the basis of any such claim, complaint, notice or
inquiry; and
(c) provide such information and certifications which the Lender
may reasonably request from time to time to evidence compliance with this
Section 8.1.6.
SECTION VIII.1.7. Further Assurances.
(a) The Borrower shall, and shall cause each of its
Subsidiaries to, upon the request of the Lender, take such actions
and execute and deliver such documents and instruments as the Lender
shall require to ensure that the Lender shall, at all times, have
received currently effective, duly executed Loan Documents
encumbering Oil and Gas Properties of the Borrower and its
Subsidiaries constituting 85% of the Proven Reserves to which value
is given in the determination of the then current Borrowing Base
(with accompanying letters in lieu of transfer orders) and
satisfactory title evidence in form and substance reasonably
acceptable to the Lender in its reasonable business judgment as to
ownership of such Oil and Gas Properties; provided that, upon thirty
(30) days notice to the Borrower, the Lender may require, and the
Borrower and/or its Subsidiaries, as applicable, shall execute,
acknowledge and deliver to the Lender, Mortgages effectively
encumbering 100% of the Oil and Gas Properties of the Borrower and
its Subsidiaries to which value is given in the determination of the
then current Borrowing Base.
(b) If the Lender shall determine that, as of the date of
any Borrowing Base Redetermination, the Borrower or any of its
Subsidiaries shall have failed to comply with the preceding
subsection 8.1.7(a), the Lender may notify the Borrower in writing of
such failure and, within thirty (30) days from and after receipt of
such written notice by the Borrower, the Borrower or its Subsidiaries
(as applicable) shall execute and deliver to the Lender supplemental
or additional Loan Documents, in form and substance reasonably
satisfactory to the Lender and its counsel, securing payment of the
Notes and the other Obligations and covering additional assets not
then encumbered by any Loan Documents (together with current
valuations, Engineering Reports, and title evidence applicable to the
additional assets collaterally assigned, each of which shall be in
form and substance reasonably satisfactory to the Lender) such that
the Lender shall have received currently effective duly executed Loan
Documents encumbering Oil and Gas Properties constituting at least
85% (or, as provided in Subsection 8.1.7(a), 100%) of the Proven
Reserves of the Borrower and its Subsidiaries to which value is given
in the determination of the then current Borrowing Base (with
accompanying letters in lieu of transfer orders) and satisfactory
title evidence in form and substance acceptable to the Lender in its
reasonable business judgment as to ownership of such Oil and Gas
Properties.
(c) The Borrower shall ensure that all written information,
exhibits, certificates and reports furnished by or on behalf of the
Borrower to the Lender do not and will not contain any untrue
statement of a material fact and do not and will not omit to state
any material fact or any fact necessary to make the statements
contained therein not misleading in light of the circumstances in
which made, and will promptly disclose to the Lender and correct any
defect or error that may be discovered therein or in any Loan
Document or in the execution, acknowledgment or recordation thereof.
SECTION VIII.2. Negative Covenants. The Borrower agrees with the Lender
that, until all Commitments have terminated and all Obligations have been paid
and performed in full, the Borrower will perform the obligations set forth in
this Section 8.2.
SECTION VIII.2.1. Business Activities. The Borrower will not, and will not
permit its Subsidiaries to, engage in any business activity, except those
described in the first recital and such activities as may be incidental or
related thereto.
SECTION VIII.2.2. Indebtedness. The Borrower will not, and will not permit
any of its Subsidiaries to, create, incur, assume or suffer to exist or
otherwise become or be liable in respect of any Indebtedness, other than,
without duplication, the following:
(a) Indebtedness in respect of the Loans and other Obligations;
(b) Indebtedness in an aggregate principal amount not to exceed
$150,000 at any time outstanding which is incurred by the Borrower or any
of its Subsidiaries to a vendor of any assets to finance its acquisition of
such assets;
(c) unsecured Indebtedness incurred in the ordinary course of
business (including (i) open accounts extended by suppliers on normal trade
terms in connection with purchases of goods and services, and (ii) gas
balancing, but excluding Indebtedness incurred through the borrowing of
money or Contingent Liabilities);
(d) Hedging Obligations incurred pursuant to the Hedging
Agreements approved by the Lender pursuant to Sections 8.2.14;
(e) Contingent Obligations incurred to satisfy bonding
requirements imposed by any Government Agency not to exceed, in the
aggregate, $150,000;
(f) Indebtedness of its Subsidiaries existing as of the Effective
Date which is identified in Item 8.2.2(f) of the Disclosure Schedule;
(g) Indebtedness in respect of Capitalized Lease Obligations in
an amount not to exceed $150,000 at any time outstanding;
(h) Indebtedness owed by the Borrower to any of the Subsidiaries
or by any Subsidiary of the Borrower to the Borrower or any Subsidiary;
(i) endorsements of negotiable instruments for collection in the
ordinary course of business;
(j) subordinated Indebtedness of the Borrower to any of the
Principal Shareholders which contains terms and conditions, including
subordination provisions, acceptable to the Lender;
(k) Indebtedness of the Borrower and its Subsidiaries which are
Investments to the extent permitted by Section 8.2.5(b);
(l) subordinated Indebtedness of the Borrower to Existing
Creditors which contains terms and conditions, including subordination
provisions, acceptable to the Lender;
(m) additional Indebtedness not permitted by clauses (a) through
(l) above, provided, however, that the aggregate amount of all Indebtedness
incurred by the Borrower and its consolidated Subsidiaries pursuant to this
clause (l) shall not exceed $150,000 at any one time outstanding;
provided, however, that no Indebtedness otherwise permitted by clause (b) shall
be permitted if, after giving effect to the incurrence thereof, any Default
shall have occurred and be continuing.
