Forbearance Agreement No. 2
Exhibit 10.37
Execution Version
Forbearance Agreement ▇▇. ▇
▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇. ▇, dated as of February 1, 2011 (this “Agreement”) among DHS HOLDING
COMPANY, a Delaware corporation (“Holdings”), DHS DRILLING COMPANY, a Colorado corporation (the
“Borrower”) and ▇▇▇▇▇▇ COMMERCIAL PAPER INC., as administrative agent (in such capacity, the
“Administrative Agent”) and as the Lender (in such capacity, the “Lender”) under that certain
Credit Agreement (as defined below).
W I T N E S S E T H:
WHEREAS, the Borrower, Holdings, the Lender and the Administrative Agent are parties to that
certain Amended and Restated Credit Agreement, dated as of August 15, 2008, as amended by that
certain Amendment No. 1, dated as of September 19, 2008, and further amended by that certain Waiver
and Amendment ▇▇. ▇, ▇▇▇▇▇ ▇▇ ▇▇ ▇▇▇▇▇ ▇, ▇▇▇▇ (▇▇ further amended, modified or supplemented from
time to time in accordance with its terms, the “Credit Agreement”; capitalized terms used but not
defined herein shall have the respective meanings ascribed to such terms in the Credit Agreement);
WHEREAS, the Borrower, Holdings, the Lender and the Administrative Agent are parties to that
certain Forbearance Agreement, dated as of December 31, 2010, pursuant to which the Lender and the
Administrative Agent agreed to forbear from exercising certain rights under the Credit Agreement
and the other Loan Documents in connection with the Forbearance Default (as defined herein);
WHEREAS, the Borrower has failed in its performance of certain provisions of
the Credit Agreement as further described herein, such failure constituting a default under the
Credit Agreement; and
WHEREAS, the Borrower and Holdings have requested that the Lender and the
Administrative Agent forbear, and the Lender and the Administrative Agent have agreed, subject
to the terms and conditions of this Agreement, to forbear, from exercising certain rights under the
Credit Agreement and the other Loan Documents during the Forbearance Period (as defined
below).
NOW, THEREFORE, in consideration of the premises and the agreements
hereinafter contained, the parties hereto agree as follows:
1. Forbearance.
(a) Acknowledgement. As of the date hereof, each of the Loan Parties acknowledge that the failure
by the Borrower to (a) on January 3, 2011, service the amortization payment due and payable
pursuant to Section 2.4(a)(i) of the Credit Agreement (the “Payment Default”), (b) on January 3,
2011, service the interest payment due and payable pursuant to Section 2.8(b) of the Credit
Agreement (the “Interest Default”) and (c) for the fiscal quarter ending on December 31, 2010,
comply with the covenant under Section 6.1(a) of the Credit Agreement with respect to maintenance
of Minimum Consolidated EBITDA (the “Maintenance Default,” together with the Payment Default and
Interest Default, the “Forbearance Default”) constitutes a default under the Credit Agreement.
(b) Forbearance Period. (i) During the period from the Effective Date (as defined below) until
March 15, 2011 (the “Forbearance Period”), each of the Administrative Agent and the Lender hereby
agrees to forbear (the “Forbearance”) from exercising its rights and remedies under the Credit
Agreement and the other Loan Documents arising as a result of the Forbearance Default; provided,
however, that upon the occurrence of any Event of Default other than the Forbearance Default,
including the Events of Defaults set forth in Section 1(c) hereof, the Forbearance Period shall
automatically and immediately terminate, and the Administrative Agent and the Lender shall be
entitled to exercise any and all of their rights and remedies under the Credit Agreement, the other
Loan Documents and applicable law, without further notice other than as required therein. Upon
termination of the Forbearance Period, (A) the forbearance shall automatically terminate and be of
no further force or effect without any further action by the Lender, (B) the Forbearance Default
is, without further action, reinstated and shall have the same force and effect as if the
Forbearance had not been agreed to by the parties hereto and (C) subject to the terms of the Credit
Agreement, the Loan Documents and applicable law, the Lender may thereafter, without limitation,
▇▇▇, ask for or demand from the Loan Parties payment of the Obligations due and payable to such
Lender, in whole or in part, and otherwise enforce any of its rights and remedies (including rights
of acceleration and foreclosure) provided for under the Credit Agreement, the Loan Documents or
applicable law against any party, subject to any defenses available at law or equity as a result of
Lender’s Breach. Each of the Loan Parties agrees that, subject to the agreement of the Lender to
forbear from exercising certain of their rights and remedies as and to the extent expressly set
forth in this Agreement, all rights and remedies of the Lender under the Credit Agreement, the Loan
Documents or applicable law with respect to such Loan Party shall continue to be available to the
Lender from and after the Effective Date.
