EXHIBIT 10.1
$20,000,000
SECOND LIEN SECURED
CREDIT AGREEMENT
BETWEEN
PETROQUEST ENERGY, L.L.C.,
A LOUISIANA LIMITED LIABILITY COMPANY,
AS BORROWER,
PETROQUEST ENERGY, INC.,
A DELAWARE CORPORATION,
AS GUARANTOR
AND
MACQUARIE AMERICAS CORP.,
A DELAWARE CORPORATION,
IN ITS INDIVIDUAL CAPACITY AND AS ADMINISTRATIVE AGENT;
AND
THE LENDERS PARTY HERETO
---------------------------------
DATED AS OF NOVEMBER 6, 2003
TABLE OF CONTENTS
ARTICLE I. DEFINITIONS........................................................................................... 1
Section 1.1 Specific Defined Terms...................................................................... 1
Section 1.2 Other Capitalized Terms..................................................................... 19
Section 1.3 Exhibits and Schedules...................................................................... 19
Section 1.4 Amendment of Defined Instruments............................................................ 20
Section 1.5 References, Titles and Construction......................................................... 20
ARTICLE II. THE TERM LOAN........................................................................................ 20
Section 2.1 Term Loan................................................................................... 20
Section 2.2 Availability and Purpose of Term Loan Advance............................................... 21
Section 2.3 Advance Procedure........................................................................... 21
Section 2.4 Term Notes.................................................................................. 21
Section 2.5 Interest.................................................................................... 21
Section 2.6 Final Maturity of Obligations............................................................... 22
Section 2.7 Time and Place of Payments.................................................................. 22
Section 2.8 Optional Prepayment of the Term Loan........................................................ 23
Section 2.9 Mandatory Prepayment of the Term Loan....................................................... 23
Section 2.10 Taxes....................................................................................... 23
Section 2.11 Fees........................................................................................ 24
ARTICLE III. SECURITY............................................................................................ 24
Section 3.1 Grant of Security Interests................................................................. 24
Section 3.2 Pledged Interests........................................................................... 25
Section 3.3 Equipment................................................................................... 25
Section 3.4 Subordination Agreement..................................................................... 26
ARTICLE IV. REPRESENTATIONS AND WARRANTIES....................................................................... 26
Section 4.1 Formation and Existence..................................................................... 26
Section 4.2 Executive Offices........................................................................... 26
Section 4.3 Ownership; Subsidiaries..................................................................... 26
Section 4.4 Authorization; Non-Contravention............................................................ 27
Section 4.5 Solvency.................................................................................... 27
Section 4.6 Omissions and Misstatements................................................................. 27
Section 4.7 Joint Ventures.............................................................................. 28
Section 4.8 Commissions; Expenses....................................................................... 28
Section 4.9 Tax Matters................................................................................. 28
Section 4.10 Litigation; Governmental Proceedings........................................................ 28
Section 4.11 Ownership of Collateral; Interests.......................................................... 29
Section 4.12 Indebtedness................................................................................ 29
Section 4.13 Trademarks, Etc............................................................................. 29
Section 4.14 Leases...................................................................................... 29
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Section 4.15 Investments................................................................................. 29
Section 4.16 Environmental Matters....................................................................... 30
Section 4.17 Operating Permits and Licenses.............................................................. 31
Section 4.18 Maintenance of Properties................................................................... 31
Section 4.19 Defaults.................................................................................... 32
Section 4.20 Contingent Liabilities...................................................................... 32
Section 4.21 Restrictions on Equipment................................................................... 32
Section 4.22 Financial Statements; No Material Adverse Effect............................................ 32
Section 4.23 Taxpayer Identification..................................................................... 33
Section 4.24 Holding Company............................................................................. 33
Section 4.25 Investment Company.......................................................................... 33
Section 4.26 Other Agreements............................................................................ 33
Section 4.27 Basic Documents............................................................................. 34
Section 4.28 Farmout Agreements, Etc..................................................................... 34
Section 4.29 Operating Agreements........................................................................ 34
Section 4.30 No Unusual Agreements....................................................................... 35
Section 4.31 Suspense of Proceeds........................................................................ 35
Section 4.32 ERISA Plans................................................................................. 35
Section 4.33 Use of Proceeds............................................................................. 36
Section 4.34 Insurance................................................................................... 36
Section 4.35 No Material Adverse Effect.................................................................. 36
Section 4.36 Tax Shelter Regulations..................................................................... 36
Section 4.37 Restriction on Liens........................................................................ 37
Section 4.38 Hedging Agreements.......................................................................... 37
Section 4.39 Marketing of Production..................................................................... 37
ARTICLE V. FINANCIAL STATEMENTS AND INFORMATION; CERTAIN NOTICES TO LENDERS...................................... 37
Section 5.1 Monthly Operating Statement................................................................. 37
Section 5.2 Daily Field Reports......................................................................... 37
Section 5.3 Weekly Sales Reports........................................................................ 38
Section 5.4 AFEs........................................................................................ 38
Section 5.5 Test Results; Core Analyses; Surveys and Logs............................................... 38
Section 5.6 Annual Reports.............................................................................. 38
Section 5.7 Quarterly Reports........................................................................... 38
Section 5.8 Certificate of Financial Officer; Compliance................................................ 38
Section 5.9 Default Notices............................................................................. 39
Section 5.10 Reserve Reports............................................................................. 40
Section 5.11 Other Information........................................................................... 42
Section 5.12 Annual Operating Budget..................................................................... 42
Section 5.13 Charter Documents........................................................................... 42
Section 5.14 Other Information........................................................................... 42
Section 5.15 Information to Shareholders................................................................. 42
Section 5.16 Certificate of Chief Financial Officer; Hedging Agreements.................................. 43
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Section 5.17 Certificate of Insurer; Insurance Coverage.................................................. 43
Section 5.18 Reportable Transactions..................................................................... 43
Section 5.19 Borrower Financial Statements............................................................... 43
ARTICLE VI. AFFIRMATIVE COVENANTS................................................................................ 43
Section 6.1 Preservation of Existence................................................................... 43
Section 6.2 Compliance with Law......................................................................... 43
Section 6.3 Environmental Matters....................................................................... 45
Section 6.4 Records..................................................................................... 46
Section 6.5 Litigation.................................................................................. 46
Section 6.6 Damage to Collateral........................................................................ 46
Section 6.7 Solvency.................................................................................... 46
Section 6.8 Insurance................................................................................... 46
Section 6.9 Delivery of Instruments..................................................................... 47
Section 6.10 Consultants................................................................................. 47
Section 6.11 Creditors................................................................................... 47
Section 6.12 Inspection.................................................................................. 47
Section 6.13 Environmental Opinion....................................................................... 48
Section 6.14 Operators................................................................................... 48
Section 6.15 Purchasers of Hydrocarbons.................................................................. 48
Section 6.16 Access to Officers, Employees and Agents.................................................... 49
Section 6.17 Hedging Hydrocarbon Production.............................................................. 49
Section 6.18 Use of Proceeds............................................................................. 50
Section 6.19 Bonds....................................................................................... 50
Section 6.20 Minimum Payments............................................................................ 50
Section 6.21 Post-Closing Title Opinions................................................................. 50
Section 6.22 Continuing Enterprise....................................................................... 50
Section 6.23 Venue for Debtor Relief Proceedings......................................................... 50
Section 6.24 Access to Seismic and Geophysical Data...................................................... 50
Section 6.25 Liens on Collateral......................................................................... 51
Section 6.26 Certain Financial Covenants................................................................. 51
Section 6.27 Additional Guarantors....................................................................... 51
Section 6.28 Collateral Records.......................................................................... 51
ARTICLE VII. NEGATIVE COVENANTS.................................................................................. 52
Section 7.1 Debt........................................................................................ 52
Section 7.2 Accounts.................................................................................... 53
Section 7.3 Guaranties.................................................................................. 53
Section 7.4 Ownership and Business Operations........................................................... 53
Section 7.5 Liens and Encumbrances...................................................................... 55
Section 7.6 Investments................................................................................. 56
Section 7.7 Subsidiaries and Divestitures............................................................... 56
Section 7.8 Compliance with Laws........................................................................ 56
Section 7.9 Dividends and Distributions................................................................. 56
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Section 7.10 Modifications............................................................................... 57
Section 7.11 Debt Threshold.............................................................................. 57
Section 7.12 Senior Credit Facility...................................................................... 57
Section 7.13 Quarterly Production Levels and Net Operating Cash Flow..................................... 57
Section 7.14 General and Administrative Expenses......................................................... 57
Section 7.15 Other....................................................................................... 57
Section 7.16 Proceeds of Term Loan....................................................................... 58
Section 7.17 Limitation on Leases........................................................................ 58
Section 7.18 Nature of Business.......................................................................... 58
Section 7.19 POG......................................................................................... 59
ARTICLE VIII. FURTHER RIGHTS OF LENDERS.......................................................................... 59
Section 8.1 Delivery of Additional Documents............................................................ 59
Section 8.2 Payments by Lenders......................................................................... 59
Section 8.3 Payment of Taxes, Etc....................................................................... 60
Section 8.4 Possession.................................................................................. 60
Section 8.5 Indemnification............................................................................. 60
ARTICLE IX. CLOSING; CONDITIONS PRECEDENT TO CLOSING............................................................. 62
Section 9.1 Closing..................................................................................... 62
Section 9.2 Conditions Precedent........................................................................ 62
Section 9.3 Conditions Precedent to Funding of Term Loan................................................ 66
ARTICLE X. EVENTS OF DEFAULT..................................................................................... 67
Section 10.1 Events of Default........................................................................... 67
ARTICLE XI. REMEDIES OF LENDERS.................................................................................. 70
Section 11.1 Remedies.................................................................................... 70
Section 11.2 Collateral.................................................................................. 70
Section 11.3 Costs and Expenses.......................................................................... 71
Section 11.4 Set-Off Rights.............................................................................. 71
Section 11.5 Rights Under Operating Agreements........................................................... 71
ARTICLE XII. ADMINISTRATIVE AGENT................................................................................ 71
Section 12.1 Appointment and Authorization of Administrative Agent....................................... 71
Section 12.2 Delegation of Duties........................................................................ 72
Section 12.3 Liability of Administrative Agent........................................................... 72
Section 12.4 Reliance by Administrative Agent............................................................ 72
Section 12.5 Notice of Default........................................................................... 73
Section 12.6 Credit Decision; Disclosure of Information by Administrative Agent.......................... 73
Section 12.7 Indemnification of Administrative Agent..................................................... 74
Section 12.8 Administrative Agent in its Individual Capacity............................................. 74
Section 12.9 Successor Administrative Agent.............................................................. 75
Section 12.10 Administrative Agent May File Proofs of Claim............................................... 75
Section 12.11 Collateral and Guaranty Agreements Matters.................................................. 76
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Section 12.12 Advance Procedure........................................................................... 77
Section 12.13 Payments.................................................................................... 78
Section 12.14 Application of Payments..................................................................... 78
Section 12.15 Liens....................................................................................... 79
Section 12.16 Payment Priority............................................................................ 79
Section 12.17 Sharing of Payments by Lenders.............................................................. 79
Section 12.18 Relationship of Lenders..................................................................... 80
ARTICLE XIII. MISCELLANEOUS...................................................................................... 80
Section 13.1 Remedies Cumulative......................................................................... 80
Section 13.2 Assignment.................................................................................. 80
Section 13.3 Notices..................................................................................... 80
Section 13.4 Waivers; Amendments......................................................................... 82
Section 13.5 Confidentiality............................................................................. 83
Section 13.6 Final Agreement............................................................................. 84
Section 13.7 WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC................................................. 84
Section 13.8 GOVERNING LAW............................................................................... 84
Section 13.9 No Third-Party Beneficiaries................................................................ 84
Section 13.10 Fees, Costs and Expenses; Indemnification................................................... 85
Section 13.11 Power of Attorney; Etc...................................................................... 86
Section 13.12 Severability................................................................................ 86
Section 13.13 Captions; Headings.......................................................................... 87
Section 13.14 Construction................................................................................ 87
Section 13.15 Additional Documents........................................................................ 87
Section 13.16 Counterpart Execution....................................................................... 87
Section 13.17 Compliance with Law......................................................................... 87
Section 13.18 EXCULPATION PROVISIONS...................................................................... 88
Section 13.19 No Other Agreements; No Parol Evidence...................................................... 88
Exhibit A Form of Advance Request
Exhibit B Form of Term Note
Exhibit C Form of Guaranty Agreement
Exhibit D Form of Pledge Agreement
Exhibit E Form of Production Report
Exhibit F Cash Flow Report
Exhibit G Form of Subordination Agreement
Exhibit H Forms of Opinion of Counsel
Exhibit I Form of Reserve Report Certification
Annex I Lenders and Percentage Shares; Wiring Instructions
Annex II Closing Date Transaction Documents
Schedule 4.2 Executive Offices of Guarantor
Schedule 4.3(a) Ownership of Borrower
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Schedule 4.3(b) Subsidiaries of Borrower
Schedule 4.10 Litigation
Schedule 4.12 Indebtedness
Schedule 4.14 Leases
Schedule 4.15(d) Imbalances
Schedule 4.16 Environmental Matters
Schedule 4.23 Taxpayer Identification
Schedule 4.26 Calls on Production
Schedule 4.34(c) Insurance Coverages
Schedule 4.38 Hedging Agreements
Schedule 4.39 Marketing Contracts
Schedule 5.12 Initial Annual Operating Budget
Schedule 6.17 Minimum Average Price for PDP Reserves Subject to the
Swap Agreement
Schedule 7.1(v) Hedging Obligations
Schedule 7.1(viii) Other Debt
Schedule 7.1(x) Bonds and Surety Obligations
Schedule 7.1(xv) Contingent Obligations
Schedule 7.5 Liens and Encumbrances
Schedule 7.13 Minimum Quarterly Production Levels and Net Operating
Cash Flow
Schedule 9.2(g) Subordinated Creditors
Schedule 9.2(n) Unpaid Bills
vi
$20,000,000 SENIOR SECOND LIEN SECURED CREDIT AGREEMENT
This $20,000,000 Senior Second Lien Secured Credit Agreement (this
"Agreement") is dated November 6, 2003, between PetroQuest Energy, L.L.C., a
Louisiana limited liability company, having its principal executive office and
place of business at ▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
("Borrower"); PetroQuest Energy, Inc., a Delaware corporation having its
principal executive office and place of business at ▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ("Guarantor"); each of the Lenders from time to
time party hereto; and Macquarie Americas Corp., a Delaware corporation, (in its
individual capacity, "MAC"), as administrative agent for the Lenders (in such
capacity, together with its successors in such capacity, the "Administrative
Agent").
BACKGROUND:
1. Borrower desires to obtain a credit facility from Lenders for
the purpose of further developing the Properties (defined below). Lenders desire
to make available to Borrower a senior second lien secured term loan on a
non-revolving basis for those purposes under the terms and conditions of this
Agreement.
2. In connection with Lenders making available to Borrower the
financial accommodations described in this Agreement and subject to the other
terms of this Agreement and the Loan Documents (defined below), Borrower will
grant to the Administrative Agent, for the benefit of Lenders, a second-priority
mortgage lien and a second-priority perfected security interest in all of the
real and personal property of Borrower and certain other collateral.
3. To further induce Lenders to make the term loan, Borrower will
cause PQUE (defined below) to deliver the Warrants (defined below) to Lenders or
their designees.
AGREEMENTS:
In consideration of the terms, covenants, provisions and conditions set
forth in this Agreement, Borrower, Administrative Agent and Lenders agree as
follows:
ARTICLE I.
Definitions
Section 1.1 Specific Defined Terms. As used herein, the following terms
shall have the following meanings and, as the context requires, the singular
shall include the plural:
"Administrative Agent" means MAC or any successor serving as the
Administrative Agent pursuant to this Agreement.
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"Administrative Agent-Related Persons" means the Administrative Agent,
together with its Affiliates, and their respective officers, directors,
employees, agents and attorneys in fact of such Persons.
"Advance" means an advance of funds by Lenders at the Contract Rate
pursuant to Article II of this Agreement.
"Advance Request" means a request for an Advance under the Term Loan in
substantially the form of Exhibit A hereto.
"AFE" means an authorization for expenditure representing an estimate
of work to be performed.
"Affiliate" means as to any Person, (a) any other Person who directly
or indirectly controls, is under common control with, or is controlled by such
Person, (b) any director or officer of such Person or of any Person referred to
in clause (a) above, or (c) if any Person in clause (a) above is an individual,
any member of the immediate family (including parents, spouse and children) of
such individual and any trust whose principal beneficiary is such individual or
one or more members of such immediate family and any Person who is controlled by
any such member or trust. As used in this definition, "control" (including, with
its correlative meanings, "controlled by" and "under common control with") means
possession, directly or indirectly, of power to direct or cause the direction of
management or policies (whether through ownership of securities or partnership
or other ownership interests, by contract or otherwise), provided that, in any
event (i) any Person who owns directly or indirectly ten percent (10%) or more
of the securities having ordinary voting power for the election of directors or
other governing body of a corporation or ten percent (10%) or more of the
partnership or other ownership interests of any other Person (other than as a
limited partner of such other Person) will be deemed to control such corporation
or other Person, (ii) any subsidiary of any Borrower shall be deemed to be an
Affiliate of Borrower.
"Agreement" has the meaning assigned to that term in the introductory
paragraph hereof and includes any amendment, modification, supplement or
restatement.
"Annual Operating Budget" has the meaning assigned to that term in
Section 5.12.
"Availability Termination Date" means December 31, 2004.
"Basic Documents" means the Leases, Operating Agreements, Hydrocarbon
purchase, sales, exchange, processing, gathering, treatment, compression and
transportation agreements; farmout or farm-in agreements; unitization
agreements; joint venture, exploration, limited or general partnership, dry
hole, bottom hole, acreage contribution, purchase and acquisition agreements;
area of mutual interest agreements; salt water disposal agreements, servicing
contracts; easement and/or pooling agreements; surface leases, permits,
licenses, rights-of-way, servitudes or other interests appertaining to the
Properties and all other executory contracts and agreements relating to the
Properties.
2
"BOE" means barrel of Crude Oil equivalent. When determining the BOE,
Natural Gas volumes shall be converted to Crude Oil volumes on a basis of 6:1 (6
MCF of Natural Gas = 1 barrel of Crude Oil).
"Borrower" has the meaning assigned to that term in the introductory
paragraph of this Agreement.
"Btu" means the amount of energy required to raise the temperature of
one pound (avoirdupois) of pure water one degree Fahrenheit from 59 degrees
Fahrenheit to 60 degrees Fahrenheit.
"Business Day" means any day other than a Saturday, Sunday or other day
in which banking institutions in the city of New York are authorized or
obligated by law or executive order to close.
"Capital Leases" means, in respect of any Person, all leases which
shall have been, or should have been, in accordance with GAAP, recorded as
capital leases on the balance sheet of the Person liable (whether contingent or
otherwise) for the payment of rent thereunder.
"Cash Flow Report" means monthly consolidated financial statements of
PQUE and its subsidiaries for the applicable period including (a) the
consolidated balance sheet of PQUE prepared in accordance with GAAP (excluding
footnotes unless requested by Lenders) and (b) the consolidated statement of
income (or operations) of Borrower prepared in accordance with GAAP (excluding
footnotes unless requested by Lenders); provided, however, that Lenders shall
have the right to require Borrower to prepare a Cash Flow Report specifically
for the Borrower and its subsidiaries. An example of the monthly Cash Flow
Report is attached to this Agreement as Exhibit F.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended.
"Change of Control" means the occurrence of any of the following: (i)
the sale, lease, transfer, conveyance or other disposition (other than by merger
or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Borrower or Guarantor to any person (as
that term is used in Section 13(d)(3) of the Exchange Act) other than to a
Subsidiary of Borrower or Guarantor, respectively; (ii) Borrower or Guarantor
consolidates with or merges into another Person or any Person consolidates with
or merges into Borrower or Guarantor, in any such event pursuant to a
transaction in which the then outstanding Voting Stock of Borrower or Guarantor,
as applicable, is changed into or exchanged for cash, securities or other
property, other than any such transaction where (a) the then outstanding Voting
Stock of Borrower or Guarantor, as applicable, is changed into or exchanged for
Voting Stock of the surviving or resulting Person that is Qualified Capital
Stock and (b) the holders of the Voting Stock of Borrower or Guarantor, as
applicable, immediately prior to such transaction own, directly or indirectly,
not less than a majority of the Voting Stock of the surviving or resulting
Person immediately after such transaction; (iii) the adoption of a plan relating
to the liquidation
3
or dissolution of Borrower or Guarantor not involving a merger or consolidation
or a sale or other disposition of assets described in clause (i) above; (iv) the
consummation of any transaction (including, without limitation, any merger or
consolidation) the result of which is that any person (as that term is used in
Section 13(d)(3) of the Exchange Act) becomes the "beneficial owner" (as that
term is used in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of more than 50% of the total voting power of Borrower's or
Guarantor's then outstanding Voting Stock, provided that the sale of Voting
Stock of Borrower or Guarantor to a Person or Persons acting as underwriters in
connection with a firm commitment underwriting shall not constitute a Change of
Control; or (v) the first day on which a majority of the members of the Board of
Directors of Guarantor or the Board of Directors of Borrower are not Continuing
Directors. For purposes of this definition, any transfer of an equity interest
of an entity that was formed for the purpose of acquiring Voting Stock of
Borrower or Guarantor shall be deemed to be a transfer of such portion of such
Voting Stock as corresponds to the portion of the equity of such entity that has
been so transferred.
"Charter Documents" means, as applicable for any Person that is not an
individual, the articles or certificate of incorporation or formation,
certificate of limited partnership, regulations, bylaws, partnership or limited
partnership agreement, and all similar documents related to the formation and
governance of that Person, together with all amendments to any of them.
"Closing" means the date of execution by Borrower and other applicable
parties and the delivery to Lenders of this Agreement, the Term Notes (as
hereinafter defined), the Security Agreements, the Mortgage, the Hedging
Agreement or Swap Agreement, as applicable, the Intercreditor Agreement, the
other Security Documents and all other documents contemplated by this Agreement
and necessary to satisfy the conditions described in Section 9.2.
"Closing Date" has the meaning assigned to that term in Section 9.1.
"Code" means the Internal Revenue Code of 1986.
"Collateral" means all Property and all Personal Property now owned or
later acquired by the Borrower.
"Commitment Fee" has the meaning assigned to such term in Section
2.10(a).
"Consolidated" or "consolidated" means, when used with reference to any
accounting terms, the amount described by such accounting term, determined on a
consolidated basis in accordance with GAAP, after elimination of intercompany
items.
"Continuing Directors" means, as of any date of determination, any
member of the Board of Directors of Guarantor or of the Board of Directors of
Borrower who (i) was a member of such Board on the day after the date of this
Agreement or (ii) was nominated or elected to such Board with the approval of a
majority of the Continuing Directors identified in clause (i) above who were
members of such Board at the time of such nomination or election.
4
"Contract Rate" means the Prime Rate in effect from time to time plus
five and one-half percent (5.5%) per annum; provided, however, that the Contract
Rate will in no event exceed the Highest Lawful Rate.
"▇▇▇▇▇" means the Joint Operations Accounting Procedures recommended by
the Council of Petroleum Accountants then in effect with respect to oil and gas
operations as applied to properties located in the same geographical area with
each Property.
"Credit Facility Expenses" means the interest expenses, fees and other
expenses of Borrower pursuant to this Agreement and the other Loan Documents.
"Crude Oil" means all crude oil and condensate.
"Current Assets" means on any date of determination, the consolidated
current assets that would, in accordance with GAAP, be classified as of that
date as current assets, plus the amounts available for borrowings under the
Senior Credit Facility and for Advances under this Agreement as of such date,
less any non-cash amount required to be included in Current Assets as the result
of the application of FASB Statement 133 or FASB Statement 143. For purposes of
this definition of "Current Assets," the phrase "amounts available for
borrowings" means, with respect to this Agreement, fifteen million dollars
($15,000,000) less the total Advances made to Borrower by Lenders as of the date
of determination.
"Current Liabilities" means, on any date of determination, the
consolidated obligations that would, in accordance with GAAP, be classified as
of that date as current liabilities, excluding current maturities of long-term
debt and non-cash obligations under FASB Statement 133 or FASB Statement 143.
"Current Ratio" means the ratio of Current Assets for the date or
period being measured to Current Liabilities for such date or period.
"Debt" means, for any Person, the sum of the following (without
duplication): (a) all obligations of such Person for borrowed money or evidenced
by bonds, bankers' acceptances, debentures, notes or other similar instruments;
(b) all obligations of such Person (whether contingent or otherwise) in respect
of letters of credit, surety or other bonds and similar instruments; (c) all
accounts payable and all accrued expenses, liabilities or other obligations of
such Person to pay the deferred purchase price of property or services; (d) all
obligations under Capital Leases; (e) all obligations under Synthetic Leases;
(f) all Debt (as defined in the other clauses of this definition) of others
secured by a Lien on any property of such Person, whether or not such Debt is
assumed by such Person; (g) all Debt (as defined in the other clauses of this
definition) of others guaranteed by such Person or in which such Person
otherwise assures a creditor against loss of the Debt (howsoever such assurance
shall be made) to the extent of the lesser of the amount of such Debt and the
maximum stated amount of such guarantee or assurance against loss; (h) all
obligations or undertakings of such Person to maintain or cause to be maintained
the financial position or covenants of others or to purchase the Debt or
Property of others; (i) obligations to deliver commodities, goods or services,
including, without limitation,
5
Hydrocarbons, in consideration of one or more advance payments, other than gas
balancing arrangements in the ordinary course of business; (j) obligations to
pay for goods or services whether or not such goods or services are actually
received or utilized by such Person; (k) any Debt of a partnership for which
such Person is liable either by agreement, by operation of law or by a
governmental requirement but only to the extent of such liability; (l)
Disqualified Capital Stock; and (m) the undischarged balance of any production
payment created by such Person or for the creation of which such Person directly
or indirectly received payment. The Debt of any Person shall include all
obligations of such Person of the character described above to the extent such
Person remains legally liable in respect thereof notwithstanding that any such
obligation is not included as a liability of such Person under GAAP.
"Debtor Relief Laws" means all applicable liquidation, conservatorship,
bankruptcy, insolvency, rearrangement, moratorium, reorganization, or similar
debtor relief laws affecting the rights of creditors generally from time to time
in effect.
"Default" means the occurrence of any event which, with the lapse of
time or the giving of notice or both, will become an Event of Default hereunder.
"Default Rate" has the meaning assigned to that term in Section 2.5(a)
hereof.
"Defaulting Lender" means any Lender that (a) has failed to fund any
portion of the Term Loan it is required to fund under this Agreement within one
(1) Business Day of the date such funding is required, (b) has otherwise failed
to pay over to Administrative Agent or any other Lender any other amount
required to be paid by it under this Agreement or any other Loan Document within
one (1) Business Day of the date when due, or (c) has been deemed insolvent or
become the subject of a bankruptcy or insolvency proceeding under any Debtor
Relief Law.
"Defensible Title" means with respect to each Property, title that (i)
entitles Borrower to receive (free and clear of all royalties not appearing of
record, all overriding royalties and all net profits interests or other burdens
on or measured by production of Hydrocarbons and associated gases) not less than
the Net Revenue Interest of Borrower set forth in the Reserve Reports in all
Hydrocarbons produced, saved and marketed from the Property for the productive
life of the Property, free and clear of any security interest, lien,
encumbrance, mortgage, claim, security agreement or other charge, other than the
Permitted Encumbrances and any liens, mortgages and security interests and
property interests which are in favor of Lenders and its Affiliates or are
permitted hereunder; (ii) obligates Borrower to bear costs and expenses relating
to the maintenance, development and operation of such Property in an amount not
greater than the Working Interest of Borrower set forth in the Reserve Reports
for the productive life of such Property; and (iii) with respect to any royalty,
overriding royalty or other real property interests owned or acquired by
Borrower and not included in the Net Revenue Interest or Working Interest
described in clauses (i) or (ii) above, net profits interests and/or production
interests and any rights Borrower acquires to receive revenues from production,
good and indefeasible title to such interests, free and clear of any security
interest, lien, encumbrance, mortgage, claim, security agreement or other
charge, other than the Permitted Encumbrances and any liens,
6
mortgages and security interests and property interests which are in favor of
Lenders and its affiliates or are permitted hereunder.
"Developed Reserve Adjusted Present Value" means an amount, based on
the most recent Reserve Report, equal to the sum of (i) the PDP Present Value
plus (ii) the PDNP Present Value.
"Developed Reserve Adjusted Present Value Ratio" means the ratio of
Developed Reserve Adjusted Present Value to Outstanding Debt.
"Disqualified Capital Stock" means with respect to any Person any
Equity Interest of such Person or its Subsidiaries that, by its terms or by the
terms of any security into which it is convertible or exchangeable, is, or upon
the happening of an event or the passage of time would be, required to be
redeemed or repurchased by such Person or its Subsidiaries, including at the
option of the holder, in whole or in part, or has, or upon the happening of an
event or passage of time would have, a redemption or similar payment due, on or
prior to the Maturity Date.
"EBITDA" means, without duplication and with respect to any Person for
any period, the sum of (i) net income, in accordance with GAAP for such period
plus (a) to the extent deducted in determining net income for such period,
interest expense, income taxes, depreciation and amortization, accretion of
discount associated with SFAS No. 143, and non-cash portion of derivative
effects in accordance with SFAS No. 133, plus (b) any other non-cash expenses
acceptable to Lenders in their sole discretion, minus (ii) all non-cash income
and non-cash gains added to net income for such period.
"Engineers" means ▇▇▇▇▇ ▇▇▇▇▇ & Company or such other independent
petroleum engineering firms as shall be acceptable to Lenders.