SECTION VIII.2.3. Liens. The Borrower will not, and will not permit any
of the Subsidiaries to create, incur, assume or suffer to exist any Lien upon
any of its Property, revenues or assets, whether now owned or hereafter
acquired, except:
(a) Liens securing payment of the Obligations, granted pursuant
to any Loan Document;
(b) Liens granted to secure payment of Indebtedness of the type
permitted and described in clause (b) of Section 8.2.2 and covering only
those assets acquired with the proceeds of such Indebtedness;
(c) Liens granted to secure payment of Indebtedness of the type
permitted and described in clause (l) of Section 8.2.2;
(d) Hydrocarbon production sales contracts;
(e) Liens for taxes, assessments or other governmental charges or
levies not at the time delinquent or thereafter payable without penalty or
being diligently contested in good faith by appropriate proceedings and for
which adequate reserves in accordance with GAAP shall have been set aside
on its books;
(f) Liens of carriers, warehousemen, mechanics, materialmen and
landlords incurred in the ordinary course of business for sums not overdue
or being diligently contested in good faith by appropriate proceedings and
for which adequate reserves in accordance with GAAP shall have been set
aside on its books; provided, that at no time shall such sums exceed in the
aggregate $150,000;
(g) Liens incurred in the ordinary course of business in
connection with workmen's compensation, unemployment insurance or other
forms of governmental insurance or benefits, or to secure performance of
bonds, licenses, statutory obligations, and performance bonds, tenders,
statutory obligations, leases and contracts (other than for borrowed money),
all other obligations of a like nature entered into in the ordinary course
of business or to secure obligations on surety or appeal bonds, all other
obligations of a like nature;
(h) zoning and similar covenants, restrictions, easements,
servitudes, permits, conditions, exceptions, reservations, minor rights,
minor encumbrances, minor irregularities in title or conventional rights of
reassignment prior to abandonment and similar restrictions and other similar
encumbrances or title defects which do not materially interfere with the
occupation, use and enjoyment by the Borrower of its assets in the ordinary
course of business as presently conducted, or materially impair the value
thereof for the purpose of such business;
(i) judgment Liens in existence less than thirty (30) days after
the entry thereof or with respect to which execution has been stayed or the
payment of which is covered in full (subject to a customary deductible) by
insurance maintained with responsible insurance companies;
(j) deposits of cash to secure insurance in the ordinary course
of business;
(k) banker's liens arising by operation of law securing fees and
costs of such banks, but not liens securing borrowed money;
(l) Liens on cash collateral in favor of counterparties to
Hedging Agreements permitted by Section 8.2.14;
(m) Liens in favor of operators and non-operators under joint
operating agreements or similar contractual arrangements arising in the
ordinary course of the business of the Borrower to secure amounts owing,
which amounts are not yet due or are being contested in good faith by
appropriate proceedings, if such reserve as may be required by GAAP shall
have been made therefor;
(n) production sales agreements, division orders, operating
agreements and other agreements customary in the oil and gas business for
producing, processing, gathering, transporting and selling Hydrocarbons;
(o) the terms any provisions of the leases, unit agreements,
assignments and other transfer of title documents in the chain of title
under which the Borrower acquired the relevant Properties;
(p) any Liens securing Indebtedness, neither assumed nor
guaranteed by the Borrower nor on which it customarily pays interest,
existing upon real estate or rights in or relating to real estate acquired
by the Borrower for substation, metering station, pump station, storage,
gathering line, transmission line, transportation line, distribution line,
or right of way purposes, and any Liens reserved in leases for rent and
compliance with the terms of the leases in the case of leasehold estates,
so long as no default has occurred in the payment or performance thereof,
and to the extent that any such Lien referred to in this clause does not
materially impair the use of the Properties covered by such Lien for the
purposes for which such Properties is held by the Borrower;
(q) the statutory Lien to secure payment of the proceeds of
Hydrocarbon production established by Texas Bus. & Com. Code 9.319 and
similar laws of other jurisdictions;
(r) rights reserved to or vested in any Government Agency by the
terms of any right, power, franchise, grant, license, or permit, or by any
provision of law, to terminate such right, power, franchise, grant, license,
or permit or to purchase, condemn, expropriate, or recapture or to designate
a purchaser of any of the Properties of the Borrower; and
(s) rights of a common owner of any interest in real estate,
rights of way, or easements held by the Borrower and such common owner as
tenant in common or through other common ownership.
SECTION VIII.2.4. Financial Condition. The Borrower will not permit:
(a) Tangible Net Worth to be less than the sum of (i) $3,000,000
(at all times prior to December 31, 1999) and $5,000,000 (at all times from
and after December 31, 1999), plus (ii) fifty percent (50%) of Consolidated
Net Income of the Borrower and its consolidated Subsidiaries (excluding the
effects of consolidated net losses) for all Fiscal Quarters beginning after
the Effective Date and treated as a single accounting period, plus (iii)
one-hundred percent (100%) of the net proceeds received by the Borrower or
its Subsidiaries from the sale of any Non-Redeemable Stock by the Borrower
or any of its Subsidiaries at any time after the Effective Date;
(b) the Current Ratio at any time to be less than 1.1:1.0;
(c) the Debt to Capitalization Ratio at any time to be greater
than 82% (at all times prior to December 31,1999) and 70% (at all times from
and after December 31,1999); or
(d) the Interest Coverage Ratio for any four consecutive Fiscal
Quarters (i) after the Effective Date through and including June 30, 1999,
to be less than 2.0:1.0, and (ii) after June 30, 1999, to be less than
3.0:1.0; provided, however, for purposes of this clause (d) of Section 8.2.4
only, "Interest Expense" shall not include interest on the subordinated
Indebtedness described in clause (l) of Section 8.2.2, which interest is not
paid in cash but added to the principal amount of such Indebtedness.