(ii) It is understood and agreed that interest shall accrue from the Effective Date through
the remainder of the Forbearance Period on the outstanding Obligations at the applicable default
rates provided for pursuant to the Credit Agreement.
(c) Additional Events of Default. The following events shall constitute Events of Default
under the terms of the Credit Agreement and the other Loan Documents:
(i) any of the Borrower, Holdings or the other Loan Parties shall pledge, encumber, charge, assign
or grant a security interest in, or encumbrance of any kind on, any Collateral; or
(ii) any of the Borrower, Holdings or the other Loan Parties shall enter
into any arrangement to provide priority or preference with respect thereto, in connection with
securing or obtaining debtor-in-possession financing; or
(iii) any of the Loan Parties shall (x) pay any management fees to either
of Delta Petroleum Corporation (“Parent”) or Chesapeake Energy Corporation (“Chesapeake”)
or (y) make any other payments, distributions or dividends in respect of stock held by either of
Parent or Chesapeake in any Loan Party; or
(iv) Holdings, the Borrower or any other Loan Party shall fail to perform
or observe any term, covenant or agreement set forth in this Agreement; or
(v) any representation or warranty made or deemed made by any Loan
Party herein or any representation or warranty made or deemed made hereafter by any Loan Party
in any Loan Document or which is made in connection with this Agreement or any other Loan
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Document shall prove to have been incorrect or misleading in any material respect on or as of the
date made or deemed made.
(d) No Waiver. Any other provision of this Agreement notwithstanding, the
Loan Parties do not waive or release any rights or defenses available to them as a result of
Lender’s Breach.
2. Forbearance Requirements. As consideration for the Forbearance,
Holdings and Borrower shall permit any third party financial consultant or advisor acting on
behalf of the Lender or Administrative Agent to inspect the property of Holdings and its
Subsidiaries and to conduct such other activity as contemplated in Section 5.7(b) of the Credit
Agreement.
3. Representations and Warranties. Each of the Borrower, Holdings and the
other Loan Parties represents and warrants as follows (which representations and warranties shall
survive the execution and delivery of this Agreement):
(a) Each of the Borrower, Holdings and the other Loan Parties has taken all
necessary action to authorize the execution, delivery and performance of this Agreement.
(b) This Agreement constitutes the legal, valid and binding obligation of
each of the Borrower, Holdings and the other Loan Parties, as applicable, enforceable against
them in accordance with their respective terms, subject to applicable bankruptcy, reorganization,
insolvency, moratorium and similar laws affecting the enforcement of creditors’ rights generally
and to general equity principles.
(c) No consent or approval of any person, firm, corporation or entity, and no
consent, license, approval or authorization of any governmental authority is or will be required in
connection with the execution, delivery, performance, validity or enforcement of this Agreement,
other than any such consent, approval, license or authorization which has been obtained and
remains in full force and effect or where the failure to obtain such consent, approval, license or
authorization would not result in a Material Adverse Effect.
(d) After giving effect to this Agreement, each of the Borrower, Holdings
and the other Loan Parties is in compliance with all of the various covenants and agreements set
forth in the Credit Agreement and each of the other Loan Documents, other than the Forbearance
Default.
(e) After giving effect to this Agreement and the agreements to be delivered
in connection herewith, no event has occurred and is continuing which constitutes a Default or an
Event of Default, other than the Forbearance Default.
(f) After giving effect to this Agreement and the agreements to be delivered
in connection herewith, all representations and warranties contained in the Credit Agreement and
each of the other Loan Documents are true and correct in all material respects as of the date
hereof, except to the extent that any representation or warranty relates to a specified date, in
which case such are true and correct in all material respects as of the specific date to which such
representations and warranties relate, and except to the extent of any inconsistency in such
representations or warranties arising directly out of the Forbearance Default.