"Environmental and Safety Regulations" means all applicable federal,
state or local laws, ordinances, codes, rules, orders and regulations with
respect to any environmental, pollution, toxic or hazardous waste or health and
safety law, including, without limitation, those promulgated by the United
States Environmental Protection Agency, the Federal Energy Regulatory
Commission, the Department of Energy, the Occupational Safety and Health
Administration, the Department of the Interior, or any other federal or state
regulatory agency, or any of their predecessor or successor agencies.
"Environmental Laws" shall mean any and all Governmental Requirements
and any Environmental and Safety Regulations pertaining to health or the
environment in effect in any and all jurisdictions in which Borrower or any
Subsidiary is conducting or at any time has conducted business, or where any
Property of the Borrower is located, including without limitation, the Oil
Pollution Act of 1990 ("OPA"), the Clean Air Act, as amended, the Comprehensive
Environmental, Response, Compensation, and Liability Act of 1980 ("CERCLA"), as
amended, the Federal Water Pollution Control Act, as amended, the Occupational
Safety and Health Act of 1970, as amended, the Resource Conservation and
Recovery Act of 1976 ("RCRA"), as amended, the Safe Drinking Water Act, as
amended, the
7
Toxic Substances Control Act, as amended, the Superfund Amendments and
Reauthorization Act of 1986, as amended, the Hazardous Materials Transportation
Act, as amended, and other environmental conservation or protection laws. The
term "oil" shall have the meaning specified in OPA, the terms "hazardous
substance" and "release" (or "threatened release") have the meanings specified
in CERCLA, and the terms "solid waste" and "disposal" (or "disposed") have the
meanings specified in RCRA; provided, however, that (a) in the event either OPA,
CERCLA or RCRA is amended so as to broaden the meaning of any term defined
thereby, such broader meaning shall apply subsequent to the effective date of
such amendment and (b) to the extent the laws of the state in which any Property
of the Borrower is located establish a meaning for "oil," "hazardous substance,"
"release," "solid waste" or "disposal" which is broader than that specified in
either OPA, CERCLA or RCRA, such broader meaning shall apply.
"Equipment" has the meaning assigned to that term in the UCC and
includes all surface or subsurface machinery, goods, equipment, fixtures,
inventory, facilities, supplies or other personal or moveable property of
whatsoever kind or nature (excluding property rented by Borrower or taken to the
premises for temporary uses) now owned or hereafter acquired by Borrower now or
hereafter located on or under any of the lands attributable to the Properties
which are used for the production, gathering, treatment, processing, storage or
transportation of Hydrocarbons whether or not attributable to the Properties
(together with all accessions, additions and attachments to any thereof),
including, without limitation, all ▇▇▇▇▇, casing, tubing, tubular goods, rods,
pumping units and engines, Christmas trees, platforms, derricks, separators,
compressors, gun barrels, flow lines, water injection lines, tanks, gas systems
(for gathering, treating and compression), pipelines (including gathering lines,
laterals and trunklines), chemicals, solutions, water systems (for treating,
disposal and injection), power plants, poles, lines, transformers, starters and
controllers, machine shops, tools, storage yards and equipment stored therein,
telegraph, telephone and other communication systems, loading docks, loading
racks, shipping facilities, platforms, well equipment, wellhead valves, meters,
motors, pumps, tankage, regulators, furniture, fixtures, automotive equipment,
forklifts, storage and handling equipment, together with all additions and
accessions thereto, all replacements and all accessories and parts therefor, all
manuals, blueprints, documentation and processes, warranties and records in
connection therewith including, without limitation, any and all seismic data,
geological data, geophysical data and interpretation of any of the foregoing,
all rights against suppliers, warrantors, manufacturers, sellers or others in
connection therewith, and together with all substitutes for any of the
foregoing.
"Equity Interests" means shares of capital stock, partnership
interests, membership interests in a limited liability company, beneficial
interests in a trust or other equity ownership interests in a Person, and any
warrants, options or other rights entitling the holder thereof to purchase or
acquire any such Equity Interest.
"ERISA" means the Employee Retirement Income Security Act of 1974.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) under common control with Borrower within the meaning of Section
414(b) or (c) of the Code (and
8
Sections 414(m) and (o) of the Code for purposes of provisions relating to
Section 412 of the Code).
"ERISA Event" means (a) a Reportable Event with respect to a Plan; (b)
a withdrawal by Borrower or any ERISA Affiliate from a Plan subject to Section
4063 of ERISA during a plan year in which it was a substantial employer (as
defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is
treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or
partial withdrawal by Borrower or any ERISA Affiliate from a Multiemployer Plan
or notification that a Multiemployer Plan is in reorganization; (d) the filing
of a notice of intent to terminate, the treatment of a Plan amendment as a
termination under Sections 4041 or 4041A of ERISA, or the commencement of
proceedings by the PBGC to terminate a Plan or Multiemployer Plan; (e) an event
or condition which might reasonably be expected to constitute grounds under
Section 4042 of ERISA for the termination of, or the appointment of a trustee to
administer, any Plan or Multiemployer Plan; or (f) the imposition of any
liability under Title IV of ERISA, other than for PBGC premiums due but not
delinquent under Section 4007 of ERISA, upon Borrower or any ERISA Affiliate.
"Event of Default" has the meaning assigned to that term in Section
10.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
"Federal Funds Rate" means, for any day, the rate per annum equal to
the weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank on the Business Day next
succeeding such day, provided that if such day is not a Business Day, the
Federal Funds Rate for such day shall be such rate on such transactions on the
next preceding Business Day as so published on the next succeeding Business Day.
"G&A Expenses" means the Consolidated general and administrative
expenses of Borrower, including capitalized general and administrative expenses,
calculated in accordance with GAAP (excluding all non-cash charges).
"GAAP" means generally accepted accounting principles recognized as
such by the Financial Accounting Standards Board (or generally recognized
successor) consistently applied and maintained throughout the period indicated
and consistent with applicable laws, except for changes mandated by the
Financial Accounting Standards Board or any similar accounting authority of
comparable standing. Whenever any accounting term is used herein which is not
otherwise defined, it shall be interpreted in accordance with GAAP.
"Governmental Authority" means the government of the United States of
America, any other nation or any political subdivision thereof, whether state or
local, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or
9
pertaining to government over the Borrower, any Affiliate, any of their
properties, the Administrative Agent or any Lender.
"Governmental Requirement" means any law, statute, code, ordinance,
order, determination, rule, regulation, judgment, decree, injunction, franchise,
permit, certificate, license, authorization or other directive or requirement,
whether now or hereinafter in effect, including, without limitation,
Environmental Laws, energy regulations and occupational, safety and health
standards or controls, of any Governmental Authority.
"Guarantor" means PQUE, in its capacity as a guarantor under the
Guaranty Agreement and each other Person that may become a Subsidiary of
Borrower. POG shall not be a Guarantor.
"Guaranty Agreement" means the Guaranty Agreement executed by each
Guarantor as of the Closing Date in the form attached as Exhibit C.
"Hazardous Materials" means and include (i) all elements or compounds
that are contained in the list of hazardous substances adopted by the United
States Environmental Protection Agency and the list of toxic pollutants
designated by Congress or the Environmental Protection Agency or under any
Hazardous Substance Laws (as hereinafter defined), and (ii) any "hazardous
waste," "hazardous substance," "toxic substance," "regulated substance,"
"pollutant" or "contaminant" as defined under any Hazardous Substance Laws.
"Hazardous Substance Laws" means CERCLA, the Resource Conservation and
Recovery Act, as amended, 42 U.S.C. 6901 et seq., the Federal Water Pollution
Control Act, as amended, 33 U.S.C. 1251 et seq., the Toxic Substances Control
Act, 15 U.S.C. 2601 et seq., the Hazardous Liquid Pipeline Safety Act of 1979,
as amended, 40 U.S.C. 2001 et seq., the Federal Insecticide, Fungicide, and
Rodenticide Act, 7 U.S.C. 136 et seq., the Federal Clean Air Act, 42 U.S.C. 7401
et seq., the Texas Natural Resources Code, Ch. 117 (▇▇▇▇▇▇ Supp. 1992), the
Texas Water Quality Act, Texas Water Code ▇▇▇. 26.01 - 26.407 (▇▇▇▇▇▇ 1992), the
Texas Clean Air Act, Tex. Health & Safety Code ▇▇▇. 382.001 et seq. (▇▇▇▇▇▇
1992), Subchapter I of the Texas Water Code (Underground and Aboveground Storage
Tanks), as amended, Tex. Water Code ▇▇▇. 26.341 et seq. (▇▇▇▇▇▇ 1992), the Texas
Solid Waste Disposal Act, Tex. Health & Safety Code ▇▇▇. 361.001 et seq. (▇▇▇▇▇▇
1992), any so-called federal, state or local "superfund" or "superlien" statute,
and any other federal, state or local law, rule, regulation or ordinance related
to the remediation, clean-up or reporting of environmental pollution or
contamination or imposing liability (including strict liability) or standards of
conduct concerning any Hazardous Materials.
"Hedging Agreement" means any (a) interest rate or currency swap, rate
cap, rate collar, forward agreement and other exchange or rate protection
agreements or any option with respect to any such transaction and (b) any swap
agreement, cap, collar, floor, exchange transaction, forward agreement or the
exchange or protection agreement related to Crude Oil, Natural Gas or other
Hydrocarbons or any option with respect to such transaction and includes any
Swap Agreement.
10
"Highest Lawful Rate" means, with respect to each Lender, the maximum
nonusurious interest rate, if any, that at any time or from time to time may be
contracted for, taken, reserved, charged or received on the Term Notes or on
other Obligations under laws applicable to such Lender which are presently in
effect or, to the extent allowed by law, under such applicable laws which may
hereafter be in effect and which allow a higher maximum nonusurious interest
rate than applicable laws allow as of the date hereof.
"Hydrocarbons" means all Crude Oil, Natural Gas, distillate and
sulphur, natural gas liquids and all products recovered in the processing of
natural gas liquids, including, without limitation, natural gasoline,
iso-butane, normal butane, propane and ethane (including such methane allowable
in commercial ethane), produced from or attributable to the Properties.
"Interest Coverage Ratio" means the ratio of Borrower's EBITDA for the
most recent four (4) fiscal quarters then ended to its cumulative interest
expense for the same four (4) fiscal quarters.
"Intercreditor Agreement" means that certain Intercreditor Agreement
dated as of November 6, 2003, between Borrower, Lenders and Senior Lender.
"Investment" means, for any Person: (a) the acquisition (whether for
cash, property, services or securities or otherwise) of Equity Interests of any
other Person or any agreement to make any such acquisition (including, without
limitation, any "short sale" or any sale of any securities at a time when such
securities are not owned by the Person entering into such short sale); (b) the
making of any deposit with, or advance, loan or other extension of credit to,
any other Person (including the purchase of property from another Person subject
to an understanding or agreement, contingent or otherwise, to resell such
property to such Person, but excluding any such advance, loan or extension of
credit having a term not exceeding ninety (90) days representing the purchase
price of inventory or supplies sold by such Person in the ordinary course of
business) or (c) the entering into of any guarantee of, or other contingent
obligation (including the deposit of any Equity Interests to be sold) with
respect to, Debt or other liability of any other Person and (without
duplication) any amount committed to be advanced, lent or extended to such
Person.
"IRS" means the United States Internal Revenue Service.
"Lease" or "Leases" means, whether one or more, (i) those certain oil
and gas leases set forth in the description of the Property attached to each
Mortgage, and any other interests in the Leases or any other lease of real
property, whether now owned or hereafter acquired by Borrower, and any
extension, renewals, corrections, modifications, elections or amendments (such
as those relating to unitization) of any such Lease or Leases, or (ii) other
oil, gas and/or mineral leases or other interests pertaining to the Properties,
whether now owned or hereafter acquired, which may now and hereafter be made
subject to the lien of any of the Security Documents and any extension,
renewals, corrections, modifications, elections or amendments (such as those
relating to unitization) of any such lease or leases.
11
"Lenders" means the Persons listed on Annex I, any Person that shall
have become a party hereto pursuant to Section 13.2 (assignment), other than any
such Person that ceases to be a party hereto pursuant to Section 13.2
(assignment).
"Lender Participation Documents" means (i) any participation and
intercreditor agreement evidencing any transaction (each a "Lender Participation
Transaction") under which the initial Lenders identified in this Agreement
assigns to any other Person an interest in the Term Note and the rights of
Lenders under this Agreement and the other Loan Documents, (ii) any Term Note
issued by Borrower to any other Person pursuant to any Lender Participation
Transaction and (iii) all other documents, agreements, instruments and writings
at any time delivered in connection with a Lender Participation Transaction.
"Liabilities and Costs" has the meaning assigned to such term in
Section 13.10(b).
"Lien" means any interest in property (real or personal) securing an
obligation owed to, or a claim by, a Person other than the owner of the
property, whether such interest is based on the common law, statute or contract,
and whether such obligation or claim is fixed or contingent, and including but
not limited to (a) the lien or security interest arising from a mortgage,
encumbrance, pledge, security agreement, conditional sale or trust receipt or a
lease, consignment or bailment for security purposes or (b) production payments
and the like payable out of oil and gas properties and the Properties. The term
"Lien" shall include easements, restrictions, servitudes, permits, conditions,
covenants, exceptions or reservations. For the purposes of this Agreement, the
Borrower shall be deemed to be the owner of any Property which it has acquired
or holds subject to a conditional sale agreement, or leases under a financing
lease or other arrangement pursuant to which title to the Property has been
retained by or vested in some other Person in a transaction intended to create a
financing.
"Loan Documents" means this Agreement, the Term Notes, the Security
Documents, the Guaranty Agreements, the Lender Participation Documents, the
Intercreditor Agreement and all other agreements, certificates, documents,
instruments and writings at any time delivered in connection herewith or
therewith (exclusive of term sheets, commitment letters, correspondence and
similar documents used in the negotiation hereof, except to the extent the same
contain information about Borrower or its Affiliates, properties, business or
prospect), but does not include documents for the Senior Credit Facility.
"Loan Termination Date" means the earliest of (i) the Maturity Date,
(ii) the date on which Borrower has paid and discharged in full all Obligations
(as hereinafter defined) to Lenders, and (iii) the date on which Lenders have
notified Borrower of the acceleration of payment of all Obligations hereunder
because of the occurrence of an Event of Default.
"MAC" has the meaning assigned to that term in the introductory
paragraph of this Agreement.
"Material Adverse Effect" means a material adverse effect on (a) the
business, operations, assets, condition (financial or otherwise), circumstances
or prospects of Borrower or
12
Guarantor, (b) the ability of the Borrower or Guarantor to carry out its
business as conducted as of the date of this Agreement, (c) the ability of
Borrower or Guarantor to perform any of its obligations under any Loan Document,
(d) the validity or enforceability of any Loan Document, (e) the rights and
remedies of or benefits available to the Administrative Agent or any Lender
under any Loan Document or (f) the Collateral or the Liens granted pursuant to
the Security Documents.
"Maturity Date" means November 30, 2006.
"Maximum Commitment" has the meaning assigned such term in Section 2.1.
"MMBtu" means 1,000,000 Btus.
"MMCF" and "MCF" means one million cubic feet and one thousand cubic
feet, respectively.
"Monthly Operating Statement" means the Production Report and the Cash
Flow Report delivered to Lender in accordance with Section 5.1.
"Mortgage" means a mortgage, deed of trust, assignment of production,
security agreement and financing statement and act of mortgage and security
agreement securing future advances executed by Borrower and granting a lien to
or for the benefit of Lenders in the Properties otherwise in form and substance
satisfactory to Lenders, as the same may be modified, amended or supplemented.
"Natural Gas" means all natural gas, and any natural gas liquids and
all products recovered in the processing of natural gas (other than condensate)
including, without limitation, natural gasoline, casinghead gas, iso-butane,
normal butane, propane and ethane (including such methane allowable in
commercial ethane) produced from or attributable to the Properties.
"Net Operating Cash Flow" means Borrower's gross revenue from sales of
Production Volumes and all other revenue (including, if applicable, gains from
commodity hedging) less the following (1) lease operating expenses; (2)
production taxes; (3) other state and federal taxes paid in cash; (4) G&A
Expenses; (5) if applicable, losses from commodity hedging; and (6) other cash
expenses approved in writing by Lenders in their sole and absolute discretion.
"Net Revenue Interest" means, with respect to any Property, the decimal
or percentage share of production from or allocable to such Property, after
deduction of all overriding royalties and other burdens (including lessor
royalties), that an owner of a Working Interest is entitled to receive.
"Obligations" means and include all loans and advances (including the
Term Loan), debts, liabilities, obligations, covenants, duties and amounts owing
or to be owing by Borrower or any Affiliate of Borrower to the Administrative
Agent, any Lender or any Affiliate of a Lender, of any kind or nature, present
or future, whether or not evidenced by any note, guaranty
13
or other instrument, arising directly or indirectly, under this Agreement, the
Term Note, the Security Documents, the Swap Agreement, or under any Loan
Documents, and all renewals, extensions and/or rearrangements of any of the
foregoing. The term includes, but is not limited to, all interest, reasonable
charges, expenses, consultants' and attorneys' fees and any other sum chargeable
to Borrower under this Agreement, the Term Note, the Security Documents, or any
of the Loan Documents. "Obligations" shall not include any debts, liabilities,
obligations, covenants or duties owing by Borrower under the Warrants.
"Operator" means any Person designated as operator pursuant to an
Operating Agreement.
"Operating Agreement" means all operating agreements relating to the
Properties.
"Other Taxes" shall have the meaning assigned to such term in Section
2.10(b).
"Outstanding Debt" means the aggregate outstanding loan balances under
the Senior Credit Facility and this Agreement (including letters of credit
outstanding under the Senior Credit Facility) plus, if applicable, negative
working capital, calculated in accordance with GAAP, but excluding non-cash
gains, charges or losses required under SFAS 133 or SFAS 143.
"Percentage Share" means, with respect to any Lender, the percentage of
the total Commitments represented by such Lender's Commitment as such percentage
is set forth on Annex I, as modified from time to time to reflect assignments
permitted by Section 13.2.
"Permitted Encumbrances" means (i) minor irregularities in title which
do not (a) materially interfere with the occupation, use and enjoyment by
Borrower or Guarantor of any of the Properties in the normal course of business
as presently conducted, or (b) materially impair the value thereof for such
Properties, (ii) all interests in the Properties securing obligations owed to,
or claimed by, any Person other than Lenders, whether such interest is based on
the common law, statute or contract, and whether such interest includes liens or
security interests arising by virtue of mortgage, encumbrance, pledge, security
agreement, conditional sale or trust receipt or lease, consignment or bailment
for security purposes, so long as each said interest has been expressly
consented to by Lenders, in writing, (iii) Liens of landlords, vendors,
carriers, warehousemen, taxing authorities, mechanics, laborers and materialmen
arising by law, and of operators arising by contract, in the ordinary course of
business for sums not yet due or being contested in good faith by appropriate
action promptly initiated and diligently conducted, if such reserve as shall be
required by generally accepted accounting principles shall have been made
therefor; (iv) the Senior Liens; and (v) the specific exceptions and
encumbrances affecting each of the Properties as described in the Mortgage and
the title opinions delivered to Lenders prior to the Closing Date INSOFAR ONLY
as said exceptions and encumbrances are valid and subsisting and are enforceable
against the particular Lease which is made subject to said exceptions and
encumbrances.
"Person" means an individual, corporation, partnership, limited
liability company, joint venture, trust or unincorporated organization, joint
stock company or other similar organization,
14
government or any political subdivision thereof, a court, or any other legal
entity, whether acting in an individual, fiduciary or other capacity.
"Personal Property" means all personal property of Borrower and its
Subsidiaries of every kind including all goods (including Equipment), documents,
accounts, chattel paper (whether tangible or electronic), money, deposit
accounts, letters of credit and letter-of-credit rights (without regard to
whether the letter of credit is evidenced by a writing), documents, Equity
Interests (certificated or uncertificated), other securities and all other
investment property, supporting obligations, any other contract rights
(including all rights in transportation agreements, processing agreements,
delivery agreements and seismic agreements related to the Properties) or rights
to the payment of money, insurance claims and proceeds, all general intangibles
(including all payment intangibles and rights to seismic and other geophysical
data) and all permits, licenses, books and records related to the Properties or
the business of Borrower and its Subsidiaries, whether now owned or later
acquired by Borrower or its Subsidiaries.
"Plan" means any "employee benefit plan" (as such term is defined in
Section 3(3) of ERISA) established by Borrower or, with respect to any such plan
that is subject to Section 412 of the Code or Title IV of ERISA, any ERISA
Affiliate.
"Pledge Agreement" means the pledge agreement executed by the Member,
in favor of the Administrative Agent, for the benefit of each of the Lenders,
substantially in the form of Exhibit D.
"Pledged Interests" has the meaning assigned such term in Section 3.2.
"PQUE" means PetroQuest Energy, Inc., a Delaware corporation.
"Prime Rate" means, at any time, the prime rate published in The Wall
Street Journal's "Money Rates" or similar table; provided that, if multiple
prime rates are quoted in such table, then the highest such prime rate will be
the Prime Rate and, in the event that the prime rate is no longer published by
The Wall Street Journal's "Money Rates" or similar table, then Lender may
designate an alternative published index based upon comparable information as a
substitute Prime Rate and upon the selection of such a substitute Prime Rate,
the applicable interest rate will thereafter vary in relation to the substitute
index.
"Production Report" means a Property history report substantially in
the form of Exhibit E which details Crude Oil, Natural Gas and other Hydrocarbon
production volumes, revenues and lease operating expenses attributable to the
Properties for the immediately preceding month; and a reconciliation of
Borrower's implementation of all projects to drill or recomplete any Well, as
set out in the then effective Annual Operating Budget, all in form and substance
acceptable to Lenders.
"Production Volumes" means the sum of Borrower's net produced and sold;
(1) barrels of crude oil; (2) barrels of liquefied natural gas; and (3) thousand
cubic feet ("Mcf") of natural gas divided by six.
15
"POG" means PetroQuest Oil & Gas, L.L.C., a Louisiana limited liability
company.
"Property" or "Properties" means, collectively, all real property of
Borrower and its Subsidiaries, including but not limited to Hydrocarbon Leases,
Royalty Interests, overriding royalty interests, production payments or similar
interests in real property.
"Pro Rata Share" means, when determined for each Lender, a fraction
(stated as a percentage), the numerator of which is the outstanding principal
amount of such Lender's Term Note, and the denominator of which is the
outstanding principal amount of all Term Notes.
"Proved Developed Non-Producing Present Value" or "PDNP Present Value"
means the present value discounted at ten percent (10%) of future net revenues
attributable to all PDNP Reserves from the Properties calculated based on a
Reserve Report prepared in accordance with Section 5.10.
"Proved Developed Producing Present Value" or "PDP Present Value" means
the present value discounted at ten percent (10%) of future net revenues
attributable to all PDP Reserves from the Properties calculated based on a
Reserve Report prepared in accordance with Section 5.10.
"Proved Reserves" has the meaning given that term in the definitions
promulgated by the Society of Petroleum Evaluation Engineers and the World
Petroleum Congress as in effect at the time in question; "Proved Developed
Producing Reserves" or "PDP Reserves" means Proved Reserves which are
categorized as both "Developed" and "Producing" in such definitions; "Proved
Developed Non-Producing Reserves" or "PDNP Reserves" means Proved Reserves which
are categorized as both "Developed" and "Non-Producing" in such definitions; and
"Proved Undeveloped Reserves" or "PUD Reserves" means Proved Reserves which are
categorized as "Undeveloped" in such definitions.
"Proved Undeveloped Present Value" or "PUD Present Value" means the
present value discounted at ten percent (10%) of future net revenues
attributable to all PUD Reserves from the Properties calculated based on a
Reserve Report prepared in accordance with Section 5.10.
"Qualified Capital Stock" means any capital stock that is not
Disqualified Capital Stock.
"Related Costs" means the fees and expenses of counsel for Lenders and
other consultants for Lenders and Lenders' other out-of-pocket expenses incurred
in connection with the due diligence, negotiation and preparation of documents
relating to the Term Loan and execution, delivery and filing and/or recording of
the Loan Documents together with any amendments, supplements or modifications
thereto.
"Related Parties" means, with respect to any specified Person, such
Person's Affiliates and the respective directors, officers, employees, agents
and advisors (including attorneys, accountants and experts) of such Person and
such Person's Affiliates.
16
"Release" means Hazardous Materials that are pumped, spilled, leaked,
disposed of, emptied, discharged or otherwise released into the environment in
violation of applicable laws.
"Repayment Date" means, prior to the repayment in full and satisfaction
of all Obligations, the fifth day of each month, commencing December 5, 2003.
"Reportable Event" means any of the events set forth in Section 4043(c)
of ERISA, other than events for which the 30 day notice period has been waived.
"Required Lenders" means, when determined, at least two (2) Lenders
holding at least sixty-six and two-thirds percent (66-2/3%) of the Maximum
Commitment; provided that, the holdings of any Defaulting Lender shall be
excluded in the determination of Required Lenders; provided further that, if
there is only one Lender, it will constitute the Required Lenders for purposes
of this definition; and provided further that, if there are multiple Lenders but
only one Lender is not a Defaulting Lender, the single non-defaulting Lender
will constitute the Required Lenders for purposes of this definition.
"Reserve Report" has the meaning assigned to that term in Section 5.10
hereof.
"Royalty Interest" means the volume of production from or allocable to
any particular Property which the owners of royalty rights, including but not
limited to lessor and overriding royalty rights, and other rights to receive
production, other than by virtue of ownership of Working Interests, in any
particular Property are entitled to take in kind or for which they are entitled
to be paid.
"Security Agreements" means, collectively, any security agreement
executed by Borrower, as debtor, in favor of Lenders, as secured party, as the
same may be modified, amended, supplemented or restated pursuant to the terms of
this Agreement.
"Security Documents" means this Agreement, the Mortgages, the Security
Agreements, Pledge Agreement, the Subordination Agreement(s), the Guaranty
Agreements, financing statements and any other agreement or writing evidencing
any assignment, lien, encumbrance or security interest executed in favor of or
for the benefit of any Lender or any of its Affiliates in or on the Collateral
and any other documents relevant thereto; provided, however, that "Security
Documents" shall not include the Warrants.
"Senior Credit Facility" means that certain $75,000,000 revolving
credit facility established pursuant to that certain Credit Agreement dated May
14, 2003, as amended November __, 2003, between Borrower, Guarantor, Bank One,
NA, as Agent, and the Persons that may become lenders thereunder from time to
time as the same is amended, modified or restated, and all documents or
instruments executed in connection therewith.
"Senior Liens means (a) Liens securing the Debt of Borrower pursuant to
the Senior Credit Facility and (b) Liens in favor of any Hedging Agreement
counterparty or Swap Agreement counterparty that Lenders have expressly agreed
to be subordinate to.
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"Senior Lender" means the lender or lenders pursuant to the Senior
Credit Facility.
"Solvent" means that, as of the date on which a Person's solvency is to
be measured: (a) the fair saleable value of its assets is in excess of the total
amount of its liabilities (including income tax liabilities) as they become
absolute and matured; and (b) it is able to meet its debts as they mature.
"Subordination Agreement" means a subordination agreement or agreements
substantially in the form of Exhibit G. All Affiliates of Borrower and any other
Person designated by Lenders shall subordinate any Debt due or to become due
from Borrower to the Obligations, and shall subordinate or release (as deemed
appropriate by Lenders) any lien in favor of such Person to the security
interests of Lenders.
"Subsidiary" means any Person, corporation or other entity of which
more than fifty percent (50%) of the issued and outstanding securities having
ordinary voting power for the election of directors, members or general partners
is owned, directly or indirectly, by such Person and/or one or more of its
subsidiaries.
"Swap Agreement" means any ISDA Master Agreement and the Schedule
thereto executed between Borrower and MAC, or any other Lender or Affiliate of a
Lender, together with any confirmation of trade thereunder.
"Synthetic Leases" means, in respect of any Person, all leases which
shall have been, or should have been, in accordance with GAAP, treated as
operating leases on the financial statements of the Person liable (whether
contingently or otherwise) for the payment of rent thereunder and which were
properly treated as indebtedness for borrowed money for purposes of U.S. federal
income taxes, if the lessee in respect thereof is obligated to either purchase
for an amount in excess of, or pay upon early termination an amount in excess
of, 80% of the residual value of the property subject to such operating lease
upon expiration or early termination of such lease.
"Tax Adjusted Gross Margin" means Borrower's total revenue from any
source minus an amount equal to the sum of Borrower's total lease operating
expenses, production taxes, state and federal taxes paid in cash and hedge
settlements.
"Taxes" has the meaning assigned to that term in Section 2.10(a).
"Taxing Authorities" means any and all federal, state or local
governmental or quasi-governmental agencies that have the power to impose taxes
upon any Borrower or any Subsidiary or any of the Collateral.
"Term Loan" means the Advance by Lenders to Borrower pursuant to
Section 2.1 in an amount not exceeding the Maximum Commitment and subject to all
of the terms and conditions of this Agreement and the other Loan Documents.
18
"Term Note" means, collectively, one or more promissory notes
substantially in the form of Exhibit B executed by Borrower and delivered to
Lenders (including any successors to and assignees of the initial Lenders
identified in this Agreement) pursuant to Section 2.4, together with all
renewals, extensions and rearrangements.
"Total Adjusted Present Value" means an amount, based on the most
recent Reserve Report, equal to the sum of (i) the PDP Present Value plus (ii)
the PDNP Present Value plus (iii) the PUD Present Value; provided, however, if
the sum of PDNP Present Value plus the PUD Present Value exceeds sixty percent
(60%) of the amount that would otherwise be the Total Adjusted Present Value,
the Total Adjusted Present Value will be an amount equal the PDP Present Value
multiplied by 2.25; and provided further that, in calculating the Total Adjusted
Present Value, Lenders will make appropriate adjustments for material purchases,
sale and discoveries of Hydrocarbon reserves and related operating cost
adjustments since the effective date of the last Reserve Report.