The Borrower shall not, and shall not suffer or permit any Subsidiary to, make
any significant change in accounting treatment or reporting practices, except
as required by GAAP, or, without the consent of the Lender, such consent not
to be unreasonably withheld, change the fiscal year of the Borrower or of any
Subsidiary.
SECTION VIII.2.5. Investments. The Borrower will not, and will not permit
any of its Subsidiaries to, make, incur, assume or suffer to exist any
Investment in any other Person, except:
(a) Cash Equivalent Investments;
(b) without duplication, Investments permitted as Indebtedness
pursuant to Section 8.2.2;
(c) without duplication, Investments in the nature of Capital
Expenditures;
(d) to the extent the formation or acquisition of any Subsidiary
is permitted hereunder, Investments in such Subsidiary; and
(e) Investments permitted by Section 8.2.8;
provided, however, that
(f) any Investment which when made complies with the requirements
of the definition of the term "Cash Equivalent Investment" may continue to
be held notwithstanding that such Investment if made thereafter would not
comply with such requirements; and
(g) no Investment otherwise permitted by clause (b) shall be
permitted to be made if, immediately before or after giving effect thereto,
any Default shall have occurred and be continuing.
SECTION VIII.2.6. Restricted Payments, etc. On and at all times after the
Effective Date:
(a) the Borrower will not, and will not permit any of its
Subsidiaries (other than a wholly-owned Subsidiary) to, declare, pay or make
any dividend or distribution (in cash, property or obligations) on any class
or shares of any class of partnership interest (now or hereafter
outstanding) of the Borrower or such Subsidiary or on any options, warrants
or other rights with respect to any interest or shares of any class of
partnership interest or capital stock (now or hereafter outstanding) of the
Borrower or such Subsidiary or apply any of its funds, property or assets
to the purchase, redemption, sinking fund or other retirement of, any class
of partnership interest or capital stock (now or hereafter outstanding) of
the Borrower, or options, warrants or other rights with respect to any
interest or shares of or in any class of partnership interest or capital
stock (now or hereafter outstanding) of the Borrower or such Subsidiary
(such dividends, distributions or applications being called "Distribution
Payments") other than Distribution Payments which do not cause the Borrower
to be in violation of the Restricted Payment Tests; and
(b) the Borrower will not permit any Subsidiary to make any
Distribution Payments other than to the Borrower; and
(c) the Borrower will not, and will not permit its Subsidiaries
to, make any deposit for any of the foregoing purposes.
SECTION VIII.2.7. Rental Obligations. The Borrower will not, and will not
permit any of its Subsidiaries to, enter into at any time any arrangement
(excluding oil and gas leases entered into in the ordinary course of business)
which involves the leasing by the Borrower or any Subsidiary from any lessor of
any real or personal property (or any interest therein), except arrangements
which, together with all other such arrangements which shall then be in effect,
will not require the payment of an aggregate amount of rentals by the Borrower
or any Subsidiary in excess of (excluding escalations resulting from a rise in
the consumer price or similar index) $100,000 for any Fiscal Year or $500,000
during the full remaining term of such arrangements; provided, however, that
any calculation made for purposes of this Section 8.2.7 shall exclude any
amounts (i) required to be expended for maintenance and repairs, insurance,
taxes, assessments, and other similar charges and (ii) any amounts relating
to Capitalized Lease Obligations.
SECTION VIII.2.8. Consolidation, Merger, etc. The Borrower will not, and
will not permit any of its Subsidiaries to, liquidate or dissolve, consolidate
with, or merge into or with, any other partnership or corporation, unless, in
the case of such consolidation or merger, the Borrower is the surviving entity
and Principal Shareholders retain control over the Borrower. The Borrower will
not create any Subsidiary except with the prior written consent of the Lender.
SECTION VIII.2.9. Asset Dispositions, etc. The Borrower will not, and will
not permit any of its Subsidiaries to, sell, transfer, lease, contribute or
otherwise convey, or grant options, warrants or other rights with respect to,
all or substantially all of the assets of the Borrower or any of its
Subsidiaries in any one transaction or in any series of transactions,
whether or not related; and the Borrower will not, and will not permit any of
its Subsidiaries to, sell, transfer, lease, contribute or otherwise convey,
or grant options, warrants or other rights with respect to, less than all or
any substantial part of its assets (including accounts receivable) to any
Person other than
(a) farmouts under standard industry terms of Properties
not holding Proven Reserves;
(b) abandonment of Properties not capable of producing
Hydrocarbons in paying quantities after the expiration of their
primary terms;
(c) if such assets are not in the Borrowing Base, such
sale, transfer, lease, contribution or conveyance is for cash or
other consideration having a value at least equal to the fair market
value of such assets;
(d) if such assets are in the Borrowing Base, the Borrower
complies with the terms of Section 3.1.2 and such sale, transfer,
lease, contribution or conveyance is for cash in an amount at least
equal to the fair market value of such assets; or
(e) as permitted by Section 2.7 of the Mortgages.
SECTION VIII.2.10. Modification of Certain Documents. Except with respect
to amendments that do not materially affect the rights of Lender under the Loan
Documents, the Borrower will not amend its Organic Documents or consent to any
amendment, supplement or other modification of any of the terms or provisions
contained in, or applicable to, the Material Contracts or any other agreement
affecting the Mortgaged Properties, in each case without the prior written
consent of the Lender.
SECTION VIII.2.11. Transactions with Affiliates. The Borrower will not,
and will not permit any of its Subsidiaries to, enter into, or cause, suffer or
permit to exist any arrangement or contract with any of its other Affiliates
unless such arrangement or contract is fair and equitable to the Borrower and
is an arrangement or contract of the kind which would be entered into by a
prudent Person in the position of the Borrower or such Subsidiary with a
Person which is not one of its Affiliates.