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(g) Each report delivered and any information provided pursuant to or in
connection with this Agreement has and will be prepared on a reasonable basis and in good faith,
and has/will be based on assumptions believed by the applicable Loan Party to be reasonable at
the time made and upon the best information available to such Loan Party, and such Loan Party is
not aware of any facts or information that would lead the applicable party to believe that any such
information or report is incorrect or misleading in any material respect.
4. Fees and Expenses. The Borrower and Holdings agree to pay on demand
all fees, costs and expenses, including reasonable attorneys’ and consultants’ fees, of the
Administrative Agent and the Lender incurred in connection with this Agreement.
5. Effective Date. This Agreement shall not become effective unless and
until (the latest date upon which such occurs, the “Effective Date”):
(a) this Agreement shall have been duly executed and delivered by the
Borrower, Holdings, the other Loan Parties, the Lender and the Administrative Agent; and
(b) the Lender shall have received such other certificates, documents and
agreements as the Lender may reasonably request.
6. Reference and Continued Effectiveness of the Loan Documents.
(a) The term “Agreement”, “hereof”, “herein” and similar terms as used in
the Credit Agreement, and references in the other Loan Documents to the Credit Agreement, shall
mean and refer to, from and after the Effective Date, the Credit Agreement as affected by this
Agreement.
(b) The Borrower hereby agrees that all of the covenants and agreements
contained in the Credit Agreement and the Loan Documents are hereby ratified and confirmed in
all respects.
(c) This Agreement constitutes a Loan Document.
7. Counterparts. This Agreement may be executed in counterparts, each of
which shall be an original, and all of which, taken together, shall constitute a single instrument.
Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be
effective as delivery of a manually executed counterpart of this Agreement.
8. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York without giving effect to the conflict of laws
provisions thereof.
9. Limitation. Each party hereto hereby agrees that this Agreement does
not impose on ▇▇▇▇▇▇ Commercial Paper Inc. affirmative obligations or indemnities not existing,
as of the date of its petition commencing its proceeding under chapter 11 of the United States
Code, and that could give rise to administrative expense claims.
10. Indemnity. The Borrower, Holdings and the other Loan Parties further
agree, jointly and severally, to defend, protect, indemnify and hold harmless the Administrative
Agent and the Lender, each of their respective Affiliates and their respective officers, directors,
employees, attorneys and agents (collectively the “Indemnitees”) from and against any and all
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liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs,
expenses of any kind or nature whatsoever (including, without limitation, the reasonable fees and
expenses of counsel for such Indemnitees in connection with any investigative, administrative or
judicial proceeding, whether or not such Indemnitees shall be designated as a party thereto),
imposed on, incurred by, or asserted against such Indemnitees in any manner relating to or arising
out of this Agreement or any other Loan Document (collectively the “Indemnified Matters”);
provided, however, that neither the Borrower, Holdings or any Loan Party shall have an
obligation to an Indemnitee hereunder with respect to Indemnified Matters caused or resulting
from (a) a dispute among the Lender or a dispute between the Lender and the Administrative
Agent, or (b) the willful misconduct or gross negligence of such Indemnitee, or (c) defense of
claims by the Loan Parties relating to Lender’s Breach (but only if the Loan Parties are the
prevailing party with respect to such claims). If the undertaking to indemnify, pay and hold
harmless set forth in the preceding sentence may be unenforceable because it violates any law or
public policy, the Borrower, Holdings and the other Loan Parties shall contribute the maximum
portion which it is permitted to pay and satisfy under the applicable law, to the payment and
satisfaction of all Indemnified Matters incurred by Indemnities. This Section 10 shall survive the
payment of the Obligations and the termination of this Agreement or any other Loan Document.
[Signature Pages Follow]
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IN WITNESS WHEREOF the parties hereto have caused this Agreement to be duly
executed by their respective officers as of the date first written above.
| DHS DRILLING COMPANY, as the Borrower |
||||
| By: | /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ | |||
| Name: | ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ | |||
| Title: | Executive Vice President | |||
| DHS HOLDING COMPANY, as Holdings |
||||
| By: | /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ | |||
| Name: | ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ | |||
| Title: | Executive Vice President | |||
[Signature Page to Agreement]
| ▇▇▇▇▇▇ COMMERCIAL PAPER, INC, as Administrative Agent and Lender |
||||
| By: | /s/ ▇▇▇▇▇▇ ▇▇▇ | |||
| Name: | ▇▇▇▇▇▇ ▇▇▇ | |||
| Title: | Authorized Signatory | |||
[Signature Page to Agreement]