"Total Adjusted Present Value Ratio" means the ratio of Total Adjusted
Present Value to Outstanding Debt.
"UCC" means the Uniform Commercial Code presently in effect in the
State of Texas or other applicable jurisdiction.
"Voting Stock" means other Equity Interests of a person having
generally the right to vote in the elections of such Person's directors,
managers or trustees or other persons performing comparable functions to a
corporation's board of directors.
"Warrants" means those certain warrants granted by Borrower to Lenders
in consideration for Lenders' commitment to make the Term Loan to Borrower
pursuant to a warrant agreement in form and substance satisfactory to the
Lenders.
"Well" means any existing oil or gas well, salt water disposal well,
injection well, water supply well or any other well located on or related to the
Properties or any well which may hereafter be drilled and/or completed on the
Properties, or any facility or equipment in addition to or replacement of any
well.
"Working Interest" means the property interest which entitles the owner
thereof to explore and develop certain land for oil and gas production purposes,
whether under an oil and gas lease or unit, a compulsory pooling order or
otherwise.
Section 1.2 Other Capitalized Terms Capitalized terms not otherwise
defined in Section 1.1 shall have the meanings given them elsewhere in this
Agreement.
Section 1.3 Exhibits and Schedules. All exhibits, schedules and annexes
attached to this Agreement are part of this Agreement for all purposes.
19
Section 1.4 Amendment of Defined Instruments. Unless the context
otherwise requires or unless otherwise provided herein, the terms defined in
this Agreement which refer to a particular agreement, instrument or document
also refer to and include all renewals, extensions, modifications, amendments
and restatements of such agreement, instrument or document. Nothing contained in
this Section 1.4 will be construed to authorize any renewal, extension,
modification, amendment or restatement.
Section 1.5 References, Titles and Construction. All references in this
Agreement to exhibits, schedules, articles, sections, subsections and other
subdivisions refer to the exhibits, schedules, articles, sections, subsections
and other subdivisions of this Agreement unless expressly provided otherwise.
Titles appearing at the beginning of any subdivisions are for convenience only,
do not constitute any part of those subdivisions and will be disregarded in
construing the language contained in those subdivisions. The words "this
Agreement," "this instrument," "herein," "hereof," "hereby," "hereunder" and
words of similar import refer to this Agreement as a whole and not to any
particular subdivision unless expressly so limited. The phrases "this section"
and "this subsection" and similar phrases refer only to the sections or
subsections of this Agreement in which those phrases occur. The word "or" is not
exclusive; the word "including" (in its various forms) means "including without
limitation." Pronouns in masculine, feminine and neuter genders shall be
construed to include any other gender, and words in the singular form shall be
construed to include the plural and vice versa, unless the context otherwise
requires. The word "will" shall be construed to have the same meaning and effect
as the word "shall". Unless the context requires otherwise (a) any reference
herein to any law shall be construed as referring to such law and any rule or
regulation promulgated thereunder, all as amended, modified, codified or
reenacted, in whole or in part, and in effect from time to time, (b) any
reference herein to any Person shall be construed to include such Person's
successors and assigns (subject to the restrictions contained herein), (c) with
respect to the determination of any time period, the word "from" means "from and
including" and the word "to" means "to and including". No provision of this
Agreement or any other Loan Document shall be interpreted or construed against
any Person solely because such Person or its legal representative drafted such
provision. Any reference to an approval or consent by Lenders or Administrative
Agent shall be construed to require a written approval or consent.
ARTICLE II.
The Term Loan
Section 2.1 Term Loan. Each Lender severally agrees, subject to the
terms and conditions of this Agreement and prior to the Availability Termination
Date, to make a secured multiple Advance term loan (the "Term Loan") in
accordance with its Percentage Share on a non-revolving basis to the Borrower
not to exceed TWENTY MILLION DOLLARS ($20,000,000) (the "Maximum Commitment") on
the date and for the purposes set forth in Section 2.2. Borrower acknowledges
that Lenders do not intend to advance Borrower any amount which would at any
point in time exceed the Maximum Commitment; provided, however, if the
obligations of Borrower under the Term Loan exceed the Maximum Commitment, all
obligations will nevertheless constitute Obligations under this Agreement and
20
be entitled to the benefit of all of Lenders' security interests in, and
mortgage liens on, the Collateral. All amounts on the Term Loan will be fully
due and payable on the Maturity Date.
Section 2.2 Availability and Purpose of Term Loan Advance. Up to
fifteen million dollars ($15,000,000) of the Term Loan (the "Tranche A Loan")
shall be used by Borrower exclusively for development of the Properties in
accordance with a development plan approved in writing by Lender in its sole and
absolute discretion and for other general corporate purposes as set forth in the
Annual Operating Budget approved in writing by Lender in its sole and absolute
discretion. Up to five million dollars ($5,000,000) of the Term Loan (the
"Tranche B Loan") shall be used for projects approved in writing by Lender in
its sole and absolute discretion. No Advance shall be permitted under either
Tranche of the Term Loan after the Availability Termination Date.
Section 2.3 Advance Procedure. In connection with any Advance under the
Term Loan, Borrower will submit to the Administrative Agent a single written
Advance Request not later than 12:00 noon Houston, Texas time, at least three
(3) Business Days prior to the date on which the Advance is to be made;
provided, however, that Lenders shall not have any obligation to make any
Advances unless and until all of the conditions set forth in Sections 9.2, 9.3
and this Article II have been satisfied.
Section 2.4 Term Notes. Borrower's obligation to repay the Term Loan
will be evidenced by Term Notes in favor of each Lender. The Advances made by
each Lender shall be evidenced by a single Term Note, dated, in the case of (i)
any Lender party hereto as of the date of this Agreement, or (ii) any Lender
that becomes a party hereto pursuant to an assignment, as of the effective date
of the assignment, payable to the order of such Lender in a principal amount
equal to its commitment as in effect on such date, and otherwise duly completed.
In the event that any Lender's commitment increases or decreases for any reason,
the Borrower shall deliver or cause to be delivered on the effective date of
such increase or decrease, a new Note payable to the order of such Lender in a
principal amount equal to its commitment after giving effect to such increase or
decrease, and otherwise duly completed. The date, amount, interest rate of each
Advance made by each Lender, and all payments made on account of the principal
thereof, shall be recorded by such Lender on its books for its Note, and, prior
to any transfer, may be endorsed by such Lender on a schedule attached to such
Note or any continuation thereof or on any separate record maintained by such
Lender. Failure to make any such notation or to attach a schedule shall not
affect any Lender's or Borrower's rights or obligations in respect of such
Advances or affect the validity of such transfer by any Lender of its Note.
Section 2.5 Interest.
(a) The Advances comprising the Term Loan shall bear
interest at the Contract Rate on the outstanding borrowed and unpaid principal
amount of the Term Loan for the period commencing on the date of the initial
Advance until all Obligations are paid in full in accordance with this
Agreement. Upon the occurrence and during the continuation of an Event of
Default, the rate of interest applicable to the Notes will be equal to the
lesser of (i) the Highest Lawful Rate and (ii) four percent (4.0%) over the
interest rate otherwise applicable (the "Default
21
Rate"). In addition, if any principal of or interest on any Advance or any fee
or other amount payable by Borrower or any Guarantor hereunder or under any
other Loan Document is not paid when due, whether at stated maturity, upon
acceleration or otherwise, such overdue amount shall bear interest, after as
well as before judgment, at a rate per annum equal to the Default Rate.
(b) All interest will be computed on the basis of a year
comprised of 360 days. Interest will be due and payable in accordance with this
Section 2.5 in immediately available funds monthly in arrears on the Repayment
Date and in full on the Loan Termination Date.
(c) Borrower shall pay to Lenders all outstanding
interest calculated at the rate specified in this Agreement on all monetary
Obligations (including Obligations which are for fees or to reimburse or
indemnify Lenders) on each Repayment Date.
(d) The applicable interest rate under this Agreement
shall be determined by the Administrative Agent, and such determination shall be
conclusive absent manifest error, and be binding upon the parties hereto.
(e) Application of Funds. Payments made hereunder will be
applied first to unpaid fees and expenses due and owing to Lender pursuant to
the Loan Documents, second to accrued interest on the Term Loan and third to
principal on the Term Loan. All interest on the outstanding principal balance of
the Term Loan from the Closing Date through October 31, 2003, will be due and
payable on November 15, 2003. On each subsequent Repayment Date, interest will
be due and payable on the outstanding principal balance of the Term Loan for the
immediately preceding calendar month.
Section 2.6 Final Maturity of Obligations. Borrower shall, on or before
the Maturity Date, pay to Administrative Agent for the ratable benefit of the
Lenders all of the monetary Obligations (other than Obligations that may
continue past the Maturity Date under the terms of the Swap Agreement) and
perform or otherwise satisfy all other Obligations that are outstanding on that
date.
Section 2.7 Time and Place of Payments. All payments (whether of
principal, interest, legal expenses, fees, costs, indemnities or otherwise) to
be made by Borrower to the Administrative Agent for the benefit of the Lenders
will be made by wire transfer in immediately available funds not later than
10:00 a.m., Houston, Texas, time, on the date of payment, to Administrative
Agent at:
Account:
Bank of ▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
ABA: ▇▇▇▇▇▇▇▇▇
22
Favour:
Macquarie Bank Limited
Sydney
A/C No.: 8900055375
Chips UID: 236386
Further Credit: Macquarie Americas Corp.
REFERENCE: PetroQuest Energy, L.L.C.
or to any other account Lenders may designate in writing to Borrower from time
to time.
If any payment to be made under this Agreement falls due on a day that
is not a Business Day, the payment will be payable on the next succeeding
Business Day.
Section 2.8 Optional Prepayment of the Term Loan. Borrower will have
the right to prepay the Term Loan, in whole or in part, at any time without
penalty or premium.
Section 2.9 Mandatory Prepayment of the Term Loan.
(a) Prepayment Upon Sale. All proceeds from the sale of
any assets of Borrower (excluding the sale of Hydrocarbons in the ordinary
course of business) shall be applied to the Senior Credit Facility and the Term
Loan as mutually agreed by the Lenders and the Senior Lender. The preceding
sentence will not be deemed to be a consent by Lenders to any sale.
(b) Application of Mandatory Prepayments. All amounts
paid by Borrower to Lenders under this Section 2.9 will be immediately applied
as a prepayment of the principal balance of the Term Loan.
Section 2.10 Taxes.
(a) Taxes Not Deducted from Payments to Lenders. All
payments made by the Borrower under this Agreement will be made free and clear
of and without deduction for any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all similar liabilities
(collectively, "Taxes"), excluding, in the case of Lenders, taxes imposed on its
income, and franchise or similar taxes imposed on it, by any jurisdiction (or
political subdivision thereof) of which Lenders is a citizen or resident, in
which Lenders is organized, or in which Lenders is presently doing business to
the extent taxes are imposed solely as a result of its doing business in that
jurisdiction. If Borrower is required by law to deduct any Taxes from any sum
payable to Lenders, (i) the sum payable will be increased by an amount so that,
after making all required deductions (including deductions applicable to
additional sums payable under this Section 2.10) Lenders will receive an amount
equal to the sum it would have received had no deductions been made, (ii)
Borrower will deduct from the sum payable to Lenders an amount sufficient to pay
the Taxes and pay the balance to Lenders, and (iii) Borrower will promptly pay
the full amount deducted to the relevant taxing authority or other Governmental
Authority in accordance with applicable law.
23
(b) Other Taxes. In addition, and to the fullest extent
permitted by applicable law, Borrower agrees to pay any present or future stamp,
documentary, mortgage registration or similar taxes or any other excise or
property taxes, charges or similar levies (collectively, the "Other Taxes") that
arise from any payment made or from the execution, delivery or registration of,
or otherwise with respect to, this Agreement, or any Security Documents.
(c) INDEMNIFICATION. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, AND PROVIDED THAT THERE IS NO DEFAULT OF THE LENDERS
REPRESENTATIONS CONTAINED IN THIS AGREEMENT, BORROWER WILL INDEMNIFY LENDERS FOR
THE FULL AMOUNT OF TAXES AND OTHER TAXES (INCLUDING, BUT NOT LIMITED TO, ANY
TAXES OR OTHER TAXES IMPOSED BY ANY GOVERNMENTAL AUTHORITY ON AMOUNTS PAYABLE
UNDER THIS SECTION 2.10 AND PAID BY LENDERS) PAID BY LENDERS (ON BEHALF OF
BORROWER), AND ANY LIABILITY (INCLUDING PENALTIES, INTEREST AND REASONABLE
EXPENSES) ARISING FROM OR WITH RESPECT TO THOSE AMOUNTS, WHETHER OR NOT THE
TAXES OR OTHER TAXES WERE CORRECTLY OR LEGALLY ASSERTED. ANY PAYMENT PURSUANT TO
THE INDEMNIFICATION DESCRIBED IN THIS SECTION 2.10(c) WILL BE MADE BY BORROWER
WITHIN THIRTY (30) DAYS AFTER THE DATE LENDERS MAKES WRITTEN DEMAND FOR THOSE
PAYMENTS. SUCH LENDERS' DEMAND WILL STATE WITH SPECIFICITY THE BASIS FOR THE
TAX, IDENTIFY THE TAXING AUTHORITY ASSERTING THE TAX AND CERTIFY THAT LENDERS
HAS PAID THE TAX.
Section 2.11 Fees.
(a) Commitment Fee. At Closing, Borrower shall pay to the
Administrative Agent for the benefit of the Lenders a non-refundable commitment
fee (the "Commitment Fee") equal to one hundred thousand dollars ($100,000). The
Commitment Fee is for the commitments of the Lenders hereunder and is fully
earned on the date paid.
(b) Advance Fee. In connection with each Advance,
Borrower will pay to Lender a non-refundable fee (the "Advance Fee") equal to
one-half percent (0.5%) of the Advance.
(c) Allocation of Fees. The allocation of the Commitment
Fee among the Lenders shall be made as agreed by the Lenders pursuant to a
separate agreement or agreements among the Lenders.
ARTICLE III.
Security
Section 3.1 Grant of Security Interests.
(a) Mortgage and Security Interest. As security for all
of its Obligations, Borrower and Guarantors, pursuant to the Security Documents
shall contemporaneously
24
herewith grant, assign, transfer and convey to the Administrative Agent for the
benefit of the Lenders a mortgage lien on and perfected security interest in the
Collateral subject only to the Permitted Encumbrances. Additionally, each
Subsidiary of Borrower shall unconditionally guarantee the Obligations.
(b) Further Assurances. Borrower will, upon request,
execute and deliver to or for the benefit of Lenders any and all documents
necessary or desirable, in the reasonable opinion of Lenders, to create,
perfect, maintain and preserve the priority of Lenders' security interests in
and mortgage liens on the Collateral. Borrower will, at its own expense, cause
searches of the Uniform Commercial Code filing records or similar public records
to be conducted at the reasonable request of Lenders from time to time in order
to evidence, perfect, maintain or continue perfection, or confirm the rights and
remedies, of Lenders in and to the Collateral granted by Borrower and its
Subsidiaries, perfect those security interests in after-acquired property,
continue the perfection of all security interests granted by Borrower and its
Subsidiaries and file financing statements against Borrower relating to the
security interests securing any Obligations. Borrower irrevocably authorizes
Lenders to prepare and file at any time and from time to time in any filing
office initial financings statements and amendments to them necessary or
convenient to the perfection or continuation of the security interests granted
by Borrower.
(c) Release of Financing Statements. Upon the
indefeasible payment in cash and performance in full of all Obligations under
this Agreement, the Administrative Agent will deliver or will cause to be
delivered to Borrower and each Subsidiary, at Borrower's expense, releases of
all financing statements and all other Security Documents with an acknowledgment
that the same have been terminated, and Borrower and each Subsidiary shall
deliver to Lenders a general release of all of Lenders' liabilities and
obligations under this Agreement and the other Loan Documents. The obligations
of the Borrower under the Warrants will survive the termination of this
Agreement and the full or partial release of the security interests.
Section 3.2 Pledged Interests. Borrower will cause the Pledge
Agreements to be entered into on or before the Closing Date of the Term Loan so
as to grant to Administrative Agent for the benefit of the Lenders, as
additional security for the Obligations, a second-priority security interest in
all of the membership interests in Borrower (the "Pledged Interests").
Section 3.3 Equipment.
(a) Preservation of Equipment. All Equipment currently
owned or hereafter acquired by or on behalf of Borrower or its Subsidiaries will
be kept at the applicable Property except as permitted by this Agreement or any
Mortgage or except with the prior written consent of Lenders; provided, however,
Borrower, each Subsidiary or any Operator may dispose of Equipment in accordance
with the terms of the applicable Operating Agreements and may dispose of
obsolete, broken or worn Equipment, without Lenders' consent. Borrower and each
Subsidiary shall use reasonable commercial efforts to cause each Operator at all
times to (i) keep correct and accurate records itemizing and describing the
location, kind, type, age, condition and cost of and accumulated depreciation on
all Equipment and (ii) make those records available
25
during the Operators' usual business hours on demand to any of the officers,
employees or agents of Borrower and Lenders.
(b) Sale or Disposal of Equipment. Where Borrower or its
Subsidiaries is permitted to dispose of any Equipment, it shall do so, or shall
cause each Operator to do so, at arm's-length, in good faith and by obtaining
the maximum amount of recovery practicable and without impairing the operating
integrity of the remaining Equipment.
Section 3.4 Subordination Agreement. All Affiliates of Borrower and any
other Person designated by Lenders shall execute a Subordination Agreement in
favor of Lenders subordinating to the Obligations any existing or future Debt
owed by Borrower to any of those Affiliates or other Persons.
ARTICLE IV.
Representations and Warranties
In order to induce Lenders to make the Term Loan, Borrower makes the
following representations and warranties to Lenders as of the Closing Date, each
and all of which will survive the execution and delivery of this Agreement and
continue until all Obligations have been satisfied:
Section 4.1 Formation and Existence. Borrower is a limited liability
company duly organized, validly existing and in good standing under the laws of
the State of Louisiana. Guarantor is a Delaware corporation, duly organized,
validly existing and in good standing under the laws of the State of Delaware.
Borrower and Guarantor are each qualified to do business in every jurisdiction
where the nature of their business or the ownership of their property requires
them to be so qualified and where failure to so qualify could reasonably be
expected to have a Material Adverse Effect.
Section 4.2 Executive Offices. The name of the Borrower as listed in
the public records of its jurisdiction of organization is PetroQuest Energy,
L.L.C.; and the organizational identification number of the Borrower in its
jurisdiction of organization is 34487931K (or, in each case, as set forth in a
notice delivered to the Administrative Agent pursuant to Section 13.3). The
Borrower's principal place of business and chief executive offices are located
at the address specified in Section 13.3 (or as set forth in a notice delivered
pursuant to Section 13.3). The jurisdiction of organization, name as listed in
the public records of its jurisdiction of organization, organizational
identification number in its jurisdiction of organization, and the location of
its principal place of business and chief executive office of each Subsidiary is
stated on Schedule 4.2 (or as set forth in a notice delivered pursuant to
Section 13.3).
Section 4.3 Ownership; Subsidiaries. Borrower is owned as set forth on
Part (a) of Schedule 4.3. Except for the owners set forth on Part (a) of
Schedule 4.3, no other Person owns any Equity Interest in the Borrower or is the
holder of any right that could result in the transfer or issuance of any Equity
Interest in the Borrower. Borrower has no Subsidiaries except as set forth
26
on Part (b) of Schedule 4.3, and no Equity Interests in any other Person other
than those set forth in Part (b) of Schedule 4.3.
Section 4.4 Authorization; Non-Contravention. The execution, delivery
and performance of Borrower's or any Subsidiaries' obligations under this
Agreement, the Term Note, the Security Documents, the Swap Agreement, the
Intercreditor Agreement and all and any other Loan Documents and the creation of
all liens, mortgages and security interests provided for in those agreements:
(a) are within the company power and authority of
Borrower and each Subsidiary;
(b) have been duly authorized by all necessary corporate
action of Borrower and each Subsidiary;
(c) are not in contravention of (i) any agreement or
indenture to which Borrower or any Subsidiary is a party or by which it or its
property is bound, (ii) the Charter Documents of Borrower or any Subsidiary, or
(iii) any provision of law applicable to Borrower or any Subsidiary;
(d) do not require the consent or approval of any
governmental body, agency, authority or any other Person which has not been
obtained and a correct and complete copy of each of those approvals has been
furnished to Lenders; and
(e) are legal, valid and binding obligations of Borrower
and each Subsidiary, enforceable against Borrower and each Subsidiary in
accordance with their respective terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors rights generally and by general equitable
principles.
Section 4.5 Solvency. Borrower is Solvent and will continue to be
Solvent after giving effect to the transactions contemplated by this Agreement.
Section 4.6 Omissions and Misstatements. The Borrower has disclosed to
the Administrative Agent and the Lenders all agreements, instruments and
corporate or other restrictions to which it or the Guarantor is subject, and all
other matters known to it, that, individually or in the aggregate, could
reasonably be expected to result in a Material Adverse Effect. None of the other
reports, financial statements, certificates or other information furnished by or
on behalf of the Borrower or any Affiliate to the Administrative Agent or any
Lender or any of their Affiliates in connection with the negotiation of this
Agreement or any other Loan Document or delivered hereunder or under any other
Loan Document (as modified or supplemented by other information so furnished)
contains any material misstatement of fact or omits to state any material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided that, with respect to
projected financial information, the Borrower represents only that such
information was prepared
27
in good faith based upon assumptions believed to be reasonable at the time.
There is no fact peculiar to the Borrower or any Affiliate which could
reasonably be expected to have a Material Adverse Effect or in the future is
reasonably likely to have a Material Adverse Effect and which has not been set
forth in this Agreement or the Loan Documents or the other documents,
certificates and statements furnished to the Administrative Agent or the Lenders
by or on behalf of the Borrower or any Affiliate prior to, or on, the date
hereof in connection with the transactions contemplated hereby. There are no
statements or conclusions in any Reserve Report which are based upon or include
misleading information or fail to take into account material information
regarding the matters reported therein.
Section 4.7 Joint Ventures. Other than joint ownership of Hydrocarbon
properties through the use of joint operating agreements standard in the oil and
gas industry, Borrower is not engaged in any joint venture or partnership with
any other Person.
Section 4.8 Commissions; Expenses. No broker's or finder's fees or
commissions have been paid or will be payable by Borrower or any of its
Affiliates to any Person in connection with the transactions contemplated by
this Agreement. Borrower will indemnify Lenders and its Affiliates and their
respective officers, directors, employees and agents from and against, and hold
each of those parties harmless on demand from, all liabilities, costs, damages
and expenses, including attorneys' fees and disbursements relating to any third
parties concerning finder's, brokerage, financing or similar fees arising in
connection with the transactions contemplated under this Agreement.
Section 4.9 Tax Matters. Borrower and each Subsidiary has filed all tax
returns (federal, state and local) required to be filed and have either paid all
taxes due (including interest and penalties) or provided adequate reserves for
those taxes. No assessments have been made against Borrower by any Taxing
Authority nor has any penalty or deficiency been assessed by any Taxing
Authority. To the best of Borrower's knowledge, no federal or other income tax
return of Borrower is presently being examined by the Internal Revenue Service
or any state or local governmental authority nor are the results of any prior
examination by the Internal Revenue Service or any state or local governmental
authority being contested by Borrower. No Tax lien has been filed and, to the
knowledge of the Borrower, no claim is being asserted with respect to any such
Tax or other such governmental charge.
Section 4.10 Litigation; Governmental Proceedings. Except as set forth
on Schedule 4.10, no claim, action, suit or other proceeding is pending or, to
the best of Borrower's knowledge, has been threatened against Borrower or any
Subsidiary, including, without limitation, those related to the transactions
contemplated by this Agreement, at law, in equity or otherwise, before or
involving any court, board, commission, agency or instrumentality of the federal
or any state or local government or any agency or subdivision of any of those
governments, or before any arbitrator or panel of arbitrators, and Borrower has
not accepted liability for any action or proceeding. There is no proceeding
pending before any federal, state or local governmental agency and no
investigation has been commenced before any government agency the effect of
which, if adversely decided, could reasonably be expected to have a Material
Adverse Effect.
28
Section 4.11 Ownership of Collateral; Interests. The Collateral is
owned by Borrower and its Subsidiaries, free and clear of any security interest,
lien, encumbrance, mortgages, security agreement or other charge other than the
Senior Liens and Permitted Encumbrances. Borrower and its Subsidiaries has
Defensible Title to the Properties, including each Lease related to the
Properties, free and clear of any lien, claim, or encumbrance except for the
Senior Liens and Permitted Encumbrances and those arising under this Agreement
or the Security Documents. Except for Permitted Encumbrances and the liens and
security interests contemplated by this Agreement and the Security Documents,
there are no unrecorded documents or agreements which may result in the
impairment or loss of Borrower's or its Subsidiaries' ability to mortgage the
Properties or of Lenders' ability to enforce the Mortgage and convey the
Properties. Subject to the Permitted Encumbrances, Borrower and its Subsidiaries
has all beneficial right, title and interest in and to the Net Revenue Interest
in all production from or allocable to Borrower's or its Subsidiaries' interest
in the Properties (including each Lease) and has the exclusive right to sell or
mortgage the Properties subject to any right in the owners of Royalty Interests
to take their royalty interest in kind. With respect to each of the Properties,
Borrower's or its Subsidiaries' Working Interest is not more than and its Net
Revenue Interest is not less than those set forth in the Reserve Reports. All
leases and agreements referenced in the title opinions delivered in connection
with the Closing are valid and subsisting, in full force and effect and there
exists no default or event or circumstance which with the giving of notice or
the passage of time or both would give rise to a default under any Lease or
Leases comprising the Properties, which would affect in any material respect the
conduct of the business of the Borrower. All of the Properties of the Borrower
which are reasonably necessary for the operation of its business are in good
working condition and are maintained in accordance with prudent business
standards.
Section 4.12 Indebtedness. Except for Debt evidenced by the Senior
Credit Facility and as otherwise set forth in Schedule 4.12 of the Agreement,
upon the execution of this Agreement, Borrower will have no Debt outstanding
other than the Obligations. The information presented in Schedule 4.12 is
current as of August 31, 2003, and there has been no material change in that
information since that date.
Section 4.13 Trademarks, Etc. Borrower and its Subsidiaries possess or
will possess all trademarks, trade names, trade styles, copyrights and patents
necessary to conduct its business as it is presently conducted or as Borrower or
any Subsidiary intends to conduct it in the future without any infringement or
conflict with the rights of any other Person with respect to trademarks, trade
names, trade styles, copyrights or patents.
Section 4.14 Leases. Except as disclosed on Schedule 4.14, neither
Borrower nor any Subsidiary is the lessor or lessee under any leases (including
real property leases, equipment leases, capital leases, etc.), other than Leases
included in the Properties.
Section 4.15 Investments. Borrower and each Subsidiary:
(a) has not committed to make any Investment;
29
(b) is not a party to any indenture, agreement, contract,
instrument or lease or subject to any charter, by-law or other restriction or
any injunction, order, restriction or decree, which could have a Material
Adverse Effect;
(c) is not a party to any "take or pay" contract or
settlement or any other contract or agreement which (i) allows its gas purchaser
to take gas previously paid for out of future gas production or (ii) provides
for a cash rebate to the gas purchaser if reimbursement of take-or-pay monies is
not made through gas production;
(d) except as provided on Schedule 4.15(d) has not
produced Natural Gas from the Properties in excess of the percentage to which
its ownership interest in the applicable Property would entitle it, pursuant to
balancing rights of third parties or pursuant to balancing duties under
governmental requirements; or
(e) has no material contingent or long term liability or
commitment which could have a Material Adverse Effect.
Section 4.16 Environmental Matters. Except as disclosed on Schedule
4.16:
(a) Neither any Property of the Borrower or any of its
Affiliates nor the operations conducted thereon violate any order or requirement
of any court or Governmental Authority or any Environmental Laws;
(b) Without limitation of clause (a) above, no Property
of the Borrower or any of its Affiliates nor the operations currently conducted
thereon or, to the best knowledge of the Borrower, by any prior owner or
operator of such Property or operation, are in violation of or subject to any
existing, pending or threatened action, suit, investigation, inquiry or
proceeding by or before any court or Governmental Authority or to any remedial
obligations under Environmental Laws;
(c) All notices, permits, licenses or similar
authorizations, if any, required to be obtained or filed in connection with the
operation or use of any and all Property of the Borrower and each of its
Affiliates, including without limitation past or present treatment, storage,
disposal or release of a hazardous substance or solid waste into the
environment, have been duly obtained or filed, and the Borrower and each such
Affiliate are in compliance with the terms and conditions of all such notices,
permits, licenses and similar authorizations;
(d) All hazardous substances, solid waste, and oil and
gas exploration and production wastes, if any, generated at any and all Property
of the Borrower or any of its Affiliates have, to the best of Borrower's
knowledge, in the past been transported, treated and disposed of in accordance
with Environmental Laws and so as not to pose an imminent and substantial
endangerment to public health or welfare or the environment, and, to the best
knowledge of the Borrower, all such transport carriers and treatment and
disposal facilities have been and are operating in compliance with Environmental
Laws and so as not to pose an imminent and substantial endangerment to public
health or welfare or the environment, and are
30
not the subject of any existing, pending or threatened action, investigation or
inquiry by any Governmental Authority in connection with any Environmental Laws;
(e) The Borrower has taken all steps reasonably necessary
to determine and has determined that no hazardous substances, solid waste, or
oil and gas exploration and production wastes, have been disposed of or
otherwise released and there has been no threatened release of any hazardous
substances on or to any Property of the Borrower or any of its Affiliates except
in compliance with Environmental Laws and so as not to pose an imminent and
substantial endangerment to public health or welfare or the environment;
(f) To the extent applicable, all Property of the
Borrower and each of its Affiliates currently satisfies all design, operation,
and equipment requirements imposed by the OPA (as defined in the definition of
Environmental Laws), and the Borrower does not have any reason to believe that
such Property, to the extent subject to OPA, will not be able to maintain
compliance with the OPA requirements during the term of this Agreement; and
(g) Neither the Borrower nor any of its Affiliates has
any known contingent liability in connection with any release or threatened
release of any oil, hazardous substance or solid waste into the environment.