SECTION VIII.2.12. Negative Pledges, Restrictive Agreements, etc. The
Borrower will not, and will not permit any of its Subsidiaries to, enter into
any agreement (excluding this Agreement, any other Loan Document and any
agreement governing any Indebtedness permitted by clauses (b) or (e) of Section
8.2.2 as in effect on the Effective Date as to the assets financed with the
proceeds of such Indebtedness) prohibiting
(a) the creation or assumption of any Lien upon its
properties, revenues or assets, whether now owned or hereafter
acquired (other than those assets subject to Liens permitted by
Section 8.2.3(b)), or the ability of the Borrower or any other
Obligor to amend or otherwise modify this Agreement or any other Loan
Document; or
(b) the ability of any Subsidiary to make any payments,
directly or indirectly, to the Borrower by way of dividends,
advances, repayments of loans or advances, reimbursements of
management and other intercompany charges, expenses and accruals or
other returns on investments, or any other agreement or arrangement
which restricts the ability of any such Subsidiary to make any
payment, directly or indirectly, to the Borrower.
SECTION VIII.2.13. Take or Pay Contracts. Except as disclosed to the
Lender in Item 8.2.13 of the Disclosure Schedule, and except for reservation
charges payable for reservations of capacity in gathering systems and pipelines
incurred in the ordinary course of business on an arm's length basis for
volumes reasonably expected to be produced from the Borrowers' Properties to be
transported through such systems and pipelines, the Borrower will not, and will
not permit any of its Subsidiaries to, enter into or be a party to any
arrangement for the purchase of materials, supplies, other property (including
without limitation Hydrocarbons), or services if such arrangement requires that
payment be made by the Borrower or such Subsidiary regardless of whether such
materials, supplies, other property, or services are delivered or furnished to
it.
SECTION VIII.2.14. Hydrocarbon Hedging. The Borrower will not, and will
not permit any of its Subsidiaries to, enter into Hydrocarbon Hedging
Agreements except those that (a) are with counterparties reasonably
acceptable to the Lender, (b) do not result in Hedging Obligations that are
at any time in excess of sixty percent (60%) of the value of the proved
developed producing Hydrocarbon reserves owned by the Borrower and its
Subsidiaries according to the most recent Engineering Report delivered to the
Lender and (c) the amount of the Hedging Obligation for the particular
Hydrocarbon (i.e. - gas or oil) must not be materially in excess of the
proportion that such Hydrocarbon bears to the total amount of proved
developed Hydrocarbon reserves owned by the Borrower and its Subsidiaries.
(For example, if the Borrower and its Subsidiaries owned
proved developed producing Hydrocarbon reserves that were 45% oil-producing
Properties and 55% gas-producing Properties, then any Hydrocarbon Hedging
Obligation of the Borrower or its Subsidiaries for oil could not be materially
more than 45% of 60% of the value of the proved developed producing Hydrocarbon
reserves owned by the Borrower and its Subsidiaries according to the most
recent Engineering Report delivered to the Lender.)
ARTICLE IX
EVENTS OF DEFAULT
SECTION IX.1. Listing of Events of Default. Each of the following events
or occurrences described in this Section 9.1 shall constitute an "Event of
Default".
SECTION IX.1.1. Non-Payment of Obligations. The Borrower shall default in
the payment or prepayment when due of any principal of any Loan; the Borrower
shall default in the payment when due of any Reimbursement Obligation or
Hedging Obligation under a Hedging Agreement in effect between the Borrower
and the Lender or an Affiliate of the Lender; or the Borrower shall default
(and such default shall continue unremedied for a period of five (5) days)
in the payment when due of any interest on any Loan or any fee or of any
other Obligation.
SECTION IX.1.2. Breach of Warranty. Any representation or warranty of the
Borrower or any other Obligor made or deemed to be made hereunder or in any
other Loan Document executed by it or any other writing or certificate
furnished by or on behalf of the Borrower or any other Obligor to the Lender
for the purposes of or in connection with this Agreement or any such other
Loan Document (including any certificates delivered pursuant to Article VI)
is or shall be incorrect when made in any material respect.
SECTION IX.1.3. Non-Performance of Certain Covenants and Obligations. The
Borrower shall default in the due performance and observance of any of its
obligations under Section 3.1.2, Section 8.1 (other than 8.1.2, 8.1.3 and
8.1.6) or Section 8.2.
SECTION IX.1.4. Non-Performance of Other Covenants and Obligations. The
Borrower or any other Obligor shall default in the due performance and
observance of any other agreement contained herein or in any other Loan
Document executed by it, and such default shall continue unremedied for a
period of fifteen (15) days after notice thereof shall have been given to
the Borrower by the Lender.
SECTION IX.1.5. Default on Other Indebtedness.
(a) A default shall occur in the payment when due (subject to any
applicable grace period), whether by acceleration or otherwise, of any
Indebtedness (including any subordinated indebtedness permitted by Section
8.2.2 and any Hedging Agreements in effect between the Borrower and the
Lender or any Affiliate of the Lender, but excluding Indebtedness described
in Section 9.1.1) of the Borrower, any consolidated Subsidiary or other
Obligor having a principal amount, individually or in the aggregate, in
excess of $150,000, or a default shall occur in the performance or
observance of any obligation or condition with respect to such Indebtedness
if the effect of such default is to accelerate the maturity of any such
Indebtedness or such default shall continue unremedied for any applicable
period of time sufficient to permit any holder of such Indebtedness, or any
trustee or agent for such holders, to cause such Indebtedness to become due
and payable prior to its expressed maturity.
(b) A failure to pay when due any royalty, overriding royalty or
similar interest burdening the Oil and Gas Properties of the Borrower, in
the aggregate, in excess of $50,000.
SECTION IX.1.6. Judgments. Any judgment, decree, arbitration award or
order for the payment of money in excess of $150,000 in excess of valid and
collectible insurance in respect thereof the payment of which is not being
disputed or contested by the insurer or insurers shall be rendered against the
Borrower, any consolidated Subsidiary, or other Obligor and either
(a) enforcement proceedings shall have been commenced by any
creditor upon such judgment or order; or
(b) there shall be any period of ten (10) consecutive days during
which a stay of enforcement of such judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect.