Section 4.17 Operating Permits and Licenses. Borrower and its
Subsidiaries have fulfilled all requirements for obtaining and have obtained and
maintained all licenses, permits, operating authorities and other authorizations
necessary for the conduct of the business of the Borrower and its Subsidiaries
or for Borrower or its Subsidiaries to operate or maintain each of the
Properties which it operates, and Borrower is and will be fully qualified to own
and hold such Properties and to exercise rights under all leases, contracts or
other documents governing the operation or maintenance of the Properties. All of
the Personal Property and Properties of the Borrower or its Subsidiaries which
are reasonably necessary for the operation of its business are in good working
condition and are maintained in accordance with prudent business standards.
There are no pending fees, assessments or penalties relating to the permits,
licenses and operating authorities. The continuation, validity and effectiveness
of each license, permit and other authorization are not and will in no way be
adversely affected by the transactions contemplated by this Agreement or the
Security Documents. Neither Borrower nor any Subsidiary is in breach of, or in
default under the terms of, and has not engaged in any activity which would
cause revocation or suspension of, any such licenses, permits or authorizations
and no action or proceeding looking to or contemplating the revocation or
suspension of any of them is pending or, to the best of Borrower's knowledge,
threatened against Borrower. Neither Borrower nor any Subsidiary is in violation
in any material respect of any law, ordinance, administrative or governmental
rule or regulation or court decree relating to any of the Properties or
otherwise applicable to Borrower, any Subsidiary or any Operator. No suspension
of production on the Properties is in effect which could reasonably be expected
to have a Material Adverse Effect.
Section 4.18 Maintenance of Properties. Except for such acts or
failures to act as could not be reasonably expected to have a Material Adverse
Effect, the Properties (and Properties
31
unitized therewith) have been maintained, operated and developed in a good and
workmanlike manner and in conformity with all government requirements and in
conformity with the provisions of all leases, subleases or other contracts
comprising a part of the Properties and other contracts and agreements forming a
part of the Properties. Specifically in connection with the foregoing, except
for those as could not be reasonably expected to have a Material Adverse Effect,
(a) no Property is subject to having allowable production reduced below the full
and regular allowable (including the maximum permissible tolerance) because of
any overproduction (whether or not the same was permissible at the time) and (b)
none of the ▇▇▇▇▇ comprising a part of the Properties (or Properties unitized
therewith) is deviated from the vertical more than the maximum permitted by
government requirements, and such ▇▇▇▇▇ are, in fact, bottomed under and are
producing from, and the well bores are wholly within, the Properties (or in the
case of ▇▇▇▇▇ located on Properties unitized therewith, such unitized
Properties). All pipelines, ▇▇▇▇▇, gas processing plants, platforms and other
material improvements, fixtures and equipment owned in whole or in part by the
Borrower or its Subsidiaries that are necessary to conduct normal operations are
being maintained in a state adequate to conduct normal operations, and with
respect to such of the foregoing which are operated by the Borrower or its
Subsidiaries, in a manner consistent with past practices.
Section 4.19 Defaults. Neither Borrower nor any Subsidiary and, to
Borrower's knowledge, any Operator are in violation of, or in default under, any
material agreement affecting any lease or any other contract or agreement to
which either Borrower, any Subsidiary or any Operator is a party or is bound or
its property is bound. All ▇▇▇▇▇ are, in all material respects, operated in
compliance with all applicable rules, regulations, permits, judgments, orders
and decrees of any court or the federal and state regulatory authorities having
jurisdiction over Borrower, any Subsidiary or any Operator or any of the ▇▇▇▇▇.
Section 4.20 Contingent Liabilities. Neither Borrower nor any
Subsidiary has assumed, guaranteed, endorsed or otherwise become directly,
indirectly or contingently liable in connection with any liability of any other
Person, except for the endorsement of checks and other negotiable instruments
for collection in the ordinary course of business, or as may be required under
the Operating Agreements or the Security Documents or other documents executed
in connection with the Security Documents.
Section 4.21 Restrictions on Equipment. Except for the Senior Liens,
the Intercreditor Agreement and Permitted Encumbrances, there is no restriction
or other limitation on Lenders' right to obtain or exercise its security
interests in the Equipment, including the right to foreclose on and sell the
Equipment or to exercise all other rights and remedies of a secured party under
the laws of each jurisdiction applicable to the Collateral but subject to Debtor
Relief Laws, laws related to the rights of co-owners of property and laws
related to the enforcement of security interests on personal property.
Section 4.22 Financial Statements; No Material Adverse Effect.
(a) The consolidated audited financial statements of
Guarantor for the period ending December 31, 2002 (i) were prepared in
accordance with GAAP consistently applied
32
throughout the period covered thereby, except as otherwise expressly noted
therein; (ii) fairly present the financial condition of Guarantor and its
Subsidiaries as of the date thereof and their results of operations for the
period covered thereby in accordance with GAAP consistently applied throughout
the period covered thereby, except as otherwise expressly noted therein; and
(iii) show all material indebtedness and other liabilities, direct or
contingent, of Guarantor and its Subsidiaries as of the date thereof, including
liabilities for taxes, material commitments and Indebtedness.
(b) The unaudited consolidated balance sheet of Guarantor
and its Subsidiaries dated as of June 30, 2003, and the related consolidated
statements of income or operations, shareholders' equity and cash flows for the
fiscal quarter ended on that date (i) were prepared in accordance with GAAP
consistently applied throughout the period covered thereby, except as otherwise
expressly noted therein, and (ii) fairly present the financial condition of
Guarantor and its Subsidiaries as of the date thereof and their results of
operations for the period covered thereby , subject in the case of clauses (i)
and (ii), to the absence of footnotes and to normal year-end audit adjustments.
(c) Since the date of the audited financial statements
described in Section 4.22(a), there has been no event or circumstance, either
individually or in the aggregate, that has had or could reasonably be expected
to have a Material Adverse Effect.
Section 4.23 Taxpayer Identification. The federal taxpayer
identification number of Borrower and each Subsidiary of Borrower is set forth
on Schedule 4.23.
Section 4.24 Holding Company. Borrower is not a "holding company" or a
"subsidiary company" of a "holding company" or an "affiliate" of a "holding
company" or a "public utility" within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
Section 4.25 Investment Company. Borrower is not an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
Section 4.26 Other Agreements. There is no agreement in force and
effect (including, without limitation, letters of intent), whether written or
oral, between Borrower or any of its Affiliates and any other Person regarding
the acquisition or financing of any of the Properties or the purchase and sale
of production from or allocable to the Properties other than pursuant to
Hydrocarbon purchase and sale agreements satisfactory to Lenders. Except as set
forth on Schedule 4.26, no Person has any call upon, option to purchase or
similar rights under any agreement with respect to Borrower's Working Interest
or Net Revenue Interest in the Properties or to the production from the
Properties other than pursuant to a Hydrocarbon purchase and sale agreement
satisfactory to Lenders and Persons who have waived such rights in writing with
respect to the Properties.
33
Section 4.27 Basic Documents. With respect to the Basic Documents:
(a) all are in full force and effect in accordance with
their terms and constitute valid and binding obligations;
(b) no other party to any Basic Document (or any
successor in interest to that party) is in breach or default with respect to any
of its obligations under the Basic Documents which could reasonably be expected
to have a Material Adverse Effect on Borrower or the Properties;
(c) no party to any Basic Document has given or has
threatened to give notice of any action to terminate, cancel, rescind or procure
a judicial reformation of any Basic Document or any of their provisions; and
(d) the execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement will not result
in a breach of, a default under, or other violation of the provisions of any
Basic Document.
Section 4.28 Farmout Agreements, Etc. With respect to the Properties
and the unit agreements, pooling agreements, communization agreements and other
Basic Documents creating the interests constituting the Properties, and except
as set forth in the title opinions provided by Borrower to Lenders upon which
Lenders are expressly entitled to rely:
(a) there are no outstanding farmout agreements,
obligations to drill additional ▇▇▇▇▇ or agreements to engage in other
development operations, except for obligations arising under offset well
provisions, obligations arising under provisions of any Operating Agreement
which allow the parties to elect whether or not they will participate in
development activities;
(b) there are no limitations as to the depths covered or
substances to which such interests purport to apply; and
(c) there are no royalty provisions (other than those
allowing a lessor the right to take in kind) requiring the payment of royalties
on any basis other than as specified in those leases, contracts and other
agreements.
Section 4.29 Operating Agreements. With respect to the Operating
Agreements relating to Borrower's or any Subsidiaries' Working Interest and Net
Revenue Interest in the Properties:
(a) there are no outstanding calls for payments under any
AFE or payments which are due or which Borrower or, to the best of Borrower's
knowledge, any predecessor of Borrower or any Subsidiary has committed to make
which have not been or are not being paid within the terms required; and
(b) there are no operations under any of the Operating
Agreements with respect to which Borrower or any Subsidiary has become a
non-consenting party nor are there
34
any non-consenting penalties binding or that will become binding upon Borrower
or any Subsidiary that are not reflected in the Net Revenue Interest or Working
Interest as set forth on the Reserve Report.
Section 4.30 No Unusual Agreements. All agreements applicable to
Borrower's or its Subsidiaries' Working Interest and Net Revenue Interest in the
Properties are of the type generally found in the oil and gas industry and the
gathering and transmission industry, as applicable, and do not (individually or
in the aggregate) contain any unusual provisions which may operate in a material
and adverse manner with respect to Borrower's or any Subsidiaries' Working
Interest or Net Revenue Interest in the Properties.
Section 4.31 Suspense of Proceeds. Except as disclosed by Borrower to
Lenders in writing prior to the execution of this Agreement, as of the Closing
Date, all proceeds from the sale of Hydrocarbons from Borrower's or any
Subsidiaries' Working Interest or Net Revenue Interest in the Properties are
being received by Borrower and each Subsidiary in a timely manner and are not
being held in suspense for any reason.
Section 4.32 ERISA Plans.
(a) Each Plan is in compliance in all material respects
with the applicable provisions of ERISA, the Code and other Federal or state
laws. Each Plan that is intended to qualify under Section 401(a) of the Code has
received a favorable determination letter from the IRS or an application for
such a letter is currently being processed by the IRS with respect thereto and,
to the best knowledge of Borrower, nothing has occurred which would prevent, or
cause the loss of, such qualification. Borrower and each ERISA Affiliate have
made all required contributions to each Plan subject to Section 412 of the Code,
and no application for a funding waiver or an extension of any amortization
period pursuant to Section 412 of the Code has been made with respect to any
Plan.
(b) There are no pending or, to the best knowledge of
Borrower, threatened claims, actions or lawsuits, or action by any Governmental
Authority, with respect to any Plan that could reasonably be expected to have a
Material Adverse Effect. There has been no prohibited transaction or violation
of the fiduciary responsibility rules with respect to any Plan that has resulted
or could reasonably be expected to result in a Material Adverse Effect.
(c) (i) No ERISA Event has occurred or is reasonably
expected to occur; (ii) no Plan has any Unfunded Pension Liability; (iii)
neither Borrower nor any ERISA Affiliate has incurred, or reasonably expects to
incur, any liability under Title IV of ERISA with respect to any Plan (other
than premiums due and not delinquent under Section 4007 of ERISA); (iv) neither
Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur,
any liability (and no event has occurred which, with the giving of notice under
Section 4219 of ERISA, would result in such liability) under Sections 4201 or
4243 of ERISA with respect to a Multiemployer Plan; and (v) neither Borrower nor
any ERISA Affiliate has engaged in a transaction that could be subject to
Sections 4069 or 4212(c) of ERISA.
35
Section 4.33 Use of Proceeds. Borrower will use all amounts Advanced
under the Term Loan solely for the purposes described in this Agreement. The
Borrower is not engaged principally, or as one of its important activities, in
the business of extending credit for the purpose, whether immediate, incidental
or ultimate, of buying or carrying margin stock (within the meaning of
Regulation T, U or X of the Board of Governors of the Federal Reserve System
(the "Board")). No part of the proceeds of any Advance will be used for any
purpose which violates the provisions of Regulations T, U or X of the Board.
Section 4.34 Insurance. Borrower shall:
(a) continuously keep all of its Personal Property
together with all improvements on its Real Property insured for replacement
value of like kind and quality with insurance companies licensed or approved to
do business in the jurisdictions in which the Properties are located with a
Best's rating of A or better or as otherwise satisfactory to Lender against loss
or damage by fire or other risk usually insured against by other prudent owners
in similar businesses similarly situated under extended coverage endorsement and
against theft, burglary, and pilferage together with other insurance covering
any other hazards as Lender may from time to time reasonably request;
(b) deliver certificates of insurance to Lender and,
whether or not so delivered such policies and all proceeds thereof shall be
security for all Obligations. All such insurance shall contain endorsements in
form satisfactory to Lender showing Lender as a loss payee and additional party
assured as its interest may appear. Subject to the terms of the Intercreditor
Agreement, all insurance proceeds received by Lender shall be retained by Lender
at its option, for application to the payment of such portion of the Obligations
or as Lender may determine in its reasonable discretion or shall be applied to
repair any such insurable loss or damage; and
(c) promptly notify Lender of any event or occurrence
causing a material loss or decline in value of Collateral insured or the
existence of an event justifying a material claim under any insurance and the
estimated amount thereof. In furtherance, but not in limitation of the
requirements of the preceding sentence, Borrower shall continuously keep and
maintain in full force and effect during the term of this Agreement, at
Borrower's sole cost and expense, original insurance policies for which the
payment of premiums are current containing waivers of subrogation by the
respective insurers and non-contributory standard mortgagee clauses or their
equivalent or a satisfactory mortgagee loss payable endorsement in favor of
Lender providing the coverages set forth in Schedule 4.34(c) attached hereto.
Section 4.35 No Material Adverse Effect. Since September 5, 2003, no
Material Adverse Effect has occurred.
Section 4.36 Tax Shelter Regulations. Borrower does not intend to treat
the Term Loan and related transactions as being a "reportable transaction"
(within the meaning of Treasury Regulation Section 1.6011-4). In the event
Borrower determines to take any action inconsistent with such intention, it will
promptly notify Administrative Agent thereof. If Borrower so notifies
Administrative Agent, Borrower acknowledges that one or more of the Lenders may
treat the
36
Term Loan as part of a transaction that is subject to Treasury Regulation
Section 301.6112-1, and such Lender or Lenders, as applicable, will maintain the
lists and other records required by such Treasury Regulation.
Section 4.37 Restriction on Liens. Except for the Senior Credit
Facility, the Intercreditor Agreement and the Loan Documents, and except for
agreements which consent has previously or contemporaneously been obtained,
neither Borrower nor any Subsidiary is a party to any agreement or arrangement,
or subject to any order, judgment, writ or decree, which either restricts or
purports to restrict its ability to grant Liens to the Administrative Agent and
the Lenders on or in respect of its Properties to secure the Obligations and the
Loan Documents.
Section 4.38 Hedging Agreements. Schedule 4.38, as of the date hereof,
and after the date hereof, each report required to be delivered by the Borrower
pursuant to Section 5.16, sets forth, a true and complete list of all Hedging
Agreements of the Borrower, the material terms thereof (including the type,
term, effective date, termination date and notional amounts or volumes), the net
▇▇▇▇ to market value thereof, all credit support agreements relating thereto
(including any margin required or supplied) and the counterparty to each such
agreement.
Section 4.39 Marketing of Production. Except for contracts listed and
in effect on the date hereof on Schedule 4.39, and thereafter either disclosed
in writing to the Administrative Agent (with respect to all of which contracts
the Borrower represents that it and its Subsidiaries are receiving a price for
all production sold thereunder which is computed substantially in accordance
with the terms of the relevant contract and are not having deliveries curtailed
substantially below the subject Property's delivery capacity), no material
agreements exist which are not cancelable on 60 days notice or less without
penalty or detriment for the sale of production from the Borrower's or any
Subsidiaries' Hydrocarbons (including, without limitation, calls on or other
rights to purchase, production, whether or not the same are currently being
exercised) that (a) pertain to the sale of production at a fixed price and (b)
have a maturity or expiry date of longer than six (6) months from the date
hereof.
ARTICLE V.
Financial Statements and Information;
Certain Notices to Lenders
So long as there are any Obligations owed to Lenders under this
Agreement or to MAC or its Affiliates or under a Swap Agreement, Borrower shall
deliver to Lenders the following items:
Section 5.1 Monthly Operating Statement. Commencing on November 30,
2003, within thirty (30) days after the end of each calendar month, a Monthly
Operating Statement detailing financial and operating performance for the
immediately preceding month.
Section 5.2 Daily Field Reports. Borrower shall provide Lender by
facsimile or e-mail a daily report in the form and substance satisfactory to
Lender detailing all field drilling and other notable activity from the
preceding day with respect to the Properties.
37
Section 5.3 Weekly Sales Reports. Borrower shall provide Lender each
week during the term of this Agreement by facsimile or e-mail, a report in the
form and substance satisfactory to Lender setting forth the quantities of Crude
Oil and Natural Gas sold from or allocable to each of the Properties for the
prior week.
Section 5.4 AFEs. Borrower shall provide Lender a true and complete
copy of each AFE in excess of $200,000 prior to commencing the activity
contemplated by the AFE. Borrower shall promptly submit to Lender a supplemental
AFE or similar information for any anticipated expenditures in excess of 110% of
those authorized on an approved AFE or other approved expenditure pursuant to
the Annual Operating Budget.
Section 5.5 Test Results; Core Analyses; Surveys and Logs. Upon the
request of Lender, Borrower shall promptly provide Lender with true and complete
copies of all test results, fluid analyses, pressure surveys and core analyses
related to the Properties. As soon as such data are available, Borrower shall
promptly provide Lender with true and correct copies of all electrical surveys,
radioactivity logs, temperature surveys, deviation or directional surveys,
caliper logs and all other logs and surveys obtained during the drilling of any
Well. In addition, promptly upon the completion of any Well, Borrower will
provide Lender with a composite of all electrical-type logs to the extent
reasonable and customary.
Section 5.6 Annual Reports. Within ninety (90) days after the close of
each fiscal year, a copy of the annual consolidated financial statements
(including all notes) of Guarantor, consisting of a balance sheet, income or
operations statement, statement of stockholder's equity, and statement of cash
flows, all audited by independent certified public accountants retained by
Borrower and acceptable to Lenders and accompanied by the accountants'
certification that, in the normal course of their audit, they have not become
aware of any circumstances constituting Default under this Agreement. The first
audited financial statement will be delivered on or before March 31, 2004.
Section 5.7 Quarterly Reports. Within forty-five (45) days after the
end of each quarter, a consolidated balance sheet, income or operations
statement and statement of cash flows of Guarantor (including all notes thereto)
for the quarter and year-to-date, prepared by Borrower and accompanied by a
certification of Borrower's President or Chief Financial Officer, dated the date
of the delivery of the financial statements to Lenders, and further certifying
that no Default exists under this Agreement.
Section 5.8 Certificate of Financial Officer; Compliance. Concurrently
with any delivery of financial statements under Section 5.7, a certificate of
the president or chief financial officer of the Borrower in form and substance
satisfactory to the Administrative Agent (a) certifying as to whether a Default
has occurred and, if a Default has occurred, specifying the details thereof and
any action taken or proposed to be taken with respect thereto, (b) setting forth
reasonably detailed calculations demonstrating compliance with Section 6.26 and
(c) stating whether any change in GAAP or in the application thereof has
occurred since the date of the audited financial statements referred to in
Section 5.7 and, if any such change has occurred, specifying the effect of such
change on the financial statements accompanying such certificate.
38
Section 5.9 Default Notices. Promptly after becoming aware of the
existence of any Default under this Agreement or any of the Loan Documents or a
default by Borrower under the Senior Credit Facility, or after becoming aware of
any developments or other information which could reasonably be expected to have
a Material Adverse Effect, including, without limitation, the following:
(a) any dispute (including franchise or income tax
liability disputes) that may arise between Borrower and any governmental
regulatory body or law enforcement authority;
(b) the commencement of any litigation or proceeding
involving amounts in dispute in excess of five hundred thousand dollars
($500,000) affecting Borrower or any of the Properties;
(c) any labor dispute or controversy resulting in or
threatening to result in a general strike or work stoppage against Borrower;
(d) any proposal by any public authority to acquire any
of the assets or business of Borrower;
(e) any proposed or actual change in the Borrower or the
Guarantor's corporate name or in any trade name used to identify such Person in
the conduct of its business or in the ownership of its Properties, (i) in the
location of the Borrower or the Guarantor's chief executive office or principal
place of business, (ii) in the Borrower or the Guarantor's identity or corporate
structure or in the jurisdiction in which such Person is incorporated or formed,
(iii) in the Borrower or the Guarantor's jurisdiction of organization or such
Person's organizational identification number in such jurisdiction of
organization, and (iv) in the Borrower or the Guarantor's federal taxpayer
identification number;
(f) the loss of, suspension, termination or material
adverse change to any of the permits, licenses, operating authorities and other
authorizations referred to in Section 4.17 and Section 4.18;
(g) any material loss or damage to any of the Collateral,
or Borrower's business or operations; or
(h) the failure to make any payment when due with respect
to any Debt or the failure to comply with the terms of any material agreement
(including, without limitation, any Hedging Agreement or Swap Agreement) to
which Borrower is a party;
(i) any proposed sale, transfer, assignment or other
disposition of any Properties permitted hereunder, prior written notice of such
disposition, the price thereof and the anticipated date of closing;
(j) the occurrence of any loss, casualty or other insured
damage to, or any nationalization, taking under power of eminent domain or by
condemnation or similar
39
proceeding of, any Property of the Borrower having a fair market value in excess
of five hundred thousand dollars ($500,000);
(k) any other development that results in, or could
reasonably be expected to result in a Material Adverse Effect;
in each case Borrower shall provide Lenders with telephonic facsimile or e-mail
notice specifying and describing the nature of the Default, development or
information, and the anticipated effect. Any notice delivered by telephone or
e-mail will be confirmed in writing (or, with respect to e-mail notices,
physically delivered to Lenders) within five (5) days.
Section 5.10 Reserve Reports.
(a) Timing of Reports. Beginning January 1, 2004 and
continuing semi-annually throughout the term of this Agreement, Borrower shall,
at its sole expense, cause to be prepared by the Engineers and delivered to
Lenders an engineering reserve report (the "Reserve Report") relating to the
Properties. The Reserve Reports will set forth, without limitation, the
projected recoverable reserves attributable to the Properties, the Working
Interests and Net Revenue Interests of Borrower. Borrower shall deliver each
Reserve Report to Lenders within sixty (60) days of its effective date. The
initial Reserve Report effective date shall be January 1, 2004. So long as no
Default has occurred and continues, the "mid-year" Reserve Report may be
prepared by Borrower's internal engineers; however, such Reserve Report must be
acceptable to Lender in its reasonable discretion.
(b) Preparation of Reports. The Reserve Report will be
prepared in accordance with the following assumptions:
(i) reserves shall be adjusted for cumulative
production since the effective date of the most recent Reserve Report;
(ii)
(A) for all Natural Gas to be sold by
Borrower other than Natural Gas described in Section
5.10(b)(ii)(B) below, the purchase price for each
calendar year will be the average of the monthly
prices provided to Borrower by Administrative Agent
for that year for Natural Gas as reflected in the New
York Mercantile Exchange as of the settlement of the
last trading day for the contract month coincident
with the effective date of the Reserve Report (as
adjusted for appropriate quality, transportation and
location differentials approved by Lenders), using
price escalators or de-escalators existing in the
market as determined by Lenders at the time the
Reserve Report is being prepared, for the remaining
life of the Properties;
40
(B) for all Natural Gas to be sold by
Borrower on a fixed price basis pursuant to any bona
fide contract or with respect to which the price has
been hedged pursuant to any New York Mercantile
Exchange contract or bona fide price swap agreement
or arrangement, the purchase price will be the fixed
price (as adjusted for appropriate quality,
transportation and location differentials approved by
Lenders) for the volumes indicated in the contract,
agreement or arrangement;
(C) for Crude Oil to be sold by
Borrower other than Crude Oil described in Section
5.10(b)(ii)(D) below, the purchase price for each
calendar year shall be the average of the monthly
prices provided to Borrower by Administrative Agent
for that year for Crude Oil as reflected in the New
York Mercantile Exchange as of the settlement on the
last trading day for the contract month coincident
with the effective date of the Reserve Report (as
adjusted for appropriate quality, transportation and
location differentials approved by Lenders), using
price escalators or de-escalators existing in the
market as determined by Lenders at the time the
Reserve Report is being prepared, for the remaining
life of the Properties;
(D) for Crude Oil to be sold by
Borrower on a fixed price basis pursuant to any bona
fide contract or for which the price has been hedged
pursuant to any New York Mercantile Exchange contract
or bona fide price swap agreement or arrangement, the
purchase price will be the fixed price (as adjusted
for appropriate quality, transportation and location
differentials approved by Lenders) for the volumes
indicated in the contract, agreement or arrangement.
(c) reserves will be adjusted to reflect revisions to
volume estimates of reserves since the effective date of the last Reserve
Report;
(d) projected operating expenses and capital expenditures
will be adjusted to reflect (i) actual expense levels incurred since the
effective date of the last Reserve Report and (ii) projected increases or
decreases in anticipated operating expenses and capital expenditure levels;
(e) each Reserve Report will separately report on PDP
Reserves, PDNP Reserves and PUD Reserves and will utilize any other assumptions
that Lenders may request from time to time; and
(f) each Reserve Report shall be accompanied by a
certificate of the Senior Vice President - Operations or other responsible
officer of Borrower as required pursuant to Section 5.8, and such certificate
will be substantially in the form of Exhibit I.
41
Borrower or Lenders, at the sole option of any of them so long
as there are any Obligations owing to Lenders under this Agreement, may cause
additional Reserve Reports meeting the requirements of the preceding paragraph
to be prepared by the Engineers to be delivered to the other party. Except for
the two (2) Reserve Reports each year required in the first paragraph of this
Section 5.10 which will be paid for by Borrower, the costs and expenses of any
additional reports will be borne by the party requesting the report.
Notwithstanding the foregoing, if an Event of Default has occurred and is
continuing, then Lenders may request an additional Reserve Report to be prepared
on an annual basis at the sole expense of Borrower.
Section 5.11 Other Information. Borrower shall provide the
Administrative Agent and the Lenders copies of any financial statement, report
or notice furnished to or by any Person pursuant to the terms of any preferred
stock designation, indenture, loan or credit or other similar agreement
(including, without limitation, the Senior Credit Facility), other than this
Agreement and not otherwise required to be furnished to the Lenders pursuant to
any other provision of this Agreement. Borrower shall provide any other
information concerning the financial condition of Borrower and Guarantor or any
property of Borrower as Lenders may reasonably request from time to time.
Section 5.12 Annual Operating Budget. Borrower shall provide to Lenders
before Closing, and annually thereafter forty-five (45) days prior to the
beginning of each calendar year (commencing with the 2005 calendar year annual
operating budget), an annual operating budget for Borrower (as amended,
supplemented, substituted or otherwise modified with the prior written consent
of Lenders, the "Annual Operating Budget"). The Annual Operating Budget
delivered to Lenders, and approved by Lenders in writing prior to Closing (and
annually thereafter), shall cover the eighteen month period commencing July 1,
2003 and ending on December 31, 2004. The Annual Operating Budget shall include,
and detail by project, all capital expenditures for the drilling or recompletion
of any ▇▇▇▇▇ which require the preparation of any AFE in accordance with the
relevant Operating Agreement. The initial Annual Operating Budget, attached to
this Agreement as Schedule 5.12, is approved by Lenders.
Section 5.13 Charter Documents. Borrower shall provide Lenders copies
of (a) all Borrower's Charter Documents including amendments or modifications,
and (b) all Subsidiary Charter Documents including amendments and modifications.
Section 5.14 Other Information. Borrower shall promptly provide all
other information or reports related to Borrower, the Properties, the Personal
Property or the Guarantor Properties as Lenders may reasonably request.
Section 5.15 Information to Shareholders. Simultaneous with the
distribution thereof to the Guarantor's Equity Interest holders, Borrower shall
furnish to the Administrative Agent and the Lenders copies of all periodic and
other reports, proxy statements and other materials distributed by Guarantor to
its Equity Interest holders generally, including all filings with the Securities
and Exchange Commission by Guarantor.
42
Section 5.16 Certificate of Chief Financial Officer; Hedging
Agreements. Concurrently with the delivery of each Reserve Report hereunder, a
certificate of the chief financial officer or other responsible officer of
Borrower, in form and substance satisfactory to the Administrative Agent,
setting forth as of the effective date of the Reserve Report, a true and
complete list of all Hedging Agreements of the Borrower, the material terms
thereof (including the type, term, effective date, termination date and notional
amounts or volumes), the net ▇▇▇▇-to-market value therefor, credit support
agreements not previously disclosed to the Lenders in writing, any margin
required or supplied under any credit support document, and the counterparty to
each such agreement.
Section 5.17 Certificate of Insurer; Insurance Coverage. Concurrently
with the delivery of annual financial statements hereunder (to the extent not
previously provided to the Administrative Agent), a certificate of insurance
coverage from each insurer with respect to the insurance required by Section 6.8
in form and substance satisfactory to the Administrative Agent, and, if
requested by the Administrative Agent or any Lender, all copies of the
applicable policies. In addition, Borrower will promptly deliver to
Administrative Agent copies of all notices or other correspondence from any
insurer in connection with any change to the coverages then in existence.