SECTION IX.1.7. Pension Plans. Any of the following events shall occur
with respect to any Pension Plan
(a) the institution of any steps by the Borrower, any member of
its Controlled Group or any other Person to terminate a Pension Plan if, as
a result of such termination, the Borrower or any such member could be
required to make a contribution to such Pension Plan, or could reasonably
expect to incur a liability or obligation to such Pension Plan; or
(b) a contribution failure occurs with respect to any Pension
Plan sufficient to give rise to a Lien under Section 302(f) of ERISA.
SECTION IX.1.8. Control of the Borrower. Any Change in Control shall
occur.
SECTION IX.1.9. Bankruptcy, Insolvency, etc. The Borrower or any other
Obligor shall
(a) become insolvent or generally fail to pay, or admit in
writing its inability or unwillingness to pay, debts as they become due;
(b) apply for, consent to, or acquiesce in, the appointment of a
trustee, receiver, sequestrator or other custodian for the Borrower or any
other Obligor or any property of any thereof, or make a general assignment
for the benefit of creditors;
(c) in the absence of such application, consent or acquiescence,
permit or suffer to exist the appointment of a trustee, receiver,
sequestrator or other custodian for the Borrower or any other Obligor or for
a substantial part of the property of any thereof, and such trustee,
receiver, sequestrator or other custodian shall not be discharged within
sixty (60) days, provided that the Borrower and each other Obligor hereby
expressly authorizes the Lender to appear in any court conducting any
relevant proceeding during such 60-day period to preserve, protect and
defend its rights under the Loan Documents;
(d) permit or suffer to exist the commencement of any bankruptcy,
reorganization, debt arrangement or other case or proceeding under any
bankruptcy or insolvency law, or any dissolution, winding up or liquidation
proceeding, in respect of the Borrower or any other Obligor, and, if any
such case or proceeding is not commenced by the Borrower or such other
Obligor, such case or proceeding shall be consented to or acquiesced in by
the Borrower or such other Obligor or shall result in the entry of an order
for relief or shall remain for sixty (60) days undismissed, provided that
the Borrower and each other Obligor hereby expressly authorizes the Lender
to appear in any court conducting any such case or proceeding during such
60-day period to preserve, protect and defend its rights under the Loan
Documents; or
(e) take any action authorizing, or in furtherance of, any of the
foregoing.
SECTION IX.1.10. Impairment of Security, etc. Any Loan Document, or any
Lien granted thereunder, shall (except in accordance with its terms), in whole
or in part, terminate, cease to be effective or cease to be the legally valid,
binding and enforceable obligation of any Obligor party thereto; the Borrower,
any other Obligor or any other party shall, directly or indirectly, contest in
any manner such effectiveness, validity, binding nature or enforceability; or
any Lien securing any Obligation shall, in whole or in part, cease to be a
perfected first priority Lien, subject only to those exceptions expressly
permitted by such Loan Document.
SECTION IX.1.11. Material Adverse Effect. Any Material Adverse Effect
shall occur.
SECTION IX.2. Action if Bankruptcy. If any Event of Default described in
clauses (a) through (d) of Section 9.1.9 shall occur with respect to the
Borrower or any other Obligor, the Commitments (if not theretofore terminated)
shall automatically terminate and the outstanding principal amount of all
outstanding Loans and all other Obligations shall automatically be and become
immediately due and payable, without notice or demand.
SECTION IX.3. Action if Other Event of Default. If any Event of Default
(other than any Event of Default described in clauses (a) through (d) of
Section 9.1.9 with respect to the Borrower or any other Obligor) shall occur
for any reason, whether voluntary or involuntary, and be continuing, the
Lender, may by notice to the Borrower declare all or any portion of the
outstanding principal amount of the Loans and other Obligations to be due
and payable and/or the Commitments (if not theretofore terminated) to be
terminated, whereupon the full unpaid amount of such Loans and other
Obligations which shall be so declared due and payable shall be and become
immediately due and payable, without further notice, demand or presentment,
and/or, as the case may be, the Commitments shall terminate.
SECTION IX.4. Rights Not Exclusive. The rights provided for in this
Agreement and the other Loan Documents are cumulative and are not exclusive of
any other rights, powers, privileges or remedies provided by Applicable Law or
in equity, or under any other instrument, document or agreement now existing or
hereafter arising.
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION X.1. Waivers, Amendments, etc. The provisions of this Agreement
and of each other Loan Document may from time to time be amended, modified or
waived, if such amendment, modification or waiver is in writing and consented
to by the Borrower and the Lender. No failure or delay on the part of the
Lender in exercising any power or right under this Agreement or any other
Loan Document shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power or right preclude any other or further
exercise thereof or the exercise of any other power or right. No notice to
or demand on the Borrower in any case shall entitle it to any notice or
demand in similar or other circumstances. No waiver or approval by the
Lender under this Agreement or any other Loan Document shall, except as may
be otherwise stated in such waiver or approval, be applicable to subsequent
transactions. No waiver or approval hereunder shall require any similar or
dissimilar waiver or approval thereafter to be granted hereunder.
SECTION X.2. Notices.
(a) All notices and other communications provided to any party
hereto under this Agreement or any other Loan Document shall be in writing
and shall be hand delivered or sent by overnight courier, certified mail
(return receipt requested), or telecopy to such party at its address or
telecopy number set forth on the signature pages hereof or set forth in the
Lender Assignment Notice or at such other address or telecopy number as may
be designated by such party in a notice to the other parties. Without
limiting any other means by which a party may be able to provide that a
notice has been received by the other party, a notice shall be deemed to be
duly received (a) if sent by hand, on the date when left with a responsible
person at the address of the recipient; (b) if sent by telefax, on the date
of receipt by the sender of an acknowledgment or transmission reports
generated by the machine from which the telefax was sent indicating that the
telefax was sent in its entirety to the recipient's telefax number.