Section 5.18 Reportable Transactions. Promptly after Borrower has
notified Lenders of any intention by Borrower to treat the Term Loan and related
transactions as being a "reportable transaction" (within the meaning of Treasury
Regulation Section 1.6011-4), Borrower shall deliver to Lenders a duly completed
copy of IRS Form 8886 or any successor form.
Section 5.19 Borrower Financial Statements. To the extent any of the
financial statements to be delivered to the Lenders under this Agreement present
the financial condition of Guarantor or Guarantor and its subsidiaries, Lenders
reserve the right to require Borrower to deliver to Lender similar financial
statements presenting the financial condition of Borrower or Borrower and its
subsidiaries.
ARTICLE VI.
Affirmative Covenants
Borrower covenants and agrees that, so long as there are any
Obligations owing to Lenders under this Agreement or under the Swap Agreement,
or Lenders have any commitment to make Advances under this Agreement, and unless
Lenders have previously consented in writing to Borrower's non-compliance,
Borrower will comply with the following covenants:
Section 6.1 Preservation of Existence. Borrower shall preserve and
maintain its and its Subsidiaries' existence as corporations and all related
rights, privileges and franchises.
Section 6.2 Compliance with Law. Borrower and Borrower's Subsidiaries
shall:
(a) comply, and use all commercially reasonable efforts
to cause any Operator to comply, with all federal, state or local laws and
regulations regarding the collection, payment
43
and deposit of employees' income, unemployment and Social Security taxes and use
all commercially reasonable efforts to cause each Operator to properly and
timely make all royalty or overriding royalty payments and payments to all other
interest owners in the Properties which it operates;
(b) duly observe and conform in all material respects
with all laws, rules and regulations made by any governmental authority, and all
valid requirements of any regulatory body which may acquire jurisdiction, which
apply or relate to ownership and operation of any or all of the Properties,
including, without limitation, compliance with all obligations under the
Environmental and Safety Regulations;
(c) operate or cause each Property to be operated
(whether or not such Property constitutes a "facility" as defined by CERCLA) so
that no cleanup or other obligation arises in respect of CERCLA or other
applicable federal law or under any state, local or municipal law, statute
(including, without limitation, Hazardous Substance Laws), ordinance, rule or
regulation designed to protect the environment or relating to the disposition,
generation or transportation of hazardous waste, which would constitute a lien
or charge on any property of Borrower prior in right to that of Lenders. If any
claim of prior lien or charge is made or any similar obligation arises, Borrower
will, at its own expense, (a) immediately cure or cause a third party to
immediately cure the same and (b) indemnify and hold harmless Lenders and its
officers, directors, agents and employees from any related liability,
responsibility or obligation in connection with any cleanup or other liability
as successor, secured party or otherwise (regardless of whether or not Lenders
may be deemed to be an "owner or operator" under CERCLA) for any reason
including, without limitation, the enforcement of Lenders' rights as a secured
party under this Agreement, the Security Documents or by operation of law;
(d) comply with, and use all commercially reasonable
efforts to cause material compliance by all of its Operators, agents and
invitees with, all Environmental and Safety Regulations with respect to
Hazardous Materials, and keep all of the Properties free and clear of any liens
imposed by those regulations. If Borrower receives any notice from any Person
with regard to the Release of Hazardous Materials on or from any of the
Properties, Borrower shall promptly (and, in any event, prior to the expiration
of any period in which to respond to such notice under any applicable
Environmental and Safety Regulation) send a copy of the notice to Lenders;
(e) cause any Operator to do or cause to be done all
things reasonably necessary to preserve and keep in good repair, working order
and efficiency all of its Properties including, without limitation, all
equipment, machinery and facilities, and from time to time will make all the
reasonably necessary repairs, renewals and replacements so that at all times the
state and condition of its Properties will be fully preserved and maintained,
except to the extent a portion of such Properties is no longer capable of
producing in paying quantities;
(f) comply with ERISA and all applicable rules and
regulations; and
44
(g) promptly (i) pay and discharge, or make reasonable
and customary efforts to cause to be paid and discharged, all delay rentals,
royalties, expenses, severance taxes and other taxes and indebtedness accruing
under the leases or other agreements affecting or pertaining to its Properties,
(ii) perform or make reasonable and customary efforts to cause to be performed,
in accordance with industry standards, the obligations required by each and all
of the assignments, deeds, leases, sub-leases, contracts and agreements
affecting its interests in its Properties, (iii) will and will cause each
Affiliate to do all other things necessary to keep unimpaired, except for Liens
described in Section 7.5, its rights with respect to its Properties and prevent
any forfeiture thereof or a default thereunder, except to the extent a portion
of such Properties is no longer capable of producing in paying quantities.
Section 6.3 Environmental Matters.
(a) The Borrower shall at its expense: (i) comply, and
shall cause the Properties and operations to comply, with all applicable
Environmental Laws, the breach of which could be reasonably expected to have a
Material Adverse Effect; (ii) not dispose of or otherwise release, any oil, oil
and gas waste, hazardous substance, or solid waste on, under, about or from any
of the Properties or any other property to the extent caused by the Borrower's
or any Subsidiaries' operations except in compliance with applicable
Environmental Laws, the disposal or release of which could reasonably be
expected to have a Material Adverse Effect; (iii) timely obtain or file all
notices, permits, licenses, exemptions, approvals, registrations or other
authorizations, if any, required under applicable Environmental Laws to be
obtained or filed in connection with the operation or use of the Borrower's
Properties, which failure to obtain or file could reasonably be expected to have
a Material Adverse Effect; (iv) promptly commence and diligently prosecute to
completion any assessment, evaluation, investigation, monitoring, containment,
cleanup, removal, repair, restoration, remediation or other remedial obligations
(collectively, the "Remedial Work") in the event any Remedial Work is required
or reasonably necessary under applicable Environmental Laws because of or in
connection with the actual or suspected past, present or future disposal or
other release of any oil, oil and gas waste, hazardous substance or solid waste
on, under, about or from any of the Borrower's Properties, which failure to
commence and diligently prosecute to completion could reasonably be expected to
have a Material Adverse Effect; and (v) establish and implement such procedures
as may be necessary to continuously determine and assure that the Borrower's
obligations under this Section 6.3(a) are timely and fully satisfied, which
failure to establish and implement could reasonably be expected to have a
Material Adverse Effect.
(b) The Borrower will promptly, but in no event later
than five days of the occurrence of a triggering event, notify the
Administrative Agent and the Lenders in writing of any threatened action,
investigation or inquiry by any Governmental Authority or any threatened demand
or lawsuit by any landowner or other third party against the Borrower, any
Subsidiary or the Properties of which the Borrower has knowledge in connection
with any Environmental Laws (excluding routine testing and corrective action) if
the Borrower reasonably anticipates that such action will result in liability
(whether individually or in the aggregate) in excess of five hundred thousand
dollars ($500,000), not fully covered by insurance, subject to normal
deductibles.
45
(c) The Borrower will provide environmental audits and
tests in accordance with American Society of Testing Materials standards upon
request by the Administrative Agent and the Lenders and no more than once per
year in the absence of any Event of Default (or as otherwise required to be
obtained by the Administrative Agent or the Lenders by any Governmental
Authority), in connection with any future acquisitions of any other Properties.
Section 6.4 Records. Borrower shall keep adequate records and books of
account with respect to the business activities of Borrower and its Subsidiaries
and the Properties in which proper entries are made in accordance with GAAP
reflecting all financial transactions of Borrower and its Subsidiaries. The
Borrower shall keep separate books and records than its Affiliates and shall
conduct its business separately from the business of POG.
Section 6.5 Litigation. Borrower shall give Lenders prompt written
notice of any suit at law or in equity or any investigation or proceeding before
or by any administrative or governmental agency known to Borrower that could:
(a) limit, prohibit or restrict the manner in which
Borrower or any Subsidiary presently conducts its business or
(b) declare any substance contained in any product used,
sold or distributed by Borrower or any Subsidiary to be a Hazardous Material in
violation of Hazardous Substance Laws.
Section 6.6 Damage to Collateral. Borrower shall give Lenders prompt
written notice of
(a) damage to any of the Collateral causing a loss in
excess of five hundred thousand dollars ($500,000); and
(b) the occurrence of any condition or event which has
caused or may cause loss or depreciation in excess of five hundred thousand
dollars ($500,000) with respect to any of the Collateral excluding market
fluctuation for the price paid for Hydrocarbons.
Section 6.7 Solvency. Borrower shall conduct all operations in a manner
as is necessary to remain Solvent.
Section 6.8 Insurance. Borrower shall maintain with financially sound
and reputable insurance companies not Affiliates of Borrower, insurance with
respect to its properties and business against loss or damage of the kinds
customarily insured against by Persons engaged in the same or similar business,
of such types and in such amounts (after giving effect to any self-insurance
compatible with the following standards) as are customarily carried under
similar circumstances by such other Persons and providing for not less than 30
days' prior notice to Administrative Agent of termination, lapse or cancellation
of such insurance.
46
Section 6.9 Delivery of Instruments. Borrower shall deliver to Lenders
upon its request copies of all contracts, statements, invoices, notices,
receipts and vouchers under which Borrower has incurred or is to incur costs,
and deliver to Lenders all other data or documents in connection with Borrower's
operations as Lenders may from time to time reasonably request.
Section 6.10 Consultants. Borrower shall accord to Lenders the right,
with prior written notice to Borrower (except upon the occurrence and during the
continuation of an Event of Default, in which case no prior written notice is
required), from time to time, to select and retain consultants, including
engineers and public accountants, to advise Lenders as to technical and
financial matters pertaining to Borrower's operations relating to the Properties
and Borrower's financial records. Except as otherwise provided in this
Agreement, the reasonable fees and costs charged by Lenders' consultants will be
paid by Borrower. Borrower shall allow Lenders' consultants access during normal
business hours to the Properties and all other facilities owned, operated or
used by Borrower in connection with the Properties or the conduct of Borrower's
business and to Borrower's records (financial or otherwise) relating to the
operation of the Properties. The access granted to Lenders and its consultants
under this Section 6.10 will not unreasonably disrupt the business of Borrower
or the operation of the Properties.
Section 6.11 Creditors. Borrower shall promptly, upon Lenders' request,
provide Lenders with a statement showing the identity of Borrower's and its
Subsidiaries' creditors, the amount due to each, and the date each payment is
due. Borrower shall notify Lenders immediately if Borrower or any Subsidiary
fails to make any payment (other than a contested payment) in accordance with
required terms to lessors, suppliers, vendors, owners of Royalty Interests,
third-party Working Interest owners, tax authorities or others relating to the
Properties, including, without limitation, owners or holders of overriding
royalty interests, net profit interests, production payments, or any other liens
or burdens on or relating to the Properties, where non-payment would create any
lien rights against any item of Collateral or otherwise interfere with or
jeopardize performance by Borrower under this Agreement. Upon receipt of a
notice of non-payment from Borrower, Lenders may, but need not, make in its
reasonable discretion, any payments or agree to pay any persons as are required
to enable Borrower to complete performance under this Agreement or to protect
the interests of Lenders in production from or allocable to Borrower's Net
Revenue Interest in the Properties or other Collateral, and those payments will
be immediately reimbursed to Lenders by Borrower on demand. Borrower's
obligation to reimburse Lenders for any payments will be secured by the security
interests and the liens granted under the Security Documents.
Section 6.12 Inspection. Borrower shall, so long as any Obligation
remains owing to Lenders or any Collateral remains located at any of the
Properties or other facilities owned or leased by Borrower, accord Lenders or
its agents full and unrestricted access (at Lenders' risk) upon the giving of
reasonable notice under the circumstances (subject to reasonable safety
restrictions and in accordance with prudent operator standards) during normal
business hours to the Properties and such other facilities to permit Lenders or
its agents to, among other things, witness drilling, workovers and other field
activities and inspect or take delivery of production. Borrower shall give
Lenders or its agents due notice of drilling, workovers and other field
activities to permit Lenders to exercise its rights under this Section 6.12. The
access granted to
47
Lenders under this Section 6.12 will not unreasonably disrupt the business of
Borrower or the operation of the Properties.
Section 6.13 Environmental Opinion. Borrower shall, upon Lenders'
reasonable request, obtain opinions from counsel or other consultants reasonably
satisfactory to Lenders that Borrower has all permits, licenses and other
approvals required by the EPA and other applicable Governmental Authorities, and
the current and planned operations of the Properties are in compliance with all
applicable laws and requirements.
Section 6.14 Operators. Borrower shall, in the event of a failure by
any Operator to perform any obligations under the respective Operating Agreement
or upon the occurrence of a Default under this Agreement which is not cured
within the applicable cure period:
(a) immediately, upon the request of Lenders, vote or
cause the applicable Subsidiary to vote to remove an Operator or commence any
proceedings necessary under the applicable Operating Agreement to remove an
Operator or assign to Lenders its right to vote to remove the Operator with
respect to the Properties; provided, however, that Borrower and the Lenders
agree and acknowledge that the removal of an Operator under this Section 6.14 is
subject to the consent of the Senior Lender pursuant to Section 6.33 of the
Senior Credit Facility,
(b) seek indemnification or damages from the Operator and
its successors or assigns for any loss or liability incurred by Borrower or any
Subsidiary,
(c) deliver or use all commercially reasonable efforts to
cause each Operator to deliver to any successor Operator all books, agreements,
contracts, papers, records (including but not limited to royalty payment
records, computerized tapes and other royalty payment information), division
orders, farm-in and farmout agreements, and all other records, contracts,
agreements, papers or documents, written, printed or computerized, which may be
pertinent in any way to the operations to be conducted by the successor Operator
or which may have been conducted by the former Operator,
(d) cooperate, and use all commercially reasonable
efforts to cause each Operator to fully cooperate with the successor Operator to
ensure that the Leases are not terminated or the value of the Properties
diminished by virtue of the resignation or removal, and
(e) take all other actions and use all commercially
reasonable efforts to cause each Operator to take all other actions necessary to
ensure an orderly transition of all operations to the successor Operator.
Borrower shall promptly reimburse Lenders for any payments made pursuant to this
Section 6.14. The rights and remedies of Lenders under this Section 6.14 are in
addition to any other rights or remedies available under Article XI or elsewhere
in this Agreement.
Section 6.15 Purchasers of Hydrocarbons. Borrower shall, in the event
that any Purchaser of Hydrocarbons is, in Lenders' reasonable judgment, not
creditworthy, upon the request of Lenders, (i) cause the Purchaser to provide
one or more letters of credit, in form and
48
substance and from a bank satisfactory to Lenders in connection with its
purchase of Hydrocarbons from the Properties, (ii) sell Hydrocarbons only to
Purchasers who are creditworthy in Lenders' reasonable judgment or who prepay,
or (iii) exercise its right to take the Hydrocarbons in kind and sell to
Purchasers of Hydrocarbons who are creditworthy in Lenders' reasonable judgment.
Section 6.16 Access to Officers, Employees and Agents. Borrower shall
allow Lenders reasonable access to appropriate officers, employees and agents of
Borrower and its Subsidiaries to discuss the affairs, finances and accounts of
Borrower and its Subsidiaries at all reasonable times and as often as Lenders
may reasonably request.
Section 6.17 Hedging Hydrocarbon Production.
(a) ▇▇▇▇▇▇ at Closing. At or prior to Closing, Borrower
shall enter into an energy price hedging or swap pursuant to a Hedging Agreement
with Senior Lender or other Person acceptable to MAC or a Swap Agreement (in
either case, in form and substance satisfactory to Lenders in their sole and
absolute discretion) such that up to seventy percent (70%) of the volume of PDP
Reserves scheduled to be produced for the period commencing on the Closing Date
through and including the Maturity Date (based upon the most recent Reserve
Report) are dedicated to the Hedging Agreement or other price risk management
program approved by Lenders.
(b) Additional ▇▇▇▇▇▇. Beginning six (6) months after
Closing and continuing each six (6) months thereafter (upon receipt of an
updated Reserve Report) or more frequently if Borrower and the Lenders so agree,
Lenders may require Borrower to enter into one or more additional Hydrocarbon
Hedging Agreement such that up to sixty-five percent (65%) of the incremental
PDP Reserves identified in the most current Reserve Report are dedicated to the
Hedging Agreement or other price risk management program approved by Lenders in
their sole and absolute discretion.
(c) Miscellaneous. The minimum average price for all PDP
Reserves subject to the Swap Agreement at Closing shall, for the periods from
the Closing Date through the Maturity Date, be as described on Schedule 6.17.
Lenders may require that Borrower's hedging program be extended beyond the
Maturity Date if any of the Obligations remain outstanding as of that date, and
if so required, Borrower shall enter into such additional energy price hedging
arrangements necessary to comply with Lender's request.
(d) MAC As Counterparty. At least forty percent (40%) of
the total future hedged Hydrocarbon volumes will be hedged under a Swap
Agreement with MAC with a maximum credit margin of twelve and one-half cents
($0.125) per mmbtu of natural gas and forty cents ($0.40) per barrel of crude
oil on a swap equivalent basis or as otherwise agreed by Borrower and MAC.
Notwithstanding the previous sentence, however, nothing in this Section 6.17(d)
will be construed to require Borrower to enter into any hedging transaction with
MAC on terms and conditions that are not reasonably competitive with the terms
and conditions on which comparable counterparties are both willing and able to
enter into like hedge
49
transactions at the time of such transaction (the "Competing Hedge Terms").
Borrower shall notify MAC in writing prior to entering into any hedge
transaction with MAC that Borrower reasonably believes is subject to terms or
conditions that are not reasonably competitive with Competing Hedge Terms.
Promptly following MAC's receipt of a written notice from Borrower pursuant to
the immediately preceding sentence, MAC and Borrower will confer and, if
necessary, attempt to identify a mutually acceptable amendment to this Section
6.17(d).
(e) Unless otherwise approved by Lenders, the sole
counterparty to any Hedging Agreement with Borrower shall be MAC or its
Affiliates or BankOne, N.A. or its Affiliates.
Section 6.18 Use of Proceeds. Borrower shall use all amounts Advanced
under the Term Loan only as described in this Agreement and as approved in
writing by the Lenders in connection with each Advance.
Section 6.19 Bonds. Borrower shall, and shall cause each Subsidiary to,
maintain in full force and effect all federal and state qualifications, bonds
and approvals necessary to own and operate the Properties, and deliver to
Lenders certificates evidencing any bonds and copies of any bonds in place
(including renewals).
Section 6.20 Minimum Payments. Borrower shall pay to Lenders all
outstanding interest calculated at the rate specified in this Agreement on all
Obligations (including Obligations which are for fees or to reimburse or
indemnify Lenders) on each Repayment Date.
Section 6.21 Post-Closing Title Opinions. Within sixty (60) days
following Closing, Borrower will deliver to Lenders post-closing title opinions
(or other title information acceptable to Lenders) in form and substance
acceptable to Lenders covering not less than 81% of the Proved Reserves
Properties showing a Mortgage Lien in favor of the Administrative Agent for the
ratable benefit of the Lenders subject only to Permitted Encumbrances.
Additionally, as requested by Lenders, Borrower will provide Lenders with new,
updated or supplemental title opinions (or other title information acceptable to
Lenders) on Proved Reserves Properties that are added as Collateral.
Section 6.22 Continuing Enterprise. Borrower shall, and shall cause
each Subsidiary to, continue to conduct its operations on such a scale and in
such a manner as is necessary to (a) perform its obligations under this
Agreement and the Basic Documents, and (b) preserve its rights to the Properties
and its rights under the Basic Documents.
Section 6.23 Venue for Debtor Relief Proceedings. If Borrower
voluntarily commences any proceeding under any Debtor Relief Law, Borrower shall
initiate and maintain the proceeding in a court within the Southern District of
Texas.
Section 6.24 Access to Seismic and Geophysical Data. Borrower and
Guarantor shall provide Lenders and their respective engineering consultants
with access to all engineering, seismic, geological and geophysical data,
studies and evaluations which Borrower or Guarantor
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possess or to which Borrower or Guarantor has access which relate to the
Properties. Lenders will, upon reasonable notice to Borrower or Guarantor as
applicable, have access to these records during regular business hours;
provided, however, to the extent the information to be made available to Lenders
under this Section 6.24 is subject to a confidentiality agreement, Borrower or
Guarantor, as applicable, may require Lenders to execute and deliver to it a
mutually acceptable confidentiality agreement prior to being allowed access to
the confidential information.
Section 6.25 Liens on Collateral. The Borrower will at all times cause
at least 90% of the PDP Properties to be subject to a perfected Mortgage Lien in
favor of or for the benefit of the Lenders pursuant to the Security Documents
subject only to the Senior Liens and Permitted Encumbrances.
Section 6.26 Certain Financial Covenants. Borrower shall, at all times
while the Obligations are outstanding:
(a) maintain an Interest Coverage Ratio of 2.50 to 1.00;
(b) maintain a Current Ratio of 1.30 to 1.00 until
December 31, 2004 and 1:00 to 1:00 thereafter;
(c) maintain a Total Adjusted Present Value Ratio of 2.00
to 1.00;
(d) maintain a Developed Reserve Adjusted Present Value
Ratio of 2.00 to 1.00; and
(e) maintain all financial covenants set out in the
Senior Credit Facility.
Section 6.27 Additional Guarantors. Notify Administrative Agent at the
time that any Person becomes a Subsidiary, and promptly thereafter (and in any
event within 30 days), cause such Person to (a) become a Guarantor by executing
and delivering to Administrative Agent for the benefit of Lenders a counterpart
of the Guaranty Agreements or such other document as Administrative Agent shall
deem appropriate for such purpose, and (b) deliver to Administrative Agent
documents of the types referred to in clauses (iii) and (iv) of Section 9.2(h)
and favorable opinions of counsel to such Person (which shall cover, among other
things, the legality, validity, binding effect and enforceability of the
documentation referred to in clause (a)), all in form, content and scope
reasonably satisfactory to Administrative Agent.
Section 6.28 Collateral Records. Borrower agrees to execute and deliver
promptly, and to cause each Subsidiary to execute and deliver promptly, to
Administrative Agent, from time to time, solely for Administrative Agent's
convenience in maintaining a record of the Collateral, such written statements
and schedules as Administrative Agent may reasonably require designating,
identifying or describing the Collateral. The failure by Borrower or any other
Person, however, to promptly give Administrative Agent such statements or
schedules shall not
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affect, diminish, modify or otherwise limit the Liens on the Collateral granted
pursuant to the Collateral Documents.
ARTICLE VII.
Negative Covenants
So long as there are any Obligations owing to Lenders under this
Agreement or a Swap Agreement, and unless Lenders has previously consented in
writing to Borrower's non-compliance, Borrower will comply with the following
covenants:
Section 7.1 Debt. Borrower shall not, and shall not permit any
Subsidiary to, create, incur, assume or suffer to exist any Debt, except:
(i) Obligations to Lenders;
(ii) obligations outstanding under the Senior
Credit Facility;
(iii) Capitalized leases which do not exceed five
hundred thousand dollars ($500,000) in the aggregate;
(iv) obligations secured by Permitted
Encumbrances;
(v) obligations in connection with a Hedging
Agreement required by this Agreement or otherwise approved by Lenders and
described on Schedule 7.1(v);
(vi) accounts payable and accrued expenses,
liabilities or other obligations to pay the deferred purchase price of property
or services, from time to time incurred in the ordinary course of business which
are not greater than ninety (90) days past the date of invoice or delinquent or
which are being contested in good faith by appropriate action and for which
adequate reserves have been maintained in accordance with GAAP;
(vii) endorsements of negotiable instruments for
collection in the ordinary course of business;
(viii) Debt existing on the date hereof and
described in Schedule 7.1(viii);
(ix) obligations among Guarantor, Borrower or any
of their Subsidiaries;
(x) obligations described on Schedule 7.1(x)
associated with bonds or surety obligations required by any governmental or
regulatory authority or prior owner in connection with owning or operating its
Hydrocarbon properties in the ordinary course of business;
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(xi) obligations not to exceed at any one time
$500,000 related to purchase money financing;
(xii) obligations relating to net production
imbalances not to exceed at any one time $1,000,000;
(xiii) obligations relating to overriding royalties
and other interests carved out of production incurred in the ordinary course of
oil and gas exploration and development projects;
(xiv) obligations associated with the financing of
premiums for business insurance of Guarantor, Borrower and their Subsidiaries;
(xv) contingent obligations of Guarantor
described on Schedule 7.1(xv) in connection with guarantees of the obligations
of Borrower and its Subsidiaries in connection with owning and operating
Hydrocarbon properties in the ordinary course of business; and
(xvi) non-recourse obligations not to exceed
$25,000,000.
Section 7.2 Accounts. Borrower shall not sell, discount or factor its
accounts, instruments, intangibles, leases or chattel paper.
Section 7.3 Guaranties. Borrower shall not assume, guaranty or endorse
or otherwise become directly or contingently liable for any liability of any
other Person except as provided in the Senior Credit Facility and except for the
indemnification obligations contained in this Agreement and the Security
Documents. The preceding sentence will not prohibit the endorsement of
negotiable instruments for deposit or collection or the incurrence of
obligations under the Operating Agreements and similar transactions in the
ordinary course of business. For purposes of this Section 7.3, the term
"guaranty" includes any agreement, whether contingent or otherwise, to purchase,
repurchase or otherwise acquire any obligation or liability of any other Person,
or to purchase, sell or lease, as lessee or lessor, property or services, in any
case primarily for the purpose of enabling another Person to make payment of any
debt or liability, or to make any payment (whether as a capital contribution,
purchase of an equity interest or otherwise) to assure a minimum equity, asset
base, working capital or other balance sheet or financial condition, in
connection with a debt or liability of another Person, or to supply funds to or
in any manner invest in another Person in connection with that Person's debts or
liabilities.
Section 7.4 Ownership and Business Operations. Borrower shall not:
(a) (i) acquire or agree to acquire all or any material
portion of the stock, securities or assets of any other Person, (ii) suffer any
Change of Control or (iii) merge into or consolidate with any other Person;
provided, however, that Guarantor, Borrower or any Subsidiary may acquire by
purchase, merger or otherwise, additional Hydrocarbon properties or the capital
stock or interests of any Person whose business is the ownership and operation
of Hydrocarbon properties to the extent such transaction does not result in a
Change of Control;
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(b) enter into any business which is, in Lenders'
reasonable judgment, significantly different from its present business;
(c) sell, transfer, assign or grant any Person an option
to acquire any of its assets (as that term is defined in accordance with GAAP)
or take any similar action except:
(i) the sales of Hydrocarbons in the ordinary
course of business.
(ii) transfers of interests in Hydrocarbon
properties in the ordinary course of the joint development of Hydrocarbon
properties with others, including without limitation transfers to other parties
to joint development agreements, participation agreements, farmout agreements,
farmin agreements, exploration agreements, operating agreements and unit
agreements;
(iii) the sale or transfer of equipment that is no
longer necessary for their business or is replaced by equipment of at least
comparable value and use; and
(iv) during consecutive twelve month period,
sales or other dispositions of Hydrocarbon properties in the ordinary course
that will not exceed $1,000,000 in the aggregate, and that will not materially
impair or diminish the value of the Collateral or the Borrower's financial
condition;
upon the written request of Borrower setting forth in
reasonable detail the transfer, sale or conveyance of assets in a transaction
permitted by this Section 7.4(c), Administrative Agent will execute and deliver
to Borrower such documentation as is reasonably necessary in the opinion of
Administrative Agent and its counsel to release the Lien of Lenders on the
assets transferred, sold or conveyed;
(d) cancel any claim or Debt during the term of the Term
Loan, except for consideration and in the ordinary course of its business;
(e) prepay any Debt other than Obligations owing to
Lenders hereunder and obligations owing under the Senior Credit Facility;
(f) cause or suffer to exist a default under any lease,
mortgage, deed of trust or lien on real estate owned or leased by Borrower;
(g) except as permitted in Section 7.1(ix), make any loan
or advance or extend any credit during the term of the Term Loan (except in the
ordinary course of business) to any Person, whether or not an Affiliate of
Borrower;
(h) transfer its executive offices, or change its company
name or reorganize as an entity other than a corporation or in a jurisdiction
other than the jurisdiction under which it is organized on the date of this
Agreement;
(i) change its fiscal year;
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(j) allow (i) the abandonment of any Well capable of
commercial production, or the release or abandonment of all or any part of
Borrower's Working Interest or Net Revenue Interest in any of the Properties
capable of commercial production, or release or abandon all or any portion of
the Properties except in accordance with prudent operator standards; (ii)
Borrower's Net Revenue Interest in the Properties to be developed, maintained or
operated in a manner less favorable than prudent operator standards; and (iii)
any material alterations in the Basic Documents;
(k) except in the ordinary course of business and as
permitted under this Agreement, enter into any new agreement or contract with
any Person relating to or affecting any of the Properties that could be material
in the context of any particular Lease;
(l) make or commit to make any expenditure in connection
with any project or activity not included in the then current Annual Operating
Budget which has been approved in writing by Lenders; or
(m) except as otherwise approved in writing by Lenders in
their sole and absolute discretion, make or commit to make any expenditures in
excess of the aggregate expenditures included in the then current Annual
Operating Budget which has been approved in writing by Lenders. For the
avoidance of doubt, the Annual Operating Budget sets forth 115% of the aggregate
expenditures contemplated to be made by Borrower during the Annual Operating
Budget period.
Section 7.5 Liens and Encumbrances. Except as set forth on Schedule
7.5, Borrower shall not:
(a) suffer to exist any Lien or consent to the filing of
any financing statement on any of its property (including Borrower's and each
Subsidiaries' Working Interest or Net Revenue Interest in the Properties) other
than:
(i) the Liens created by and granted to Lenders
under this Agreement and the Security Documents;
(ii) the Senior Liens and the other liens and
encumbrances permitted under Section 6.15 of the Senior Credit Facility;
(iii) the Permitted Encumbrances; and
(iv) Liens securing capital leases permitted by
Section 7.1(iii);
(b) dedicate, sell, encumber or dispose of, or suffer to
exist any agreement for the sale, disposition or encumbrance of, Borrower's or
any Subsidiaries' Working Interest and/or Net Revenue Interest in the Properties
or of any oil and gas production attributable to Borrower's Working Interest or
Net Revenue Interest in the Properties except in the ordinary course of business
or as otherwise permitted in this Agreement;
55
(c) in connection with the sale or other disposition of
all or any portion of the Properties, reserve any recorded or unrecorded
executory rights in Borrower's Working Interest or Net Revenue Interest in the
Properties except as consented to in writing by Lenders; or
(d) allow any of its or its Subsidiaries' accounts
payable to remain unpaid after the expiration of ninety (90) days from the
invoice date except for those that are being contested in good faith and for
which adequate reserves have been established and maintained in accordance with
GAAP.
Section 7.6 Investments. Borrower shall not and shall not permit any
Subsidiary to make, or suffer to exist, any Investment except Investments in
certificates of deposit or other obligations issued by a bank or trust company
having capital, surplus and undivided profits of at least one hundred million
dollars ($100,000,000), or obligations of the United States government or any
agency thereof or as otherwise permitted under Section 6.14 of the Senior Credit
Facility or under this Agreement.
Section 7.7 Subsidiaries and Divestitures. Neither Borrower nor any
Subsidiary shall create any direct or indirect subsidiary or divest itself of
any material assets by (i) transferring them to any future subsidiary or (ii) by
entering into a partnership, joint venture, or similar arrangement. Neither
Borrower nor any Subsidiary shall make any material change in its capital
structure or enter into any management contract permitting a third party to
exercise management rights with respect to Borrower's business other than
pursuant to an Operating Agreement.
Section 7.8 Compliance with Laws. Borrower shall not and shall not
permit any Subsidiary to (a) violate any Environmental and Safety Regulation in
any material respect; or (b) use or permit the use of any of the Properties to
generate, treat, store, handle, transport or dispose of Hazardous Materials
except in strict compliance with all applicable Environmental and Safety
Regulations. Upon the occurrence of any Release of Hazardous Materials, Borrower
shall promptly commence and perform, or cause to be promptly commenced and
performed, without cost to Lenders, all investigations, studies, sampling and
testing, and all remedial, removal and other actions necessary to clean up and
remove all Hazardous Materials Released to the full extent necessary to comply
with the requirements of all applicable Environmental and Safety Regulations.
Section 7.9 Dividends and Distributions. Neither Guarantor nor Borrower
will, nor will they permit any Subsidiary to, declare or pay any dividends or
make any distributions on its capital stock or membership interests (other than
dividends payable in its own capital stock or membership interests, as
applicable) or redeem, repurchase or otherwise acquire or retire any of its
capital stock or membership interests at any time outstanding, except that:
(a) Borrower or any Subsidiary of Borrower may declare
and pay dividends or make distributions to its members or shareholders; or
(b) Guarantor may repurchase, repay, defease, redeem or
otherwise acquire or retire any capital stock with the contemporaneous issuance
of the capital stock of the Guarantor.
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Section 7.10 Modifications. Borrower shall not alter, amend or cause
the alteration or amendment of any of the Loan Documents or the Senior Credit
Facility or any Hedging Agreement without the prior written consent of Lenders.
Section 7.11 Debt Threshold. Permit the combined amount of Outstanding
Debt pursuant to the Senior Credit Facility and this Agreement plus the combined
committed but undrawn amounts under the Senior Credit Facility and this
Agreement (but excluding that undrawn amount which represents twenty percent
(20%) of the Senior Credit Facility "borrowing base" which must remain undrawn
at all times by Borrower) to exceed, in the aggregate, twenty-five million
dollars ($25,000,000.00); provided, however, for the purpose of computing the
limitation under this Section 7.11, "committed but undrawn amounts" under this
Agreement will be included in the calculation only to the extent Borrower is
permitted to draw such amounts and Lenders are permitted to advance such amounts
under the terms of the Senior Credit Facility and the Intercreditor Agreement.
Section 7.12 Senior Credit Facility. Permit the amount of indebtedness
outstanding under the Senior Credit Facility (including outstanding letters of
credit) to exceed 80% of the Senior Credit Facility borrowing base.
Section 7.13 Quarterly Production Levels and Net Operating Cash Flow.
Beginning with the calendar quarter commencing July 1, 2003, Borrower shall not
allow (a) Production Volumes pertaining to Borrower's Net Revenue Interest in
the Properties and (b) Net Operating Cash Flow to fall below the quarterly
amounts set forth on Schedule 7.13.
Section 7.14 General and Administrative Expenses. Permit Borrower's and
Guarantor's consolidated G&A Expenses to exceed:
(a) four million five hundred thousand dollars
($4,500,000) in the aggregate for the last six calendar months of 2003; or
(b) for each calendar quarter beginning January 1, 2004,
the lesser of (i) two million five hundred thousand ($2,500,000) or (ii)
thirty-one percent (31%) of the Tax Adjusted Gross Margin; provided, however, if
Borrower's and Guarantor's consolidated G&A Expenses for any quarter exceed 31%
of the Tax Adjusted Gross Margin, the maximum allowable consolidated G&A
Expenses for Borrower and Guarantor during the immediately succeeding quarter
will be 18% of the Tax Adjusted Gross margin; and provided further that a breach
of clause (ii) of this Section 7.14(b) can only form the basis of an Event of
Default if Borrower's and Guarantor's consolidated G&A Expenses exceed (x) 31%
of the Tax Adjusted Gross Margin during any quarter and (y) 18% of the Tax
Adjusted Gross Margin during the immediately succeeding quarter; and provided
further that, notwithstanding anything in this Section 7.14(b) to the contrary,
the consolidated G&A Expenses of Borrower and Guarantor shall not exceed 35% of
the Tax Adjusted Gross Margin.
Section 7.15 Other. Borrower shall not:
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(a) fail to observe all of the provisions of Articles IV,
V, and VI of this Agreement after the Closing, to the extent not already
subsumed in this Article VII;
(b) declare an Early Termination Date (as that term may
be defined in the Swap Agreement) or any similar action pursuant to any Hedging
Agreement without the prior written consent of Lenders;
(c) enter into any Hedging Agreement not approved by
Lenders;
(d) enter into any transaction with any Affiliates (i)
except in the ordinary course of business as it is currently being conducted or
(ii) without the prior written consent of Lenders, and, in either case, Borrower
shall conduct those transactions on an arm's-length basis;
(e) except as otherwise authorized under this Agreement
or otherwise approved in writing by Lenders in their sole and absolute
discretion, enter into any financial transaction that is not usual or customary
in the oil and gas industry;
(f) engage in speculative or margin hedging transactions.
Section 7.16 Proceeds of Term Loan. Borrower will not permit the
proceeds of the Term Loan to be used for any purpose other than those permitted
by Section 2.2. Neither the Borrower nor any Person acting on behalf of the
Borrower has taken or will take any action which might cause any of the Loan
Documents to violate Regulations T, U or X or any other regulation of the Board
of Governors of the United States Federal Reserve System (the "Board") or to
violate Section 7 of the Securities Exchange Act of 1934 or any rule or
regulation thereunder, in each case as now in effect or as the same may
hereinafter be in effect. If requested by the Administrative Agent, the Borrower
will furnish to the Administrative Agent and each Lender a statement to the
foregoing effect in conformity with the requirements of FR Form U-1 or such
other form referred to in Regulation U, Regulation T or Regulation X of the
Board, as the case may be.
Section 7.17 Limitation on Leases. Borrower will not create, incur,
assume or suffer to exist any obligation for the payment of rent or hire of
property of any kind whatsoever (real or personal but excluding Capital Leases
and leases of Hydrocarbon properties), under leases or lease agreements which
would cause the aggregate amount of all payments made by the Borrower pursuant
to all such leases or lease agreements, including, without limitation, any
residual payments at the end of any lease, to exceed one million five hundred
thousand dollars ($1,500,000) in any period of twelve consecutive calendar
months during the life of such leases.
Section 7.18 Nature of Business. Borrower will not allow any material
change to be made in the character of the business of its Subsidiaries or its
business as an independent oil and gas exploration and production company.
Borrower will not and will not permit any Subsidiary to acquire or make any
other expenditure (whether such expenditure is capital, operating or otherwise)
in or related to, any oil and gas properties not located within the geographical
boundaries of the United States including its outer continental shelf.
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Section 7.19 POG. Borrower and PQUE will not permit POG to acquire any
assets other than Working Interests and Royalty Interests in oil and gas
properties, the beneficial interests of which are owned by persons other than
Borrower or Guarantor. PQUE will not allow any other person to become a member
of POG. PQUE will not nor will it permit the Borrower or any other subsidiary to
transfer assets of any Guarantor or the Borrower to, or assume or discharge the
liabilities of, POG, and shall enter into any further agreements as deemed
necessary by Lender in its sole and absolute discretion to segregate the assets
and liabilities of POG from those of Borrower and all Guarantors.
ARTICLE VIII.
Further Rights of Lenders
Section 8.1 Delivery of Additional Documents. Until the Obligations are
repaid in full, Borrower, at its own expense, shall do all things and shall
deliver all instruments requested by Lenders to protect or perfect any security
interest, mortgage or lien granted or created under this Agreement or any of the
Security Documents. Lenders may examine, inspect and copy or make extracts from
all books and records of Borrower at any time during regular business hours upon
prior notice to Borrower. Borrower authorizes Lenders to execute alone any other
instruments that Lenders may require to perfect, protect or establish any lien
or security interest under this Agreement or any of the Security Documents and
further authorizes Lenders to sign Borrower's name on any of those instruments.
Upon the occurrence of an Event of Default, Borrower authorizes Lenders to
appoint any Person or Persons as Lenders may designate as its agent and
attorney-in-fact to endorse the name of Borrower on any checks, notes, drafts or
other forms of payment or security that may come into the possession of either
Lenders or any Affiliate of Lenders, to sign Borrower's name on invoices or
bills of lading, drafts against customers, notices of assignment, verifications
and schedules and, generally, to do all things necessary to carry out this
Agreement and the Security Documents. The powers granted in this Section 8.1 are
coupled with an interest and are, therefore, irrevocable. Neither Lenders nor
any agent or attorney-in-fact will be liable to any Person for any act or
omission, error in judgment or mistake of law that is not malicious or grossly
negligent. Upon payment and performance of all Obligations of Borrower to
Lenders, this power of attorney will become null and void.
Section 8.2 Payments by Lenders. If Borrower fails to purchase or
maintain insurance in accordance with this Agreement, or to pay any tax,
assessment, government charge or levy in accordance with this Agreement, or in
the event that any prohibited lien, encumbrance or security interest is not
discharged in accordance with this Agreement, or in the event that Borrower
fails to perform or comply with any other covenant, promise or Obligation under
any Loan Document, Lenders may, but will not be required to, perform, pay,
satisfy, discharge or bond the same for the account of Borrower, and all amounts
paid by Lenders, including reasonable attorneys' fees and disbursements, will be
deemed to be additional Obligations owing by Borrower to Lenders under this
Agreement; provided, however, that Lenders will not make any payments on behalf
of Borrower without providing Borrower prior written notice of at least three
(3) Business Days.
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Section 8.3 Payment of Taxes, Etc. Borrower and each Subsidiary shall
pay all costs to be paid on taxes, assessments, governmental charges or private
encumbrances levied, assessed, imposed or payable upon or with respect to any of
the Collateral.
Section 8.4 Possession. Upon the occurrence and during the continuation
of an Event of Default, Lenders may (i) enter Borrower's or any Subsidiaries'
premises at any time, and (ii) until it completes the enforcement of its rights
in the Equipment or other Collateral subject to its security interest or lien
under the Security Documents and the sale or other disposition of any property
subject to those documents, take possession of those premises without charge,
rent or payment, or place custodians in control any of the premises, remain on
and use the premises and any of Borrower's or any Subsidiaries' Equipment and
other Collateral for the purpose of completing any work in progress, preparing
any Collateral for disposition or collecting any Collateral.
Section 8.5 Indemnification.
(a) BORROWER WILL, TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, INDEMNIFY LENDERS AND ITS OFFICERS, DIRECTORS, EMPLOYEES AND
AUTHORIZED AGENTS (COLLECTIVELY, THE "INDEMNIFIED PARTIES") AND HOLD EACH OF
THEM HARMLESS FROM AND AGAINST ANY AND ALL INJURIES, CLAIMS, DAMAGES, JUDGMENTS,
LIABILITIES, COSTS AND EXPENSES (INCLUDING, WITHOUT LIMITATION, FEES AND
DISBURSEMENTS OF COUNSEL), CHARGES AND ENCUMBRANCES WHICH MAY BE INCURRED BY OR
ASSERTED AGAINST ANY OF THE INDEMNIFIED PARTIES IN CONNECTION WITH OR ARISING
OUT OF ANY ASSERTION, DECLARATION OR DEFENSE OF LENDERS' RIGHTS OR SECURITY
INTERESTS UNDER THE PROVISIONS OF THIS AGREEMENT, ANY SECURITY DOCUMENT OR ANY
OTHER LOAN DOCUMENT OR IN CONNECTION WITH:
(i) THE ACQUISITION OR OPERATION OF THE
COLLATERAL;
(ii) THE REALIZATION, REPOSSESSION, SAFEGUARDING,
INSURING OR OTHER PROTECTION OF THE COLLATERAL WHILE AN EVENT OF DEFAULT IS
CONTINUING;
(iii) THE COLLECTING, PERFECTING OR PROTECTING OF
LENDER'S LIENS AND SECURITY INTERESTS UNDER THIS AGREEMENT AND THE OTHER
SECURITY DOCUMENTS; AND
(iv) ANY INVESTIGATION, LITIGATION, OR PROCEEDING
RELATED TO ANY PRESENT OR FUTURE ACQUISITION OR PROPOSED ACQUISITION BY
BORROWER. BORROWER WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
ALL RIGHTS IT MIGHT HAVE IN CONNECTION WITH ANY SUIT OR ACTION AGAINST LENDER TO
CLAIM SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES TO IT, ITS BUSINESS
OR ITS
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PROSPECTS. BORROWER HAS CONSULTED WITH ITS COUNSEL WITH RESPECT TO THE
PROVISIONS OF THIS SECTION 8.5 AND UNDERSTANDS THAT IT IS TO BE INTERPRETED
BROADLY AGAINST BORROWER.
(b) THE BORROWER SHALL INDEMNIFY THE ADMINISTRATIVE AGENT
AND EACH LENDER, AND EACH RELATED PARTY OF ANY OF THE FOREGOING PERSONS (EACH
SUCH PERSON BEING CALLED AN "INDEMNITEE") AGAINST, AND HOLD EACH INDEMNITEE
HARMLESS FROM, ANY AND ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES AND RELATED
EXPENSES, INCLUDING THE FEES, CHARGES AND DISBURSEMENTS OF ANY COUNSEL FOR ANY
INDEMNITEE, INCURRED BY OR ASSERTED AGAINST ANY INDEMNITEE ARISING OUT OF, IN
CONNECTION WITH, OR AS A RESULT OF (i) THE EXECUTION OR DELIVERY OF THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY AGREEMENT OR INSTRUMENT CONTEMPLATED
HEREBY OR THEREBY, THE PERFORMANCE BY THE PARTIES HERETO OR THE PARTIES TO ANY
OTHER LOAN DOCUMENT OF THEIR RESPECTIVE OBLIGATIONS HEREUNDER OR THEREUNDER OR
THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED HEREBY OR BY ANY OTHER LOAN
DOCUMENT, (ii) THE FAILURE OF THE BORROWER OR ANY OTHER PERSON TO COMPLY WITH
THE TERMS OF ANY LOAN DOCUMENT, INCLUDING THIS AGREEMENT, OR WITH ANY
GOVERNMENTAL REQUIREMENT, (iii) ANY INACCURACY OF ANY REPRESENTATION OR ANY
BREACH OF ANY WARRANTY OR COVENANT OF THE BORROWER OR ANY GUARANTOR SET FORTH IN
ANY OF THE LOAN DOCUMENTS OR ANY INSTRUMENTS, DOCUMENTS OR CERTIFICATIONS
DELIVERED IN CONNECTION THEREWITH, (iv) ANY LOAN OR ADVANCE OR THE USE OF THE
PROCEEDS THEREFROM, (v) THE OPERATIONS OF THE BUSINESS OF THE BORROWER AND ITS
AFFILIATES BY THE BORROWER AND ITS AFFILIATES, (vi) ANY ASSERTION THAT THE
LENDERS WERE NOT ENTITLED TO RECEIVE THE PROCEEDS RECEIVED PURSUANT TO THE LOAN
DOCUMENTS OR ANY INSTRUMENTS OR OTHER DOCUMENTS DELIVERED IN CONNECTION
THEREWITH, (vii) ANY ENVIRONMENTAL LAW APPLICABLE TO THE BORROWER OR ANY
AFFILIATE OR ANY OF THEIR PROPERTIES, INCLUDING WITHOUT LIMITATION, THE
PRESENCE, GENERATION, STORAGE, RELEASE, THREATENED RELEASE, USE, TRANSPORT,
DISPOSAL, ARRANGEMENT OF DISPOSAL OR TREATMENT OF OIL, OIL AND GAS WASTES, SOLID
WASTES OR HAZARDOUS SUBSTANCES ON ANY OF THEIR PROPERTIES, (viii) THE BREACH OR
NON-COMPLIANCE BY THE BORROWER OR ANY AFFILIATE WITH ANY ENVIRONMENTAL LAW
APPLICABLE TO THE BORROWER OR ANY AFFILIATE, (ix) THE PAST OWNERSHIP BY THE
BORROWER OR ANY AFFILIATE OF ANY OF THEIR PROPERTIES OR PAST ACTIVITY ON ANY OF
THEIR PROPERTIES WHICH, THOUGH LAWFUL AND FULLY PERMISSIBLE AT THE TIME, COULD
RESULT IN PRESENT LIABILITY, (x) THE PRESENCE, USE, RELEASE, STORAGE, TREATMENT,
DISPOSAL, GENERATION, THREATENED RELEASE, TRANSPORT, ARRANGEMENT FOR TRANSPORT
OR ARRANGEMENT FOR DISPOSAL OF OIL, OIL AND GAS WASTES, SOLID WASTES OR
HAZARDOUS SUBSTANCES ON OR AT ANY OF THE
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PROPERTIES OWNED OR OPERATED BY THE BORROWER OR ANY AFFILIATE OR ANY ACTUAL OR
ALLEGED PRESENCE OR RELEASE OF HAZARDOUS MATERIALS ON OR FROM ANY PROPERTY OWNED
OR OPERATED BY THE BORROWER OR ANY OF ITS AFFILIATES, (xi) ANY ENVIRONMENTAL
LIABILITY RELATED IN ANY WAY TO THE BORROWER OR ANY OF ITS AFFILIATES, OR (xii)
ANY OTHER ENVIRONMENTAL, HEALTH OR SAFETY CONDITION IN CONNECTION WITH THE LOAN
DOCUMENTS, OR (xiii) ANY ACTUAL OR PROSPECTIVE CLAIM, LITIGATION, INVESTIGATION
OR PROCEEDING RELATING TO ANY OF THE FOREGOING, WHETHER BASED ON CONTRACT, TORT
OR ANY OTHER THEORY AND REGARDLESS OF WHETHER ANY INDEMNITEE IS A PARTY THERETO,
AND SUCH INDEMNITY SHALL EXTEND TO EACH INDEMNITEE NOTWITHSTANDING THE SOLE OR
CONCURRENT NEGLIGENCE OF EVERY KIND OR CHARACTER WHATSOEVER, WHETHER ACTIVE OR
PASSIVE, WHETHER AN AFFIRMATIVE ACT OR AN OMISSION, INCLUDING WITHOUT
LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT IDENTIFIED IN THE RESTATEMENT
(SECOND) OF TORTS OF ONE OR MORE OF THE INDEMNITEES OR BY REASON OF STRICT
LIABILITY IMPOSED WITHOUT FAULT ON ANY ONE OR MORE OF THE INDEMNITEES; PROVIDED
THAT SUCH INDEMNITY SHALL NOT, AS TO ANY INDEMNITEE, BE AVAILABLE TO THE EXTENT
THAT SUCH LOSSES, CLAIMS, DAMAGES, LIABILITIES OR RELATED EXPENSES ARE
DETERMINED BY A COURT OF COMPETENT JURISDICTION BY FINAL AND NONAPPEALABLE
JUDGMENT TO HAVE RESULTED FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF
SUCH INDEMNITEE.
(c) To the extent permitted by applicable law, Borrower
shall not assert, and hereby waives, any claim against any Indemnitee, on any
theory of liability, for special, indirect, consequential or punitive damages
(as opposed to direct or actual damages) arising out of, in connection with, or
as a result of, this Agreement, any other Loan Document or any agreement or
instrument contemplated hereby or thereby, any transaction contemplated hereby
or thereby, any Advance or the use of the proceeds thereof.
(d) All amounts due under this Section 8.5 shall be
payable not later than ten (10) days after written demand therefor.
ARTICLE IX.
Closing; Conditions Precedent to Closing
Section 9.1 Closing. Subject to the conditions stated in this
Agreement, Closing will occur at a mutually agreeable time on or before November
7, 2003. The date the Loan Documents are executed will be the "Closing Date."
Closing will occur at the offices of ▇▇▇▇▇▇ & ▇▇▇▇▇▇, L.L.P., ▇▇▇ ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇, at 10:00 a.m. on the Closing Date, or at any other
place and time as Borrower and Lenders may agree in writing.
Section 9.2 Conditions Precedent. At Closing, and as conditions to the
commitments of the Lenders to make the Term Loan:
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(a) Borrower shall execute and deliver to the
Administrative Agent and the Lenders, respectively, each of the Loan Documents
to which Borrower is a party required by Lenders to be delivered on the Closing
Date;
(b) Borrower will deliver to Lenders an opinion or
opinions of counsel to Borrower, each of which will be in form and substance
satisfactory to Lenders and their counsel substantially in the form of Exhibit H
related to the Term Loan (whether in one or more separate opinions) and each
opinion will provide that Lenders' Lenders or Lenders' assignees will be
entitled to rely upon it; Borrower will also deliver to Lenders each other
document identified on Annex II, duly executed by the applicable parties and in
form and substance satisfactory to Lenders;
(c) Lenders have obtained a report prepared by a
consultant acceptable to Lenders confirming (i) Borrower's and Operator's
compliance, in all material respects, with all applicable Laws and regulatory
requirements and (ii) that Borrower or Operator have all necessary material
permits and licenses;
(d) An environmental consultant satisfactory to Lenders
will investigate Borrower's compliance with all Environmental Laws, the results
of which shall be satisfactory to Lenders in their sole discretion;
(e) Borrower will deliver to Lenders title opinions or
other evidence of title relating to the Properties showing Defensible Title to
the Properties vested in Borrower subject only to the Permitted Encumbrances and
otherwise satisfactory in form and substance to Lenders, together with a letter
from the issuer or issuers of such opinions, if the opinions are not addressed
to the Lenders, to the effect that Lenders are authorized to rely on the title
opinions;
(f) Borrower will deliver to Lenders copies of the Basic
Documents and all other documents and instruments as Lenders may reasonably
request, all of which will be satisfactory, in form and substance, to Lenders;
(g) Each Person designated by Lenders on Schedule 9.2(g)
will execute and deliver to Lenders a Subordination Agreement satisfactory in
form and substance to Lenders;
(h) Borrower will deliver to Lenders:
(i) A copy of resolutions, in form and substance
satisfactory to Lenders, authorizing (1) the execution, delivery and performance
by Borrower of this Agreement, the Term Note, the Swap Agreement, the
Intercreditor Agreement and the other Loan Documents to which it is or will be a
party, (2) the borrowings contemplated by this Agreement, and (3) the granting
of the liens, pledges and security interests contemplated by the Mortgage and
the other Security Documents, certified as true and correct by the Secretary of
Borrower as of the Closing Date and certifying that the resolutions have not
been amended, modified, revoked or rescinded as of the Closing Date;
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(ii) A certificate of the Secretary or Assistant
Secretary of Borrower dated the Closing Date, certifying the incumbency and
specimen signature of each of the officers of Borrower executing this Agreement,
and the Term Note, the Security Documents, the Intercreditor Agreement, and any
other Loan Documents to which Borrower is a party and any certificate or other
documents to be delivered in connection with any of the Loan Documents, together
with evidence of the incumbency of the certifying Secretary or Assistant
Secretary;
(iii) (1) A copy of the Certificate of Formation
of Borrower, certified as of a date not more than 10 Business Days prior to the
Closing Date by the Secretary of State of the State of Louisiana, (2) a
certificate as of a date not more than 10 Business Days prior to the Closing
Date from the Secretary of State for the State of Louisiana as to the existence
of Borrower as a Louisiana limited liability company, (3) a certificate as of a
date not more than 10 Business Days prior to the Closing Date from the
Department of Revenue for the State of Louisiana as to the good standing of
Borrower as a limited liability company, (4) a certificate from the Secretary of
State of Texas not more than 10 Business Days prior to the Closing Date that
Borrower is a limited liability company duly qualified as a foreign company to
do business in the State of Texas, and (5) a certificate dated the Closing Date
from the Secretary or Assistant Secretary of Borrower to the effect that the
documents delivered pursuant to (1)-(4) are true and correct copies and, with
regard to item (1) as on file with the Secretary of State for the State of
Louisiana, no action has been taken to amend, modify or repeal that document and
it remains in full force and effect in that same form on the Closing Date; and
(iv) The items specified in (i)-(iii) above with
respect to any Subsidiary of Borrower;
(i) Guarantor will deliver to Lenders:
(i) A copy of resolutions, in form and substance
satisfactory to Lenders, authorizing (1) the execution, delivery and performance
by Guarantor of this Agreement, the Pledge Agreement, the Guaranty and the other
Loan Documents to which it is or will be a party, (2) Guarantor's guarantee of
the Obligations, and borrowings contemplated by this Agreement, (3) the granting
of the liens, pledges and security interests contemplated by the Pledge
Agreement, certified as true and correct by the Secretary of Guarantor as of the
Closing Date and certifying that the resolutions have not been amended,
modified, revoked or rescinded as of the Closing Date;
(ii) A certificate of the Secretary or Assistant
Secretary of Guarantor dated the Closing Date, certifying the incumbency and
specimen signature of each of the officers of Borrower executing this Agreement,
and Pledge Agreement, the Guaranty and any other Loan Documents to which
Borrower is a party and any certificate or other documents to be delivered in
connection with any of the Loan Documents, together with evidence of the
incumbency of the certifying Secretary or Assistant Secretary;
(j) (iii) (1) A copy of the Certificate of
Incorporation of Guarantor, certified as of a date not more than 10 Business
Days prior to the Closing Date by the Secretary
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of State of the State of Delaware, (2) a certificate as of a date not more than
10 Business Days prior to the Closing Date from the Secretary of State for the
State of Delaware as to the existence and good standing of Guarantor as a
Delaware corporation, (3) a certificate from the Secretary of State of Texas not
more than 10 Business Days prior to the Closing Date that Guarantor is a
corporation duly qualified as a foreign corporation to do business in the State
of Texas, and (4) a certificate dated the Closing Date from the Secretary or
Assistant Secretary of Guarantor to the effect that the documents delivered
pursuant to (1) - (3) are true and correct copies and, with regard to item (1)
as on file with the Secretary of State for the State of Delaware, no action has
been taken to amend, modify or repeal that document and it remains in full force
and effect in that same form on the Closing Date;
(k) Borrower will deliver to Lenders a certificate of
insurance evidencing the coverages required under this Agreement and the
Administrative Agent and the Lenders have been named as additional insureds in
respect of such liability insurance policies and the Administrative Agent has
been named as loss payee with respect to property loss insurance;
(l) Lenders will have reviewed and found acceptable
Borrower's accounting and business systems (including "back-office" and
administrative functions);
(m) Borrower will have identified to Lenders independent
public accountants Borrower will retain, which independent public accountants
shall be satisfactory to Borrower and Lenders;
(n) Borrower will execute and deliver to MAC or its
designated Affiliate the Swap Agreement;
(o) No Material Adverse Effect has occurred;
(p) Except for the obligations listed (or, with the
consent of Lenders, summarized) on Schedule 9.2(n), there are no unpaid bills
for improvements or services to the Properties that could give rise to
mechanic's or materialmen's liens or any other similar encumbrance arising by
operation of applicable law;
(q) Lenders are satisfied with the management of Borrower
and all other due diligence conducted by Lenders relating to Borrower and its
Subsidiaries;
(r) The representations in each of the Loan Documents of
Borrower and each other Person are true, complete and correct in all material
respects;
(s) Lenders are satisfied, in their sole discretion, with
the results of its due diligence examination of Borrower, and the Properties,
including, Borrower's proposed development of the Properties, satisfactory
information regarding existing Hydrocarbon sales, and all aspects of Borrower's
existing and contemplated Hydrocarbon marketing activities;
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(t) No suit or other proceeding is pending or threatened
before any court or governmental agency seeking to restrain, enjoin or prohibit
or declare illegal, or seeking damages from Borrower in connection with the
transactions contemplated in this Agreement (or the operations contemplated as
part of those transactions) or alleging the breach of any material contract;
(u) Borrower has reimbursed Lenders for all Related Costs
for which invoices have been presented;
(v) each of the Operating Agreements affecting the
Properties will be satisfactory in form and substance to Lenders in their sole
and absolute discretion;
(w) each of the documents executed and delivered by
Borrower or Guarantor in connection with the Senior Credit Facility will be
satisfactory in form and substance to Lenders in their sole and absolute
discretion;
(x) the Senior Lender will have executed and delivered to
Lenders an Intercreditor Agreement satisfactory in form and substance to Lenders
in their sole and absolute discretion;
(y) Borrower shall have prepared and submitted to Lenders
an eighteen (18) month Annual Operating Budget for the further development of
the Properties, and the budget is satisfactory in form and substance to Lenders
in their sole and absolute discretion;
(z) Borrower will have executed and delivered to Lenders
the Warrant Agreement;
(aa) Lenders will be satisfied in their sole and absolute
discretion with Borrower's Hydrocarbon hedging program;
(bb) the capital structures of Borrower and Guarantor will
be satisfactory to Lenders in their sole and absolute discretion, and Lenders
have received such financial statements of Guarantor, as requested, which shall
be in form and substance satisfactory to the Lenders in their sole discretion,
including, without limitation, a pro forma balance sheet to be delivered by
Borrower to Lenders not less than three (3) Business Days prior to the Closing
Date which represents Guarantor's financial condition immediately prior to and
following the closing and funding of the Term Loan;
(cc) the Commitment Fee will have been paid to
Administrative Agent for the ratable benefit of the Lenders; and
Section 9.3 Conditions Precedent to Funding of Term Loan. The funding
of the Term Loan shall be subject to the following conditions:
(a) Satisfaction of the conditions precedent set forth in
Section 9.2;
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(b) No Material Adverse change has occurred and is
continuing;
(c) The Senior Credit Facility with a borrowing base of
at least eleven million seven hundred fifty thousand dollars ($11,750,000) shall
have closed prior to or contemporaneously with the funding of the Term Loan;
(d) all representations and warranties of Borrower and
Guarantor set forth in this Agreement and the other Loan Documents shall be true
and correct in all material respects as of the date of the Advance except to the
extent such representations and warranties are expressly limited to an earlier
date, in which case the representations and warranties shall be true and correct
as of such specified earlier date;
(e) Borrower shall have delivered an Advance Request to
the Administrative Agent in accordance with Section 2.2. Such Advance Request
must be accompanied by copies of all approved AFEs included in the Annual
Operating Budget as well as other supporting documentation satisfactory to
Lenders evidencing the amount to be Advanced. Each AFE previously approved by
Lenders in writing or other project description from the Annual Operating Budget
delivered to Lender in conjunction with an Advance Request will detail all
amounts Advanced to date by Lenders under that AFE or project description and
the amount requested under the Advance Request. Notwithstanding anything to the
contrary herein, Lenders shall not Advance any amount with respect to any
specific activity included in the Annual Operating Budget that exceeds the
amount included for such Well or project in the Annual Operating Budget
inclusive of any amount included in the "Cost-Overrun" line-item of that Annual
Operating Budget.