(b) All such notices, requests and communications shall, when
transmitted by overnight delivery, or faxed, be effective when delivered for
overnight (next-day) delivery, or transmitted in legible form by facsimile
machine, respectively, or if mailed, upon the third Business Day after the
date deposited into the U.S. mail, or if delivered, upon delivery.
(c) Any agreement of the Lender herein to receive certain notices
by telephone or facsimile is solely for the convenience and at the request
of the Borrower. The Lender shall be entitled to rely on the authority of
any Person purporting to be a Person authorized by the Borrower to give such
notice and the Lender shall not have any liability to the Borrower or other
Person on account of any action taken or not taken by the Lender in reliance
upon such telephonic or facsimile notice. The obligation of the Borrower
to repay the Loans shall not be affected in any way or to any extent by any
failure by the Lender to receive written confirmation of any telephonic or
facsimile notice or the receipt by the Lender of a confirmation which is at
variance with the terms understood by the Lender to be contained in the
telephonic or facsimile notice.
SECTION X.3. Payment of Costs and Expenses. The Borrower agrees to pay
within thirty (30) days after written demand all reasonable expenses of the
Lender (including the reasonable fees and out-of-pocket expenses of internal
and external counsel to the Lender and of local counsel, if any, who may be
retained by counsel to the Lender) in connection with
(a) the negotiation, preparation, execution and delivery of this
Agreement and of each other Loan Document, including schedules and exhibits,
and any amendments, waivers, consents, supplements or other modifications
to this Agreement or any other Loan Document as may from time to time
hereafter be required, whether or not the transactions contemplated hereby
are consummated,
(b) the filing, recording, refiling or rerecording of the
Mortgages, the Security Agreements, the Pledge Agreements and/or any Uniform
Commercial Code financing statements relating thereto and all amendments,
supplements and modifications to, and all releases and terminations of, any
thereof and any and all other documents or instruments of further assurance
required to be filed or recorded or refiled or rerecorded by the terms
hereof or of the Mortgages, the Security Agreements and the Pledge
Agreements, and
(c) the preparation and review of the form of any document or
instrument relevant to this Agreement or any other Loan Document.
The Borrower further agrees to pay, and to save the Lender harmless from all
liability for, any stamp or other taxes (other than any income or franchise tax
of the Lender) which may be payable in connection with the execution or
delivery of this Agreement, the borrowings hereunder, the issuance of the
Notes, the issuance of the Letters of Credit, or any other Loan Documents.
The Borrower also agrees to reimburse the Lender within thirty (30) days
after written demand for all reasonable out-of-pocket expenses (including
attorneys' fees and legal expenses of internal and external attorneys, and
the expenses of any accountant, engineer or other expert retained or
utilized in connection therewith) incurred by the Lender in connection with
(x) the negotiation of any restructuring or "work-out", whether or not
consummated, of any Obligations and (y) the enforcement of any Obligations.
All requests for payment under this Section 10.3 shall be accompanied by
invoices containing reasonable details.
SECTION X.4. Indemnification. In consideration of the execution and
delivery of this Agreement by the Lender and the extension of the Commitments,
the Borrower hereby indemnifies, exonerates and holds the Lender, any Issuer
and each of their respective officers, directors, employees and agents
(collectively, the "Indemnified Parties") free and harmless from and against
any and all actions, causes of action, suits, losses, costs, liabilities and
damages, and expenses incurred in connection therewith (irrespective of whether
any such Indemnified Party is a party to the action for which indemnification
hereunder is sought), including reasonable attorneys' fees and disbursements
(collectively, the "Indemnified Liabilities"), incurred by the Indemnified
Parties or any of them as a result of, or arising out of, or relating to
(a) this Agreement, any Loan Document or any document
contemplated by or referred to herein;
(b) any transaction financed or to be financed in whole or in
part, directly or indirectly, with the proceeds of any Loan, including any
Acquisition, or the use of any Letter of Credit;
(c) any investigation, litigation or proceeding related to any
acquisition or proposed acquisition by the Borrower or any of its
Subsidiaries of all or any portion of the stock or assets of any Person,
whether or not the Lender is party thereto;
(d) any investigation, litigation or proceeding related to any
environmental cleanup, audit, compliance or other matter relating to any
Environmental Law or the condition of any facility or Property owned, leased
or operated by the Borrower or any of its Subsidiaries;
(e) the presence on or under, or the escape, seepage, leakage,
spillage, discharge, emission, discharging or releases from, any facility
or Property owned, leased or operated by the Borrower or any of its
Subsidiaries thereof of any Hazardous Material (including any losses,
liabilities, damages, injuries, costs, expenses or claims asserted or
arising under any Environmental Law), regardless of whether caused by, or
within the control of, the Borrower or any of its Subsidiaries; or
(f) any misrepresentation, inaccuracy or breach in or of
Section 7.17 or Section 8.1.6,
except for any such Indemnified Liabilities arising for the account of a
particular Indemnified Party by reason of the relevant Indemnified Party's
gross negligence or wilful misconduct. If and to the extent that the foregoing
undertaking may be unenforceable for any reason, the Borrower hereby agrees to
make the maximum contribution to the payment and satisfaction of each of the
Indemnified Liabilities which is permissible under Applicable Law. The
obligations in this Section 10.4 shall survive payment of all other
Obligations. At the election of any Indemnified Party, the Borrower shall
defend such Indemnified Party using legal counsel satisfactory to such
Indemnified Party in such Person's sole discretion, at the sole cost and
expense of the Borrower. All amounts owing under this Section 10.4 shall be
paid within thirty (30) days after written demand.
SECTION X.5. Survival. The obligations of the Borrower under Sections 10.3
and 10.4 shall in each case survive any termination of this Agreement, the
payment in full of all Obligations and the termination of all Commitments. The
representations and warranties made by each Obligor in this Agreement and in
each other Loan Document shall survive the execution and delivery of this
Agreement and each such other Loan Document.
SECTION X.6. Severability. Any provision of this Agreement or any other
Loan Document which is prohibited or unenforceable in any jurisdiction shall,
as to such provision and such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or such Loan Document or affecting the validity
or enforceability of such provision in any other jurisdiction.
SECTION X.7. Headings. The various headings of this Agreement and of each
other Loan Document are inserted for convenience only and shall not affect the
meaning or interpretation of this Agreement or such other Loan Document or any
provisions hereof or thereof.
SECTION X.8. Execution in Counterparts, Effectiveness, etc. This Agreement
may be executed by the parties hereto in several counterparts, each of which
shall be executed by the Borrower and the Lender and be deemed to be an
original and all of which shall constitute together but one and the same
agreement. This Agreement shall become effective when counterparts hereof
are executed on behalf of the Borrower and the Lender. This Agreement is
made and entered into for the sole protection and legal benefit of the
Borrower and the Lender and Persons indemnified hereunder, and their
permitted successors and assigns, and no other Person shall be a direct or
indirect legal beneficiary of, or have any direct or indirect cause of
action or claim in connection with, this Agreement or any of the other Loan
Documents.
SECTION X.9. Governing Law; Entire Agreement. THIS AGREEMENT, THE NOTES
AND EACH OTHER LOAN DOCUMENT (OTHER THAN THE MORTGAGES OR AS EXPRESSLY PROVIDED
IN ANY SUCH DOCUMENT) SHALL EACH BE DEEMED TO BE A CONTRACT MADE UNDER AND
GOVERNED BY THE INTERNAL LAWS OF THE STATE OF ILLINOIS. This Agreement, the
Notes and the other Loan Documents constitute the entire understanding among
the parties hereto with respect to the subject matter hereof and supersede
any prior agreements, written or oral, with respect thereto.
SECTION X.10. Successors and Assigns. This Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that:
(a) the Borrower may not assign or transfer its rights or
obligations hereunder without the prior written consent of the Lender; and
(b) the rights of sale, assignment and transfer of the Lender are
subject to Section 10.11.
SECTION X.11. Sale and Transfer of Loans and Notes; Participations in Loans
and Notes. The Lender may assign, or sell participations in, its Loans and
Commitments to one or more other Persons in accordance with this Section 10.11.
SECTION X.11.1. Assignments. The Lender may at any time assign and
delegate to one or more Persons, including without limitation, banks or other
financial institutions (each Person to whom such assignment and delegation is
to be made, being hereinafter referred to as an "Assignee Lender"), all or any
fraction of the Lender's total Loans and Commitments (which assignment and
delegation shall be of a constant, and not a varying, percentage of all the
Lender's Loans and Commitments) in a minimum aggregate amount of $1,000,000 (or
the entire remaining amount of the Lender's Loans and Commitments); provided,
however, that the Lender is required at all times to maintain Loans, Letter of
Credit Outstandings and Commitments hereunder in an aggregate amount of
$1,000,000 (unless the Lender shall have reduced its Loans, Letter of Credit
Outstandings and Commitments to zero); provided, further, however, that the
Borrower and each other Obligor shall be entitled to continue to deal solely
and directly with the Lender in connection with the interests so assigned and
delegated to an Assignee Lender until
(a) written notice of such assignment and delegation, together
with payment instructions, addresses and related information with respect
to such Assignee Lender, shall have been given to the Borrower by the Lender
and such Assignee Lender,
(b) such Assignee Lender shall have executed and delivered to the
Borrower and the Lender a Lender Assignment Notice, accepted by the Lender,
and
(c) the processing fees described below shall have been paid.
From and after the date that the Assignee Lender delivers such Lender
Assignment Notice, (x) the Assignee Lender thereunder shall be deemed
automatically to have become a party hereto and to the extent that rights
and obligations hereunder have been assigned and delegated to such Assignee
Lender in connection with such Lender Assignment Notice, shall have the
rights and obligations of a Lender hereunder and under the other Loan
Documents, and (y) the assignor Lender, to the extent that rights and
obligations hereunder have been assigned and delegated by it in connection
with such Lender Assignment Notice, shall be released from its obligations
hereunder and under the other Loan Documents. Within five Business Days
after its receipt of notice that the Lender has received an executed Lender
Assignment Notice and the Borrower has received from the Lender execution
copies of appropriate Notes, the Borrower shall execute and
deliver to the relevant Assignee Lender new Notes evidencing such Assignee
Lender's assigned Loans and Commitments and, if the assignor Lender has
retained Loans and Commitments hereunder, replacement Notes in the principal
amount of the Loans and Commitments retained by the assignor Lender hereunder
(each such Note to be in exchange for, but not in payment of, the
corresponding Note then held by such assignor Lender). The assignor Lender
shall ▇▇▇▇ the predecessor Note "exchanged" and deliver it to the Borrower.
Accrued interest on that part of the predecessor Note evidenced by the new
Notes, and accrued fees, shall be paid as provided in the Lender Assignment
Notice. Accrued interest on that part of the predecessor Note evidenced by
the replacement Notes shall be paid to the assignor Lender. Accrued interest
and accrued fees shall be paid at the same time or times provided in the
predecessor Notes and in this Agreement. Such assignor Lender or such
Assignee Lender must also pay a processing fee to the Lender upon delivery
of any Lender Assignment Notice in the amount of $2,500. Any attempted
assignment and delegation not made in accordance with this Section
10.11.1 shall be null and void. Nothing contained in this Agreement shall
prohibit any Lender from pledging or assigning any Note to any Federal Reserve
Bank in accordance with Applicable Law.