(f) the hedging requirements required by Section 6.17 are
in full force and effect; and
(g) no Event of Default has occurred or is continuing and
no circumstance exists which but for the lapse of time or notice from the
Lenders or both would become an Event of Default.
ARTICLE X.
Events of Default
Section 10.1 Events of Default. The occurrence and continuance of any
of the following at any time during the term of this Agreement will be an "Event
of Default":
(a) Borrower fails to make any payment under this
Agreement, the Term Note or any Security Document within two (2) Business Days
after the date due; or
(b) Borrower or any Affiliate of Borrower or any other
obligor fails to comply with any material term, condition, or covenant of this
Agreement (other than a payment obligation pursuant to Section 10.1(a)), the
Term Note, the Intercreditor Agreement, any Security
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Document, the Subordination Agreement or any other Loan Document, whether or not
related to any payment Obligation; or
(c) Borrower (i) executes an assignment for the benefit
of its creditors, (ii) becomes or is adjudicated bankrupt or insolvent, (iii)
admits in writing its inability to pay its debts generally as they become due,
(iv) applies for or consents to the appointment of a conservator, receiver,
trustee, or liquidator of Borrower or of all or any substantial part of its
assets, (v) files a voluntary petition seeking reorganization or an arrangement
with creditors, or to take advantage of or seek any other relief under any
Debtor Relief Laws, (vi) files an answer admitting the material allegations of
or consenting to, or defaults in, a petition filed against it in any proceeding
under any Debtor Relief Laws, or (vii) institutes or voluntarily becomes a party
to any other judicial proceedings intended to effect a discharge of its debts,
in whole or in part, or seeking to postpone the maturity or the collection of
any of its debts or to suspend any of the rights of Lenders or any of its
Affiliates under any of the Loan Documents; or
(d) (i) an order, judgment, or decree is entered by any
court of competent jurisdiction approving a petition seeking reorganization of
Borrower or appointing a conservator, receiver, trustee, or liquidator of
Borrower, or of all or any substantial part of its assets, and the order,
judgment, or decree is not permanently stayed or reversed within sixty (60) days
after its entry, or (ii) a petition is filed against Borrower seeking
reorganization, an arrangement with creditors, or any other relief under any
Debtor Relief Laws, and the petition is not discharged within ninety (90) days
after its filing; or
(e) if any statement or representation contained in this
Agreement, any Security Document, any other Loan Document, any financial
statement or any certificate delivered by Borrower to Lenders shall prove to
have been materially incorrect when made or deemed made; or
(f) if any federal tax lien or any other liens totaling
two hundred fifty thousand dollars ($250,000) or more are filed of record
against Borrower, Operator or the Properties and not bonded or discharged within
thirty (30) days after Borrower receives actual or constructive notice of its
filing; or
(g) if a judgment (i) for more than two hundred fifty
thousand dollars ($250,000) or (ii) for any amount if the execution and
enforcement of such judgment could adversely affect Borrower's or Operator's
ability to operate the Properties is entered against Borrower or Operator and
not stayed, vacated, bonded, paid, or discharged within thirty (30) days of its
entry, except a judgment where the claim is fully covered by insurance and the
insurance company has accepted liability for the claim or for which Borrower has
adequate reserves under GAAP; or
(h) upon the occurrence of any material violation by
Borrower or Operator of the Properties of any applicable Law, including, without
limitation, any Environmental and Safety Regulation; or
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(i) unless Borrower provides written notice to Lenders
(prior to the date on which such Debt becomes due) detailing to the satisfaction
of Lenders the basis upon which Borrower intends to dispute the obligation,
Borrower fails to pay any Debt in excess of two hundred fifty thousand dollars
($250,000) (other than Debt under this Agreement) or any related interest or
premium, when due (whether at scheduled maturity or by acceleration, demand or
otherwise) and the failure continues after the applicable grace period, if any,
specified in the agreement or instrument relating to the Debt, or any other
event occurs and continues after the applicable grace period, if any, specified
in the applicable agreement or instrument, if the effect of the default or event
is to accelerate or to permit the acceleration of the maturity of the Debt or
permit the Debt to be declared to be due and payable prior to the stated
maturity; or
(j) the occurrence of a "default" or an "Event of
Default" under the Guaranty Agreements, or any of the other Security Documents
that continues beyond any applicable grace period; or
(k) (i) this Agreement, the Term Note, any Security
Document, the Intercreditor Agreement or any other Loan Document ceases to be in
full force and effect (except in accordance with its terms) or is declared null
and void or the validity or enforceability is contested or challenged by
Borrower, any Affiliate of Borrower or any of their respective members or
shareholders; (ii) Borrower denies that it has any further liability or
obligation under this Agreement, the Term Note or any of the Security Documents;
or (iii) any of the liens and security interests granted to Lenders under the
Security Documents cease to be valid or perfected or cease to have the priority
required hereby or under the Security Documents; or
(l) Borrower, Guarantor or any of their respective
Subsidiaries fails to comply in all material respects with all federal, state or
local Laws pertaining in any way to Borrower, the Properties, the Equipment, or
the Hydrocarbons; or
(m) Borrower's or any Subsidiaries' Working Interest or
Net Revenue Interest in the Properties is materially decreased from those set
forth in the Reserve Reports without the prior written consent of Lenders; or
(n) Borrower fails to perform any material obligation
under the Swap Agreement or any Hedging Agreement and the failure continues
beyond any applicable grace period; or
(o) Borrower modifies or amends any of its Charter
Documents in any material manner without Lenders' prior written consent or
permits the Charter Documents of any Subsidiary to be modified or amended in any
material manner; or
(p) an "Event of Default" or "Early Termination Date" is
designated under the Swap Agreement or any Hedging Agreement, if caused by
action or inaction of Borrower; or
(q) a Change in Control occurs without Lenders' prior
written consent;
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(r) an event occurs or fails to occur that could, in the
reasonable opinion of Lender, have a Material Adverse Effect;
(s) a default or event of default occurs under the Senior
Credit Facility; or
(t) Borrower or any Subsidiary fails to observe or
perform any material covenant, condition or agreement contained in Articles VI
or VII;
provided, however, that the events described in any of subsections 10.1(e), (h)
and (i) will constitute an Event of Default only if the event described is not
remedied by Borrower within twenty (20) days after the earlier of (i) any
officer of Borrower becoming aware of the occurrence of the event or (ii)
Borrower's receipt of a notice from Lenders or the Administrative Agent on
behalf of the Lenders of the occurrence of the event.
ARTICLE XI.
Remedies of Lenders
Section 11.1 Remedies. Upon the occurrence of any Event of Default
other than under Sections 10.1(c) or 10.1(d), Lenders shall, by notice to
Borrower, take either or both of the following actions, at the same or different
times, following two (2) Business Days' prior written notice: (i) terminate the
commitments and thereupon the commitments shall terminate immediately and (ii)
declare the Term Notes and the Term Loan due and payable in whole (or in part,
in which case any principal not so declared to be due and payable may thereafter
be declared to be due and payable), and thereupon the principal of the Term Loan
so declared to be due and payable, together with accrued interest thereon and
all fees and other obligations of the Borrower and the Guarantor accrued
hereunder and under the Term Notes and the other Loan Documents, shall become
due and payable immediately, without presentment, demand, protest, notice of
intent to accelerate, notice of acceleration or other notice of any kind, all of
which are hereby waived by the Borrower and the Guarantor. Upon the occurrence
of an Event of Default described in Section 10.1(c) or Section 10.1(d), the
commitments shall automatically terminate and the Term Notes and the principal
of the Term Loan then outstanding, together with accrued interest thereon and
all fees and the other obligations of the Borrower and the Guarantor accrued
hereunder and under the Term Notes and the other Loan Documents, shall
automatically become due and payable, without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by the Borrower and the
Guarantor. Upon a termination of commitments following an Event of Default,
Lenders will have, in addition to all of its other rights arising under any of
the Loan Documents or by operation of law or otherwise (which rights shall be
cumulative), all of the rights and remedies of a secured party under the Uniform
Commercial Code and will have the right to enter upon any premises where the
Collateral is kept and peacefully retake possession.
Section 11.2 Collateral. Lenders will have no obligation to preserve
rights to any Collateral against prior parties or to proceed first against any
Collateral or to marshal any Collateral of any kind for the benefit of any other
creditor of Borrower or any other Person. Borrower grants to Lenders a license
or other right to use, without charge, Borrower's labels,
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patents, copyrights, rights of use of any name, trade secrets, trade names,
trademarks and advertising matter, or any property of a similar nature related
to the Collateral and necessary or convenient in correction with Lenders
completing production of, advertising for sale and selling any Collateral, and
Borrower's rights under all licenses and any franchise, sales or distribution
agreements will inure to Lenders' benefit.
Section 11.3 Costs and Expenses. Borrower shall pay all costs and
expenses of amending, administering, implementing, perfecting, collecting,
defending, declaring and enforcing Lenders' rights, security interests in the
Collateral under this Agreement or any Security Document or other instrument or
agreement delivered in connection with any of the Loan Documents, including
searches and filings at all times, and Lenders' attorneys' fees (regardless of
whether any litigation is commenced or default is declared and regardless of
tribunal or jurisdiction).
Section 11.4 Set-Off Rights. Upon the occurrence and during the
continuation of an Event of Default, Lenders or the Administrative Agent on
behalf of the Lenders will have the right, at any time and from time to time, to
set-off and apply against the Obligations, in any manner Lenders may determine,
any and all deposits (general or special, time or demand, provisional or final)
or other amounts at any time credited by or owing from Lenders or any depositary
to Borrower whether or not the Obligations are then due; provided, however, that
this sentence will not apply to any amounts owing to third-party Working
Interest and Royalty Interest previously identified in writing to Lenders.
Lenders will provide notice to Borrower not later than three (3) days following
the application of any funds under this Section 11.4. As further security for
the Obligations, Borrower grants to Lenders a security interest in and lien on
all money, instruments, and other property of Borrower now or at any time held
by Lenders, including property held in safekeeping. In addition to Lenders'
right of set-off and as further security for the Obligations, Borrower grants to
Lenders a security interest in and lien on all deposits (general or special,
time or demand, provisional or final) and other accounts of Borrower now or at
any time on deposit with or held by Lenders or any depositary together with all
other amounts at any time credited by or owing from Lenders or any depositary to
Borrower. The rights and remedies of Lenders under this Section 11.4 are in
addition to other rights and remedies (including other rights of set-off) that
Lenders may have.
Section 11.5 Rights Under Operating Agreements. Upon the occurrence and
during the continuation of an Event of Default, Lenders will have the right to
exercise Borrower's rights under the Operating Agreements, including the right
to remove and replace the Operator, with or without cause.
ARTICLE XII.
Administrative Agent
Section 12.1 Appointment and Authorization of Administrative Agent.
Each Lender hereby irrevocably appoints, designates and authorizes the
Administrative Agent to act as its agent under the Agreement and Loan Documents
and to take such action on its behalf under the provisions of this Agreement and
each other Loan Document and to exercise such powers and
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perform such duties as are expressly delegated to it by the terms of this
Agreement, or any other Loan Document, together with such powers as are
reasonably incidental thereto. Notwithstanding any provision to the contrary
contained elsewhere herein or in any Loan Document, the Administrative Agent
shall not have any duties or responsibilities, except those expressly set out
herein, nor shall the Administrative Agent have or be deemed to have any
fiduciary relationship with any Lender or participant, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into this Agreement, or any other Loan Document or otherwise exist against the
Administrative Agent. Without limiting the generality of the foregoing sentence,
the use of the term "Administrative Agent" herein and in the Loan Documents with
reference to the Administrative Agent is not intended to connote any fiduciary
or other implied (or express) obligations arising under agency doctrine of any
applicable Law. Instead, such term is used merely as a matter of market custom,
and is intended to create or reflect only an Administrative relationship between
independent contracting parties.
Section 12.2 Delegation of Duties. The Administrative Agent may execute
any of its duties under this Agreement, or any other Loan Document by or through
agents, employees or attorneys-in-fact and shall be entitled to advice of
counsel and other consultants or experts concerning all matters pertaining to
such duties. The Administrative Agent shall not be responsible for the
negligence or misconduct of any agent or attorney-in-fact that it selects in the
absence of gross negligence or willful misconduct on the part of the
Administrative Agent.
Section 12.3 Liability of Administrative Agent. No Administrative
Agent-Related Person shall (a) be liable for any action taken or omitted to be
taken by any of them under or in connection with this Agreement, or any other
Loan Document or the transactions contemplated hereby (except for its own gross
negligence or willful misconduct in connection with its duties expressly set out
herein), or (b) be responsible in any manner to any Lender or participant for
any recital, statement, representation or warranty made by Borrower or any
officer thereof, contained in the Agreement or in any other Loan Document, or in
any certificate, report, statement or other document referred to or provided for
in, or received by the Administrative Agent under or in connection with, this
Agreement, or any other Loan Document, or the validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement, or any other Loan
Document, or for any failure of Borrower or any other party to any Loan Document
to perform its obligations hereunder or thereunder. No Administrative
Agent-Related Person shall be under any obligation to any Lender or participant
to ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement, or any other Loan
Document, or to inspect the properties, books or records of Borrower or any
Affiliate thereof.
Section 12.4 Reliance by Administrative Agent.
(a) The Administrative Agent shall be entitled to rely,
and shall be fully protected in relying, upon any writing, communication,
signature, resolution, representation, notice, consent, certificate, affidavit,
letter, telegram, facsimile, telex or telephone message, electronic mail
message, statement or other document or conversation believed by it to be
genuine and correct and to have been signed, sent or made by the proper Person
or Persons, and upon advice and statements of legal counsel (including counsel
to Borrower), independent
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accountants and other experts selected by the Administrative Agent. The
Administrative Agent shall be fully justified in failing or refusing to take any
action under any Loan Document unless it shall first receive such advice or
concurrence of the Required Lenders as it deems appropriate and, if it so
requests, it shall first be indemnified to its satisfaction by the Lenders
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Administrative Agent shall
in all cases be fully protected in acting, or in refraining from acting, under
this Agreement, or any other Loan Document in accordance with a request or
consent of the Required Lenders (or such greater number of Lenders as may be
expressly required hereby in any instance) and such request and any action taken
or failure to act pursuant thereto shall be binding upon all the Lenders.
(b) For purposes of determining compliance with the
conditions specified in Article IX, each Lender shall be deemed to have
consented to, approved or accepted or to be satisfied with, each document or
other matter required thereunder to be consented to or approved by or acceptable
or satisfactory to a Lender unless the Administrative Agent shall have received
notice from such Lender prior to the Closing Date or Advance date, as
applicable, specifying its objection thereto.
Section 12.5 Notice of Default. The Administrative Agent shall not be
deemed to have knowledge or notice of the occurrence of any Default or Event of
Default, except with respect to defaults in the payment of principal, interest
and fees required to be paid to the Administrative Agent for the account of the
Lenders, unless the Administrative Agent shall have received written notice from
a Lender or the Borrower referring to the Agreement, describing such Default or
Event of Default and stating that such notice is a "notice of default." The
Administrative Agent will notify the Lenders of its receipt of any such notice.
The Administrative Agent shall take such action with respect to such Default or
Event of Default as may be directed by the Required Lenders in accordance with
Article XI of the Agreement; provided that unless and until the Administrative
Agent has received any such direction, the Administrative Agent may (but shall
not be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable or in the
best interest of the Lenders.
Section 12.6 Credit Decision; Disclosure of Information by
Administrative Agent. Each Lender acknowledges that no Administrative
Agent-Related Person has made any representation or warranty to it, and that no
act by the Administrative Agent hereafter taken, including any consent to and
acceptance of any assignment or review of the affairs of Borrower, Guarantor, or
any Affiliate thereof, shall be deemed to constitute any representation or
warranty by any Administrative Agent-Related Person to any Lender as to any
matter, including whether Administrative Agent-Related Persons have disclosed
material information in their possession. Each Lender represents to the
Administrative Agent that it has, independently and without reliance upon any
Administrative Agent-Related Person and based on such documents and information
as it has deemed appropriate, made its own appraisal of and investigation into
the business, prospects, operations, property, financial and other condition and
creditworthiness of the Borrower, Guarantor and their respective Subsidiaries,
and all applicable bank or other regulatory Laws relating to the transactions
contemplated hereby, and made its own decision to
73
enter into this Agreement and to extend credit to the Borrower under the
Agreement. Each Lender also represents that it will, independently and without
reliance upon any Administrative Agent-Related Person and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit analysis, appraisals and decisions in taking or not taking
action under this Agreement and the other Loan Documents, and to make such
investigations as it deems necessary to inform itself as to the business,
prospects, operations, property, financial and other condition and
creditworthiness of the Borrower and Guarantor. Except for notices, reports and
other documents expressly required to be furnished to the Lenders by the
Administrative Agent herein, the Administrative Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the business, prospects, operations, property, financial and other
condition or creditworthiness of any of Borrower, Guarantor or any of their
respective Affiliates which may come into the possession of any Administrative
Agent-Related Person.
Section 12.7 Indemnification of Administrative Agent. Whether or not
the transactions contemplated hereby are consummated, the Lenders shall
indemnify upon demand each Administrative Agent-Related Person (to the extent
not reimbursed by or on behalf of Borrower and without limiting the obligation
of Borrower to do so), pro rata, and hold harmless each Administrative
Agent-Related Person from and against any and all Liabilities and Costs incurred
by it; provided that no Lender shall be liable for the payment to any
Administrative Agent-Related Person of any portion of such Liabilities and Costs
to the extent determined in a final, nonappealable judgment by a court of
competent jurisdiction to have resulted from such Administrative Agent-Related
Person's own gross negligence or willful misconduct; provided further that no
action taken in accordance with the directions of the Required Lenders shall be
deemed to constitute gross negligence or willful misconduct for purposes of this
Section 12.7. Without limitation of the foregoing, each Lender shall reimburse
the Administrative Agent upon demand for its ratable share of any costs or
out-of-pocket expenses (including attorneys' fees and expenses) incurred by the
Administrative Agent in connection with the preparation, execution, delivery,
administration, modification, amendment or enforcement (whether through
negotiations, legal proceedings or otherwise) of, or legal advice in respect of
rights or responsibilities under, this Agreement, any other Loan Document, or
any document contemplated by or referred to herein, to the extent that the
Administrative Agent is not reimbursed for such expenses by or on behalf of the
Borrower. The undertaking in this Section 12.7 shall survive termination of the
Maximum Commitments, the payment of all other Obligations and the resignation of
the Administrative Agent.
Section 12.8 Administrative Agent in its Individual Capacity. MAC and
its Affiliates may make loans to, acquire equity interests in and generally
engage in any kind of financial advisory, underwriting or other business with
each of the Borrower or Guarantor and their respective Affiliates as though MAC
were not the Administrative Agent hereunder and without notice to or consent of
the Lenders. The Lenders acknowledge that, pursuant to such activities, MAC or
its Affiliates may receive information regarding Borrower, or its Affiliates
(including information that may be subject to confidentiality obligations in
favor of Borrower or such Affiliate) and acknowledge that the Administrative
Agent shall be under no obligation to provide
74
such information to them. With respect to its Advances, MAC shall have the same
rights and powers under this Agreement as any other Lender and may exercise such
rights and powers as though it were not the Administrative Agent, and the terms
"Lender" and "Lenders" include MAC in its individual capacity.
Section 12.9 Successor Administrative Agent. Subject to the appointment
and acceptance of a successor Administrative Agent as provided in this Section
12.9, the Administrative Agent may resign as Administrative Agent upon thirty
(30) days notice to the Lenders and the Administrative Agent may be removed at
any time with or without cause by the Required Lenders. If the Administrative
Agent resigns or is removed under this Agreement, the Required Lenders shall
appoint from among the Lenders a successor Administrative Agent for the Lenders,
which successor Administrative Agent shall be consented to by the Borrower at
all times other than during the existence of an Event of Default (which consent
of the Borrower shall not be unreasonably withheld or delayed). If no successor
Administrative Agent is appointed prior to the effective date of the resignation
or retirement of the Administrative Agent, the Administrative Agent may appoint,
after consulting with the Lenders and the Borrower, a successor Administrative
Agent from among the Lenders. Upon the acceptance of its appointment as
successor Administrative Agent hereunder, the Person acting as such successor
Administrative Agent shall succeed to all the rights, powers and duties of the
retiring or removed Administrative Agent and the term "Administrative Agent"
shall mean such successor Administrative Agent and the retiring or removed
Administrative Agent's appointment, powers and duties as Administrative Agent
shall be terminated. After any retiring Administrative Agent's resignation or
removal hereunder as Administrative Agent, the provisions of this Article XII
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Administrative Agent under this Agreement. If no successor
Administrative Agent has accepted appointment as Administrative Agent by the
date which is thirty (30) days following a retiring Administrative Agent's
notice of resignation, the retiring or removed Administrative Agent's
resignation or removal shall nevertheless thereupon become effective and the
Lenders shall perform all of the duties of the Administrative Agent hereunder
until such time, if any, as the Required Lenders appoint a successor
Administrative Agent as provided for above.
Section 12.10 Administrative Agent May File Proofs of Claim. In case of
the pendency of any receivership, insolvency, liquidation, bankruptcy,
reorganization, arrangement, adjustment, composition or other judicial
proceeding relative to Borrower or Guarantor, the Administrative Agent
(irrespective of whether the principal of Term Loan shall then be due and
payable as herein expressed or by declaration or otherwise and irrespective of
whether the Administrative Agent shall have made any demand on Borrower) shall
be entitled and empowered, by intervention in such proceeding or otherwise:
(a) to file and prove a claim for the whole amount of the
principal and interest owing and unpaid in respect of the Term Loan, and all
other Obligations that are owing and unpaid and to file such other documents as
may be necessary or advisable in order to have the claims of the Lenders and the
Administrative Agent (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Lenders and the Administrative Agent
and their respective Administrative Agents and counsel and all other amounts due
the
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Lenders and the Administrative Agent under Sections 2.11 and 13.10 allowed in
such judicial proceeding; and
(b) to collect and receive any monies or other property
payable or deliverable in respect of any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Lender to make such payments to the Administrative Agent and, in the event
that the Administrative Agent shall consent to the making of such payments
directly to the Lenders, to pay to the Administrative Agent any amount due for
the reasonable compensation, expenses, disbursements and advances of the
Administrative Agent and its Administrative Agents and counsel, and any other
amounts due the Administrative Agent under Sections 2.11 and 13.10.
Nothing contained herein shall be deemed to authorize the
Administrative Agent to authorize or consent to or accept or adopt on behalf of
any Lender any plan of reorganization, arrangement, adjustment or composition
affecting the Obligations or the rights of any Lender or to authorize the
Administrative Agent to vote in respect of the claim of any Lender in any such
proceeding.
Section 12.11 Collateral and Guaranty Agreements Matters.
(a) Collateral Matters.
(i) Each Lender authorizes and directs
Administrative Agent to enter into the Security Documents for the ratable
benefit of Lenders. Each Lender agrees that (A) any action taken by
Administrative Agent in respect of any Collateral in accordance with the
provisions of this Agreement or the Security Documents (and with the consent of,
or at the request of, Required Lenders), and (B) the exercise by Administrative
Agent (with the consent of, or at the request of, Required Lenders) of powers in
respect of the Collateral set out in any Security Documents, together with other
reasonably incidental powers, shall be authorized by and binding upon all
Lenders.
(ii) In the event any lien under any Security
Document is, on its face, granted to a Lender rather than to Administrative
Agent (for the ratable benefit of all Lenders), the Administrative Agent,
Lenders, and Borrower confirm that it is their intent that all such liens shall
be granted (or deemed granted) to Administrative Agent for the ratable benefit
of all Lenders. All such Security Documents are hereby amended to the extent
necessary to reflect that the liens granted under those Security Documents are
granted to Administrative Agent (for the ratable benefit of all Lenders), and
Borrower hereby grants all liens under all Security Documents to Administrative
Agent, for the ratable benefit of Lenders.
(iii) Administrative Agent is authorized on behalf
of all Lenders, without the necessity of any notice to or further consent from
any Lender, from time to time while no Default or Event of Default exists, to
take any action with respect to any Collateral or
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Security Documents that may be necessary to perfect and maintain the perfection
of the liens upon the Collateral granted by the Security Documents.
(iv) Administrative Agent has no obligation
whatsoever to any Lender or to any other Person to assure that the Collateral
exists or is owned by the party pledging the Collateral or is cared for,
protected or insured or has been encumbered or that the liens granted to
Administrative Agent for the benefit of Lenders under the Security Documents
have been properly or sufficiently or lawfully created, perfected, protected or
enforced, or are entitled to any particular priority.
(v) Administrative Agent shall exercise the same
care and prudent judgment with respect to the Collateral and the Security
Documents as it normally and customarily exercises in respect of similar
collateral and security documents.
(b) Release Collateral. Lenders irrevocably authorize the
Administrative Agent, at its option and in its discretion, to release any lien
or encumbrance on any property granted to or held by the Administrative Agent
under any Loan Document or Security Document (i) upon termination of the Maximum
Commitments and payment in full of all Obligations (other than contingent
indemnification obligations), (ii) that is sold or to be sold as part of or in
connection with any sale permitted under the Agreement or under any other Loan
Document, or (iii) if approved, authorized or ratified in writing by the
Required Lenders.
(c) Subordinate Liens. Lenders irrevocably authorize the
Administrative Agent, at its option and in its discretion, to subordinate any
lien or encumbrance on any property granted to or held by the Administrative
Agent under any Loan Document or Security Document to the holder of any lien or
encumbrance on such property that constitutes a purchase money lien or a capital
lease.
(d) Confirm Authority. Upon request by the Administrative
Agent at any time, the Required Lenders will confirm in writing the
Administrative Agent's authority to release or subordinate its interest in
particular types or items of property.
Section 12.12 Advance Procedure.
(a) Subject to compliance with Section 2.3 and Article
IX, Borrower may request the Advance of the Term Loan by submitting an Advance
Request to Administrative Agent, and Administrative Agent shall promptly notify
each Lender of the Advance Request and its contents. An Advance Request is
irrevocable and binding on Borrower. Each Advance Request must be received by
Administrative Agent no later than 12:00 p.m. Houston, Texas, Time on the third
Business Day preceding the proposed Advance date.
(b) By 11:00 a.m. Eastern Time on the Advance date, each
Lender shall remit its Commitment Percentage of each requested Advance by wire
transfer to Administrative Agent pursuant to Administrative Agent's wire
transfer instructions on Annex I (or as otherwise directed by Administrative
Agent) in funds that are available for immediate use by
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Administrative Agent. Subject to receipt of such funds, Administrative Agent
shall make such funds available to Borrower as directed in the Advance Request
(unless it has actual knowledge that any applicable condition precedent has not
been satisfied by Borrower).
(c) Absent contrary written notice from a Lender,
Administrative Agent may assume that each Lender has made its Commitment
Percentage of the requested Advance available to Administrative Agent on the
applicable Advance date, and Administrative Agent may, in reliance upon such
assumption (but is not required to), make available to Borrower a corresponding
amount. If a Lender fails to make its Percentage Share of any requested Advance
available to Administrative Agent on the applicable Advance date, Administrative
Agent may (to the extent such amount was actually advanced to Borrower) recover
the applicable amount on demand from that Lender, together with interest at the
Federal Funds Rate for the period commencing on the date the amount was made
available to Borrower by Administrative Agent and ending on (but excluding) the
date Administrative Agent recovers the amount from that Lender.