SECTION X.11.2. Participations. The Lender may at any time sell to one or
more Persons, including without limitation commercial banks (each of such
commercial banks and other Persons being herein called a "Participant")
participating interests in any of the Loans, Commitments, or other interests of
the Lender hereunder; provided, however, that
(a) no participation contemplated in this Section 10.11.2 shall
relieve the Lender from its Commitments or its other obligations hereunder
or under any other Loan Document,
(b) the Lender shall remain solely responsible for the
performance of its Commitments and such other obligations,
(c) the Borrower and each other Obligor shall continue to deal
solely and directly with the Lender in connection with the Lender's rights
and obligations under this Agreement and each of the other Loan Documents,
and
(d) the Borrower shall not be required to pay any amount under
Section 5.2 or Section 10.3 that is greater than the amount which it would
have been required to pay had no participating interest been sold.
(e) the Lender shall not transfer, grant or assign any
participation under which the Participant shall have rights to approve any
amendment to or waiver of this Agreement except to the extent such amendment
or waiver would (i) increase the amount of the Participants' Loans or
Commitment, (ii) reduce the principal of, or interest on, any of the
Lender's Loans, or any fees payable to the Lender hereunder, (iii) postpone
any date fixed for any scheduled payment of principal of, or interest on,
any of the Lender's Loans, or any fees or other amounts payable to the
Lender hereunder or (iv) release all of substantially collateral security
for any Obligation, and
(f) in a participation certificate or other document evidencing
such participating interest, the Participant shall acknowledge that the
confidentiality obligations of Section 10.14 shall be binding upon the
Participant.
Each Participant shall be entitled to the benefits of Section 4.8, 5.1, 5.2,
5.4, 10.3 and 10.4; provided that no Participant shall be entitled to receive
any greater amount pursuant to such Sections than the transferor Lender would
have been entitled to receive in respect of the amount of the participating
interest transferred by such transferor Lender to such Participant had no such
transfer occurred; and provided further that the Borrower shall not be required
to pay an amount under any Loan Document that is greater than the amount which
it would have been required to pay had no participating interest been sold.
The Borrower acknowledges and agrees that each Participant, for purposes of
Sections 5.1 and 5.2 (except as provided in Section 10.11.2(d)), 10.3 and 10.4,
shall be considered a Lender.
SECTION X.12. Forum Selection and Consent to Jurisdiction. ANY LITIGATION
BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER ORAL OR WRITTEN) OR ACTIONS OF THE LENDER OR THE BORROWER
SHALL BE BROUGHT AND MAINTAINED IN THE COURTS OF THE STATE OF ILLINOIS OR IN
THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS;
PROVIDED, HOWEVER, THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL
OR OTHER PROPERTY MAY BE BROUGHT, AT THE LENDER'S OPTION, IN THE COURTS OF
ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND. THE
BORROWER HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE
COURTS OF THE STATE OF ILLINOIS AND OF THE UNITED STATES DISTRICT COURT FOR
THE NORTHERN DISTRICT OF ILLINOIS FOR THE PURPOSE OF ANY SUCH LITIGATION AS
SET FORTH ABOVE AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED
THEREBY IN CONNECTION WITH SUCH LITIGATION. THE BORROWER FURTHER IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY
PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF ILLINOIS. THE BORROWER
HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
LAW, ANY OBJECTION WHICH IT MAY HAVE OR HEREAFTER MAY HAVE TO THE LAYING OF
VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND
ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
TO THE EXTENT THAT THE BORROWER HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY
FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS
(WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN
AID OF EXECUTION OR OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, THE
BORROWER HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS
UNDER THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
SECTION X.13. Waiver of Jury Trial. THE LENDER AND THE BORROWER HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF,
UNDER, OR IN CONNECTION WITH, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY
COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN) OR
ACTIONS OF THE LENDER OR THE BORROWER. THE BORROWER ACKNOWLEDGES AND AGREES
THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION FOR THIS PROVISION (AND
EACH OTHER PROVISION OF EACH OTHER LOAN DOCUMENT TO WHICH IT IS A PARTY) AND
THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDER ENTERING INTO THIS
AGREEMENT AND EACH SUCH OTHER LOAN DOCUMENT.
SECTION X.14. Notice THIS WRITTEN AGREEMENT TOGETHER WITH THE OTHER LOAN
DOCUMENTS REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
FUTURE PETROLEUM CORPORATION, a Utah corporation
/s/ ▇▇▇▇ ▇▇▇▇▇
By ▇▇▇▇ ▇▇▇▇▇
Title: President
Address: ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION
By:
Title:
Address: ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
All notices should be sent to:
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
(The Schedules and Exhibits will be provided upon request)
SCHEDULE I Disclosure Schedule
SCHEDULE II Subsidiaries
SCHEDULE III Certain Consents and Mortgage Consents
EXHIBIT A Form of Secured Promissory Note
EXHIBIT B Form of Security Agreement
EXHIBIT C Form of Borrowing Request
EXHIBIT D Form of Guaranty
EXHIBIT E-1 Form of California Mortgage
EXHIBIT E-2 Form of Multi-State Mortgage
EXHIBIT F-1 Form of Pledge Agreement (Partnership Interests)
EXHIBIT F-2 Form of Pledge Agreement (Stock)
EXHIBIT G Form of Lender Assignment Notice
EXHIBIT H Form of Opinion of Counsel to the Borrower, et al.
EXHIBIT I-1 Form of Pre-Closing Title Opinion of Special Counsel to the
Borrower
EXHIBIT I-2 Form of Post-Closing Title Opinion of Special Counsel to
the Borrower
EXHIBIT J Form of Consent
EXHIBIT K Form of Issuance Request
EXHIBIT L Form of Letter of Credit