Section 12.13 Payments. Borrower shall make each payment on the
Obligation as provided in the Agreement, provided that all such payments shall
be paid to Administrative Agent and shall be without offset, counterclaim or
deduction. Any payment of the Obligation from Borrower, Guarantor, or any of
their respective Affiliates which is received by any Lender (including under
Section 11.4), shall be promptly forwarded to Administrative Agent. Payments
received after the designated time will be deemed received on the next Business
Day. Administrative Agent shall pay each Lender any payment to which that Lender
is entitled on the same day Administrative Agent receives the funds from
Borrower if Administrative Agent receives payment before 12 noon Eastern Time.
If Administrative Agent receives the funds at 12 noon or later, Eastern Time,
Administrative Agent shall pay such amount to Lender on the following Business
Day. If and to the extent that Administrative Agent does not make a payment to
Lenders when due, the unpaid amounts shall accrue interest at the Federal Funds
Rate from the due date until (but not including) the date paid.
Section 12.14 Application of Payments.
(a) If no Default or Event of Default then exists, all
scheduled payments shall be applied in accordance with Section 2.5(e) of this
Agreement.
(b) If no Default or Event of Default then exists, all
prepayments shall be applied first to unpaid fees, expenses, and Related Costs,
second to accrued and unpaid interest on the Term Loan with the balance being
allocated among the Term Notes in accordance with each Lender's Pro Rata Share,
and then applied to the outstanding principal balance of each Term Note. If the
amount of a prepayment is not sufficient to pay in full any component of the
Term Loan, then the amount of such payment shall be applied to the scheduled
principal payments of such loan in the inverse order of their maturity.
(c) All proceeds realized from the liquidation or other
disposition of Collateral or otherwise received after maturity of the Notes,
whether by acceleration or
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otherwise, shall be applied: first, to reimbursement of expenses and indemnities
provided for in this Agreement and the Security Documents; second, to accrued
interest on the Notes; third, to fees; fourth, pro rata to principal outstanding
on the Notes and Obligations in respect of the Swap Agreement; fifth, to any
other Obligations; and any excess shall be paid to the Borrower or as otherwise
required by any Governmental Requirement.
Section 12.15 Liens. The liens granted by Borrower under the Loan
Documents are granted to the Administrative Agent for the ratable benefit of the
Lenders. It is the intent of the Lenders that they share an equal priority lien
in all of the Collateral, regardless of any previous recordations or filings,
the name of the grantee or secured party in the applicable Security Document,
and regardless of the timing of any additional recordations or filings, and that
the enforcement of all of their respective rights and remedies under the Loan
Documents is subject to the terms and provisions of this Agreement. SUBJECT TO
THE TERMS OF THE INTERCREDITOR AGREEMENT, ALL LIENS OF ANY LENDER IN ANY OF THE
COLLATERAL SHALL BE PARI PASSU WITH ALL LIENS OF THE OTHER LENDERS IN SUCH
COLLATERAL AND ALL SUCH LIENS SHALL HAVE EQUAL PRIORITY.
Section 12.16 Payment Priority. The right of each Lender to receive any
payments or prepayments under or in respect of the Agreement, any Loan Document,
or any Collateral shall be pari passu with the payment rights of all other
Lenders acting in their capacity as a Lender pursuant to this Agreement,
provided that payments of principal and interest will be allocated to each
Lender in accordance with its Pro Rata Share of such payment or prepayment.
Section 12.17 Sharing of Payments by Lenders. If any Lender shall, by
exercising any right of set-off or counterclaim or otherwise, obtain payment in
respect of any principal of or interest on any of its Advances or fees resulting
in such Lender receiving payment of a greater proportion of the aggregate amount
of its Advances or fees and accrued interest thereon than the proportion
received by any other Lender, then the Lender receiving such greater proportion
shall purchase (for cash at face value) participations in the Advances or fees
of other Lenders to the extent necessary so that the benefit of all such
payments shall be shared by the Lenders ratably in accordance with the aggregate
amount of principal of and accrued interest on their respective Advances;
provided that (a) if any such participations are purchased and all or any
portion of the payment giving rise thereto is recovered, such participations
shall be rescinded and the purchase price restored to the extent of such
recovery, without interest, and (b) the provisions of this Section 12.17 shall
not be construed to apply to any payment made by the Borrower pursuant to and in
accordance with the express terms of this Agreement or any payment obtained by a
Lender as consideration for the assignment of or sale of a participation in any
of its Advances to any assignee or participant, other than to the Borrower or
any Affiliate thereof (as to which the provisions of this Section 12.17 shall
apply). The Borrower consents to the foregoing and agrees, to the extent it may
effectively do so under applicable law, that any Lender acquiring a
participation pursuant to the foregoing arrangements may exercise against the
Borrower rights of set-off and counterclaim with respect to such participation
as fully as if such Lender were a direct creditor of the Borrower in the amount
of such participation.
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Section 12.18 Relationship of Lenders. This Agreement, and the
documents delivered in connection herewith, does not create a partnership or
joint venture among Administrative Agent and Lenders or among the Lenders.
ARTICLE XIII.
Miscellaneous
Section 13.1 Remedies Cumulative. Lenders' rights and remedies under
this Agreement are cumulative and non-exclusive of any other rights or remedies
it may have under any other agreement or instrument, or by operation of law or
otherwise.
Section 13.2 Assignment. This Agreement is entered into for the benefit
of Borrower and Lenders and their respective successors and assigns. It will be
binding upon and inure to the benefit of those parties and their respective
successors and assigns. The rights and obligations of Borrower under this
Agreement, the Term Note, the other Security Documents, the Swap Agreement or
any other Loan Document to which Borrower is a party may not be assigned without
Lenders' prior written consent. Lenders may assign, transfer or otherwise
dispose of any of its rights or obligations under this Agreement or any of the
other Loan Documents with the consent of Borrower, which consent will not be
unreasonably withheld. Lenders may assign interests or participation in this
Agreement and the other Loan Documents with the prior written consent of
Borrower, which consent shall not be unreasonably withheld; provided, that if
any Event of Default has occurred and is continuing or any circumstance exists
which could, with notice to Borrower or the lapse of time or both result in an
Event of Default, Borrower's consent to such an assignment by Lenders shall not
be required. To the extent Lenders assigns to any other Person an interest in
the Term Note pursuant to one or more Lender Participation Transactions,
Borrower shall execute and deliver to Lenders any Lender Participation Documents
reasonably necessary in connection with such transaction, including the issuance
by Borrower of one or more Term Notes. Additionally, Lenders will be entitled to
grant and assign a security interest in its right, title and interest in and to
the Term Note, the Security Documents and all other Loan Documents to its
Lenders or Lenders as security for indebtedness of the Lenders.
Section 13.3 Notices. Any notice, demand or document which any party is
required or may desire to give to any other will be in writing and, except as
otherwise provided in this Agreement, given by messenger, overnight delivery,
facsimile or other electronic transmission, or United States certified mail,
postage prepaid, return receipt requested, addressed to the recipient at the
location shown below, or at any other address as either party may furnish to the
other by notice given in accordance with this provision.
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If to Administrative Agent, to:
Macquarie Americas Corp., Administrative Agent
Two ▇▇▇▇▇ Center, Suite 1140
1200 ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
E-Mail: ▇▇▇▇▇▇▇.▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇.▇▇▇
with a copy to:
Macquarie Americas Corp., Administrative Agent
Two ▇▇▇▇▇ Center, Suite 1140
1200 ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
E-Mail: ▇▇▇▇.▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇.▇▇▇
If to Borrower, to:
PetroQuest Energy, L.L.C.
▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇., ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
E-Mail: ▇▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇.▇▇▇
With copy to:
PetroQuest Energy, L.L.C.
▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇., ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
E-Mail: ▇▇▇▇▇▇▇▇▇▇@▇▇▇▇▇▇▇▇▇▇.▇▇▇
If to a Lender, to such Lender at its address, facsimile number or
other destination provided to the other parties by such Lender from time to
time.
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If to any other obligor party, the notice will be sent to the address
set forth in the Security Document or other Loan Document to which the recipient
is a party.
Any notice delivered or made by messenger, telecopy, electronic mail or
United States mail will be deemed to be given on the date of actual delivery as
shown by messenger receipt, the sender's facsimile machine confirmation or other
verifiable electronic receipt, or the registry or certification receipt.
Notwithstanding the previous sentence, if either party receives from the other
any message via electronic mail that purports to be a notice under this
Agreement but that contains information that is syntactically incorrect, garbled
or otherwise unintelligible, the recipient will promptly notify the sender and
the message containing the unintelligible information will not be deemed to be
given until it is successfully delivered (including redelivery by electronic
mail) pursuant to this Section 13.3. If Lenders receives oral notice of any
event from an authorized officer of Borrower, Lenders will not be required to
delay the exercise of any rights arising from the occurrence of that event until
it receives written confirmation of the oral notice. In the event that a
discrepancy exists between the notice received by Lenders orally and the written
confirmation, or in the absence of a written confirmation, the oral notice, as
understood by Lenders will be deemed the controlling and proper notice.
Section 13.4 Waivers; Amendments.
(a) No failure on the part of the Administrative Agent or
any Lender to exercise and no delay in exercising, and no course of dealing with
respect to, any right, power or privilege, or any abandonment or discontinuance
of steps to enforce such right, power or privilege, under any of the Loan
Documents shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege under any of the Loan Documents
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. The rights and remedies of the Administrative Agent
and the Lenders hereunder and under the other Loan Documents are cumulative and
are not exclusive of any rights or remedies that they would otherwise have. No
waiver of any provision of this Agreement or any other Loan Document or consent
to any departure by the Borrower therefrom shall in any event be effective
unless the same shall be permitted by Section 13.4(b), and then such waiver or
consent shall be effective only in the specific instance and for the purpose for
which given. Without limiting the generality of the foregoing, the making of an
Advance shall not be construed as a waiver of any Default, regardless of whether
the Administrative Agent or any Lender may have had notice or knowledge of such
Default at the time.
(b) Neither this Agreement nor any provision hereof or of
any other Loan Document may be waived, amended or modified except pursuant to an
agreement or agreements in writing entered into by the Borrower and the Required
Lenders or by the Borrower and the Administrative Agent with the consent of the
Required Lenders; provided that no such agreement shall (i) increase the
Commitment of any Lender without the written consent of such Lender, (ii) reduce
the principal amount of any Advance or reduce the rate of interest thereon, or
reduce any fees payable hereunder, or reduce any other Obligations hereunder or
under any other Loan Document, without the written consent of each Lender
affected thereby, (iii) postpone the scheduled date of payment of the principal
amount of any Advance, or any interest thereon, or
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any fees payable hereunder, or any other Obligations hereunder or under any
other Loan Document, or reduce the amount of, waive or excuse any such payment,
or postpone or extend the Termination Date without the written consent of each
Lender affected thereby, (iv) change the Agreement in a manner that would alter
the pro rata sharing of payments required thereby, without the written consent
of each Lender, (v) change the definition of the term "Subsidiary," without the
written consent of each Lender, (vi) release any Guarantor (except as set forth
in the Guaranty Agreements), release any of the collateral (except as expressly
provided in Section 12.11(b), or change Section 6.26, without the written
consent of each Lender, or (vii) change any of the provisions of this Section
13.4(b) or the definitions of "Required Lenders" or any other provision hereof
specifying the number or percentage of Lenders required to waive, amend or
modify any rights hereunder or under any other Loan Documents or make any
determination or grant any consent hereunder or any other Loan Documents,
without the written consent of each Lender; provided further that no such
agreement shall amend, modify or otherwise affect the rights or duties of the
Administrative Agent hereunder or under any other Loan Document without the
prior written consent of the Administrative Agent.
Section 13.5 Confidentiality. Except as may be required (a) by
applicable rules of NASDAQ or the United States Securities and Exchange
Commission, (b) by applicable law, (c) in response to or in connection with
arbitration proceedings or legal process or in any legal proceeding to enforce
or interpret the Security Documents or any other document or instrument executed
in connection with the Security Documents, and (d) in any filings necessary or
appropriate to create, maintain and perfect liens and security interests
contemplated by this Agreement, neither party will release this Agreement or any
other document, agreement or instrument relating to or executed in conjunction
with this Agreement, or disclose the substantive terms of any of them except to
its attorneys, accountants or engineers on a need-to-know basis, without the
prior written consent of the other party. Notwithstanding the previous sentence,
Lenders may disclose the substantive terms of or furnish its Lenders and
potential Lenders and investment bankers and their respective attorneys,
accountants or engineers with copies of this Agreement or any Security Document
or any other document agreement or instrument relating to or executed or
delivered to Lenders in conjunction with this Agreement without the consent of
Borrower. Except as required by applicable rules of NASDAQ or the United States
Securities Exchange Commission, neither party or any of their respective
Affiliates will issue any press release or make any other public announcement
relating to this Agreement without the prior written consent of the other party;
provided, however, Lenders and Borrower may each publish a "tombstone"
announcement regarding this Agreement. Notwithstanding anything herein to the
contrary, the information protected by this Section 13.5 will not include, and
Lenders may disclose to any and all Persons, without limitation of any kind, any
information with respect to the "tax treatment" and "tax structure" (in each
case, within the meaning of Treasury Regulation Section 1.6011-4) of the
transactions contemplated hereby and all materials of any kind (including
opinions or other tax analyses) that are provided to Lenders relating to such
tax treatment and tax structure; that, with respect to any document or similar
item that in either case contains information concerning the tax treatment or
tax structure of the transaction as well as other information, this sentence
shall only apply to such portions of the document or similar item that relate.
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Section 13.6 Final Agreement. This Agreement and the other agreements
to which this Agreement refers, together with all exhibits, schedules and
annexes attached to any of them, constitute the final, entire agreement among
the parties and supersede any prior oral or written and all contemporaneous oral
proposals, commitments, promises, agreements and understandings between the
parties with respect to the subject matter of this Agreement and the other Loan
Documents, all of which are merged into and replaced by the Loan Documents.
Section 13.7 WAIVER OF JURY TRIAL, PUNITIVE DAMAGES, ETC. EACH OF
BORROWER AND LENDERS KNOWINGLY, VOLUNTARILY, INTENTIONALLY, AND IRREVOCABLY (A)
WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO A
TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON THIS AGREEMENT, OR DIRECTLY
OR INDIRECTLY AT ANY TIME ARISING OUT OF, UNDER OR IN CONNECTION WITH THE LOAN
DOCUMENTS OR ANY TRANSACTION CONTEMPLATED OR ASSOCIATED WITH ANY OF THEM, BEFORE
OR AFTER MATURITY; (B) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY
RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY "SPECIAL
DAMAGES", AS DEFINED BELOW; (C) CERTIFIES THAT NEITHER IT NOR ANY OF ITS
REPRESENTATIVES, AGENTS OR COUNSELORS HAS REPRESENTED, EXPRESSLY OR OTHERWISE,
OR IMPLIED THAT THE CERTIFYING PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVERS; AND (D) ACKNOWLEDGES THAT IT HAS BEEN INDUCED
TO ENTER INTO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE TRANSACTIONS
CONTEMPLATED THEM BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS
IN THIS SECTION. AS USED IN THIS SECTION, "SPECIAL DAMAGES" INCLUDES ALL
SPECIAL, CONSEQUENTIAL, EXEMPLARY, OR PUNITIVE DAMAGES (REGARDLESS OF HOW
NAMED), BUT DOES NOT INCLUDE ANY PAYMENTS OR FUNDS WHICH ANY PARTY HAS EXPRESSLY
PROMISED TO PAY OR DELIVER TO ANY OTHER PARTY.
Section 13.8 GOVERNING LAW. THIS AGREEMENT, THE TERM NOTE, THE
INTERCREDITOR AGREEMENT, THE GUARANTY, THE SWAP AGREEMENT AND EACH OF THE OTHER
LOAN DOCUMENTS (OTHER THAN THE SECURITY DOCUMENTS TO THE EXTENT THEY MAY BE
MANDATORILY GOVERNED BY LAWS OF ANOTHER JURISDICTION) ARE TO BE PERFORMED IN THE
STATE OF TEXAS. EXCEPT TO THE EXTENT THAT THE LAWS OF ANOTHER JURISDICTION ARE
MANDATORILY APPLICABLE, THIS AGREEMENT, THE TERM NOTE AND ALL OF THE OTHER LOAN
DOCUMENTS (EXCEPT FOR THE SWAP AGREEMENT WHICH WILL BE GOVERNED BY, INTERPRETED
AND CONSTRUED UNDER AND ENFORCED PURSUANT TO THE LAWS OF THE STATE OF NEW YORK)
TOGETHER WITH ALL TRANSACTIONS PROVIDED FOR IN THEM WILL BE GOVERNED BY,
INTERPRETED AND CONSTRUED UNDER AND ENFORCED PURSUANT TO THE LAWS OF THE STATE
OF TEXAS WITHOUT REGARD TO ITS CONFLICTS OF LAWS PROVISIONS.
Section 13.9 No Third-Party Beneficiaries. Subject to Section 13.2, the
benefits of this Agreement will not inure to any third party. Notwithstanding
anything contained in this
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Agreement or the other Loan Documents, or any conduct or course of conduct by
the parties, before or after signing this Agreement or the Loan Documents, this
Agreement will not be construed as creating any rights, claims or causes of
action against Lenders, or any of its officers, directors, agents or employees
by any Person other than Borrower.
Section 13.10 Fees, Costs and Expenses; Indemnification. (a) Fees,
Costs and Expenses. Whether or not the transactions contemplated by this
Agreement are consummated, Borrower will promptly (and in any event, within
thirty (30) days after any invoice or other statement or notice) pay all Related
Costs. Additionally, Borrower will promptly pay (within thirty (30) days after
receipt of invoice or other statement or notice) (i) all transfer, stamp,
mortgage, documentary or other similar taxes, assessments or charges levied by
any governmental or revenue authority in respect of this Agreement or any of the
other Loan Documents or any other document referred to herein or therein, (ii)
all reasonable costs and expenses incurred by or on behalf of Lenders (including
attorneys' fees, consultants' fees and engineering fees, travel costs and
miscellaneous expenses) in connection with (A) the negotiation, preparation,
execution and delivery of any and all consents, waivers and amendments to any of
the Loan Documents, (B) the filing, recording, refiling and re-recording of any
Loan Documents and any other documents or instruments or further assurances
required to be filed or recorded or refiled or re-recorded by the terms of any
Loan Document, (C) the borrowings hereunder and other action reasonably required
in the course of administration hereof, and (D) monitoring or confirming (or
preparation or negotiation of any documents related to) Borrower's compliance
with any covenants or conditions contained in this Agreement or in any other
Loan Document, and (iii) all reasonable costs and expenses incurred by or on
behalf of Lenders (including attorneys' fees, consultants' fees and accounting
fees) in connection with the defense or enforcement of any of the Loan Documents
(including this section) or the defense of Lenders' exercise of its rights
thereunder. In addition, until all Obligations are paid in full, Borrower shall
also pay or reimburse Lenders for all reasonable out-of-pocket costs and
expenses of Lenders or its agents or employees in connection with the continuing
administration of the Term Loan and the related due diligence of Lenders,
including travel and miscellaneous expenses and fees and expenses of Lenders'
outside counsel, reserve engineers and consultants engaged in connection with
the Loan Documents.
(b) Indemnification. BORROWER AGREES TO THE FULLEST
EXTENT PERMITTED BY APPLICABLE LAW TO DEFEND, RELEASE AND INDEMNIFY THE
ADMINISTRATIVE AGENT AND LENDERS, UPON DEMAND, FROM AND AGAINST ANY AND ALL
LIABILITIES, OBLIGATIONS, CLAIMS, LOSSES, DAMAGES, PENALTIES, FINES, ACTIONS,
JUDGMENTS, SUITS, SETTLEMENTS, COSTS, EXPENSES OR DISBURSEMENTS (INCLUDING
REASONABLE FEES OF ATTORNEYS, ACCOUNTANTS, EXPERTS AND ADVISORS) OF ANY KIND OR
NATURE WHATSOEVER (IN THIS SECTION, COLLECTIVELY CALLED "LIABILITIES AND COSTS")
WHICH TO ANY EXTENT (IN WHOLE OR IN PART) MAY BE IMPOSED ON, INCURRED BY, OR
ASSERTED AGAINST LENDERS ARISING OUT OF, RESULTING FROM OR IN ANY OTHER WAY
ASSOCIATED WITH ANY OF THE COLLATERAL, THE LOAN DOCUMENTS
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AND THE TRANSACTIONS AND EVENTS (INCLUDING THE ENFORCEMENT OR DEFENSE THEREOF)
AT ANY TIME ASSOCIATED THEREWITH OR CONTEMPLATED THEREIN (INCLUDING ANY
VIOLATION OR NONCOMPLIANCE WITH ANY ENVIRONMENTAL LAWS BY ANY RESTRICTED PERSON
OR ANY LIABILITIES OR DUTIES OF ANY RESTRICTED PERSON OR LENDERS WITH RESPECT TO
HAZARDOUS MATERIALS FOUND IN OR RELEASED INTO THE ENVIRONMENT).
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH
LIABILITIES AND COSTS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART,
UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY, OR ARE CAUSED, IN WHOLE OR IN
PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY KIND BY LENDERS, PROVIDED ONLY
THAT LENDERS SHALL NOT BE ENTITLED UNDER THIS SECTION TO RECEIVE INDEMNIFICATION
FOR THAT PORTION, IF ANY, OF ANY LIABILITIES AND COSTS WHICH IS PROXIMATELY
CAUSED BY ITS GROSS NEGLIGENCE OR WILLFUL MISCONDUCT, AS DETERMINED IN A FINAL
JUDGMENT. IF ANY PERSON (INCLUDING BORROWER OR ANY OF ITS AFFILIATES) EVER
ALLEGES SUCH GROSS NEGLIGENCE OR WILLFUL MISCONDUCT BY LENDERS, THE
INDEMNIFICATION PROVIDED FOR IN THIS SECTION SHALL NONETHELESS BE PAID UPON
DEMAND, SUBJECT TO LATER ADJUSTMENT OR REIMBURSEMENT, UNTIL SUCH TIME AS A COURT
OF COMPETENT JURISDICTION ENTERS A FINAL JUDGMENT AS TO THE EXTENT AND EFFECT OF
THE ALLEGED GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. AS USED IN THIS SECTION THE
TERM "LENDERS" SHALL REFER NOT ONLY TO THE PERSONS DESIGNATED AS SUCH IN SECTION
1.1 BUT ALSO TO EACH DIRECTOR, OFFICER, AGENT, ATTORNEY, EMPLOYEE,
REPRESENTATIVE AND AFFILIATE OF SUCH PERSONS.
Section 13.11 Power of Attorney; Etc. Borrower grants to Agent a power
of attorney for the purpose of executing on behalf of Borrower documents related
to the enforcement of the Lenders' rights under the Security Documents,
including but not limited to the execution of any instrument to be filed with or
approved by the MMS in the event of a foreclosure on any of the Property. The
power of attorney granted to Agent by Borrower under this Section 13.11 is a
right coupled with an interest and will be irrevocable for as long as any of the
Obligations remain outstanding provided, however that Agent and the Lenders
agree not to exercise the power of attorney described in this Section 13.11
prior to the occurrence of an Event of Default. In addition, on or before the
30th day following Closing, Borrower will provide to Agent documentary evidence
satisfactory to Agent that at least one authorized representative of Agent has
been added to Borrower's signature register on file with the MMS.
Section 13.12 Severability. Any section, clause, subsection, sentence,
paragraph, provision or term this Agreement held invalid, illegal, or
ineffective by a court of competent jurisdiction will not impair, invalidate or
nullify the remainder of this Agreement.
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Section 13.13 Captions; Headings. The headings, captions and
arrangements contained in this Agreement have been inserted for convenience only
and will not be deemed in any manner to modify, explain, enlarge or restrict any
provision in this Agreement.
Section 13.14 Construction. Borrower and Lenders acknowledge that each
of them has had the benefit of legal counsel of its own choice and has been
afforded an opportunity to review this Agreement, the Term Note and each of the
other Loan Documents with its legal counsel and that this Agreement and the
other Security Documents will be construed as if jointly drafted by Borrower and
Lenders.
Section 13.15 Additional Documents. From time to time after the date of
this Agreement, each of the parties hereto agrees to execute and deliver or
cause to be executed and delivered, all reasonable documents and instruments,
and take any other reasonable and lawful action as the other party may deem
necessary or desirable to perfect or evidence perfection of its security
interest, to enforce its rights under this Agreement or to otherwise effectuate
the purposes of this Agreement. Upon the full payment and complete discharge of
Borrower's Obligations under this Agreement and the other Loan Documents,
Lenders will, at the request and expense of Borrower, prepare and deliver
documents evidencing the release and termination of the liens, security
interests, and other interests of Lenders under the Security Documents.
Section 13.16 Counterpart Execution. This Agreement may be executed
simultaneously in one or more counterparts, each of which will be deemed an
original, but all of which together will constitute one and the same instrument.
Section 13.17 Compliance with Law. It is the intention of the parties
to comply with applicable usury laws (now or later enacted). Accordingly, and
notwithstanding any provision to the contrary in this Agreement, the other
Security Documents or any other Loan Document, in no event will this Agreement
or any other Loan Document require the payment or permit the collection of
interest in excess of the maximum amount permitted by those laws. If, under any
circumstances, the fulfillment of any provision of this Agreement or of any
other Loan Document will involve exceeding the limit prescribed by applicable
law for the contracting for or charging or collecting interest, then, ipso
facto, the obligation to be fulfilled will be reduced to the allowable limit,
and if, under any circumstances, Lenders ever receives pursuant to any of the
Loan Documents anything of value as interest or that is deemed to be interest
under applicable law that would exceed the highest lawful rate, the amount that
would otherwise be excessive interest will be applied to the reduction of the
principal amount owing under the Term Note or on account of any other
indebtedness owed by Borrower to Lenders, and not to the payment of interest;
or, if any portion of the excessive interest exceeds the unpaid balance of
principal of that indebtedness, then the excess amount will be refunded to
Borrower. In determining whether or not the interest paid or payable with
respect to any indebtedness owed by Borrower to Lenders exceeds the highest
lawful rate, Borrower and Lenders will, to the maximum extent permitted by
applicable law, (a) characterize any non-principal payment as an expense, fee or
premium rather than as interest, (b) exclude voluntary prepayments and the
effects of them, (c) amortize, prorate, allocate and spread the total amount of
interest throughout the full term of the indebtedness so that the actual rate of
interest on account of the indebtedness does not exceed the maximum
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amount permitted by applicable law, and (d) allocate interest between portions
of the indebtedness so that no portion will bear interest at a rate greater than
that permitted by applicable law.
Section 13.18 EXCULPATION PROVISIONS. EACH OF THE PARTIES AGREES THAT
IT HAS A DUTY TO READ THIS AGREEMENT AND EACH OF THE OTHER LOAN DOCUMENTS AND
AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS OF THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS; THAT IT HAS IN FACT READ THIS AGREEMENT
AND EACH OF THE OTHER LOAN DOCUMENTS AND IS FULLY INFORMED AND HAS FULL NOTICE
AND KNOWLEDGE OF THE TERMS AND CONDITIONS CONTAINED IN THEM; THAT IT HAS BEEN
REPRESENTED BY INDEPENDENT LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE
NEGOTIATION OF EACH OF THE LOAN DOCUMENTS AND HAS RECEIVED THE ADVICE OF ITS
LEGAL COUNSEL IN ENTERING INTO THE LOAN DOCUMENTS; AND THAT IT RECOGNIZES THAT
CERTAIN TERMS OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS RESULT IN ONE PARTY
ASSUMING THE LIABILITY INHERENT IN SOME ASPECTS OF THE TRANSACTION AND RELIEVING
THE OTHER PARTY OF ITS RESPONSIBILITY FOR THAT LIABILITY. EACH PARTY AGREES AND
COVENANTS THAT IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY
EXCULPATORY PROVISION OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS ON
THE BASIS THAT THE PARTY HAD NO NOTICE OR KNOWLEDGE OF THE PROVISION OR THAT THE
PROVISION IS NOT "CONSPICUOUS."
Section 13.19 No Other Agreements; No Parol Evidence. THIS AGREEMENT
AND THE OTHER LOAN DOCUMENTS CONSTITUTE A "WRITTEN LOAN AGREEMENT" BETWEEN THE
PARTIES WITH RESPECT TO THE MATTERS ADDRESSED IN THEM AND WILL NOT BE
CONTRADICTED BY EVIDENCE OF ANY PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES AND, EXCEPT
FOR THIS CREDIT AGREEMENT, THE TERM NOTE AND EACH OF THE OTHER LOAN DOCUMENTS,
THERE ARE NO PRIOR OR CONTEMPORANEOUS WRITTEN AGREEMENTS BETWEEN THE PARTIES
THAT WILL SURVIVE THE EXECUTION OF THIS AGREEMENT.
[SIGNATURES BEGIN ON THE FOLLOWING PAGE]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the 6th day of November, 2003.
BORROWER:
PETROQUEST ENERGY, L.L.C.,
a Louisiana limited liability corporation
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Treasurer
GUARANTOR:
PETROQUEST ENERGY, INC.,
a Delaware corporation
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Treasurer
THIS IS A SIGNATURE PAGE TO THE CREDIT AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the 6th day of November, 2003.
LENDERS:
MACQUARIE AMERICAS CORP.,
a Delaware corporation,
an Administrative Agent and a Lender
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Division Director
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇
--------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇
Division Director, Legal
THIS IS A SIGNATURE PAGE TO THE CREDIT AGREEMENT
