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CREDIT AGREEMENT
BETWEEN
TEXSTAR PETROLEUM, INC.
A TEXAS CORPORATION
AND
AQUILA ENERGY CAPITAL CORPORATION,
A DELAWARE CORPORATION
AUGUST 19, 1999
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TABLE OF CONTENTS
ARTICLE 1: Definitions and References.............................................................................1
Section 1.1 DEFINED TERMS...............................................................................1
Section 1.2 EXHIBITS AND SCHEDULES.....................................................................14
Section 1.3 AMENDMENT OF DEFINED INSTRUMENTS...........................................................14
Section 1.4 REFERENCES AND TITLES......................................................................14
Section 1.5 CALCULATIONS AND DETERMINATIONS............................................................14
ARTICLE 2: The Loans.............................................................................................14
Section 2.1 THE LOANS..................................................................................14
Section 2.2 USE OF PROCEEDS............................................................................17
Section 2.3 REPAYMENT OF THE LOANS AND THE ENCAP JUNIOR NOTE...........................................17
Section 2.4 PREPAYMENT OF THE LOANS....................................................................17
Section 2.5 COMMENCEMENT OF OVERRIDING ROYALTY INTEREST PAYMENTS.......................................17
Section 2.6 APPLICATION OF RECEIPTS....................................................................18
Section 2.7 BORROWER SUB-ACCOUNT.......................................................................19
Section 2.8 PURCHASERS OF PRODUCTION...................................................................20
Section 2.9 MANDATORY PREPAYMENT OF THE LOANS..........................................................20
Section 2.10 INITIAL SWAP AGREEMENT.....................................................................20
ARTICLE 3: Security..............................................................................................20
Section 3.1 SECURITY...................................................................................20
Section 3.2 PERFECTION AND PROTECTION OF SECURITY INTERESTS AND LIENS..................................20
Section 3.3 RELEASE OF COLLATERAL......................................................................20
Section 3.4 ACCOUNT DEBTORS............................................................................21
ARTICLE 4: Representations and Warranties........................................................................21
Section 4.1 REPRESENTATIONS AND WARRANTIES OF BORROWER.................................................21
ARTICLE 5: Notice of Certain Events..............................................................................25
Section 5.1 NOTICE OF CERTAIN MATTERS..................................................................25
Section 5.2 OTHER INFORMATION..........................................................................26
ARTICLE 6: Special Provisions Relating to Equipment..............................................................26
Section 6.1 LOCATION: RECORDS..........................................................................26
Section 6.2 MAINTENANCE................................................................................26
Section 6.3 DISPOSITIONS...............................................................................26
ARTICLE 7: Covenants of Borrower.................................................................................26
Section 7.1 AFFIRMATIVE COVENANTS......................................................................26
Section 7.2 NEGATIVE COVENANTS.........................................................................34
ARTICLE 8: Further Rights of Lender and Borrower.................................................................36
Section 8.1 MAINTENANCE OF SECURITY INTERESTS..........................................................36
Section 8.2 PERFORMANCE OF OBLIGATIONS.................................................................36
Section 8.3 OVERRIDING ROYALTY INTEREST................................................................37
Section 8.4 ORRI OPTION................................................................................37
Section 8.5 NON-RECOURSE...............................................................................38
Section 8.6 REMOVAL AND APPOINTMENT OF OPERATOR........................................................38
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Section 8.7 SET-OFF RIGHTS.............................................................................38
ARTICLE 9: Closing; Conditions to Closing........................................................................39
Section 9.1 CLOSING....................................................................................39
Section 9.2 CONDITIONS TO CLOSING......................................................................39
Section 9.3 CONDITIONS PRECEDENT TO FUNDING............................................................42
Section 9.4 CONDITION PRECEDENT TO FUNDING DEVELOPMENT LOAN............................................43
ARTICLE 10: Events of Default and Remedies.......................................................................43
Section 10.1 EVENTS OF DEFAULT..........................................................................43
Section 10.2 ACCELERATION...............................................................................47
Section 10.3 REMEDIES...................................................................................48
Section 10.4 INDEMNITY..................................................................................48
ARTICLE 11: Miscellaneous........................................................................................49
Section 11.1 WAIVERS AND AMENDMENTS; ACKNOWLEDGMENTS AND ADMISSIONS.....................................49
Section 11.2 SURVIVAL OF AGREEMENTS: CUMULATIVE NATURE..................................................50
Section 11.3 NOTICES....................................................................................50
Section 11.4 PARTIES IN INTEREST; TRANSFERS.............................................................51
Section 11.5 GOVERNING LAW; SUBMISSION TO PROCESS.......................................................52
Section 11.6 LIMITATION ON INTEREST.....................................................................52
Section 11.7 TERMINATION; LIMITED SURVIVAL..............................................................52
Section 11.8 SEVERABILITY...............................................................................53
Section 11.9 COUNTERPARTS...............................................................................53
Section 11.10 FURTHER ASSURANCES.........................................................................53
Section 11.11 WAIVER OF PUNITIVE DAMAGES, ETC...........................................................53
Section 11.12 REPRESENTATIONS AND WARRANTIES OF LENDER...................................................53
Section 11.13 IMI PROPERTY...............................................................................54
Section 11.14 PARTICIPATING CREDITOR DEDICATED RECEIVABLES...............................................54
ARTICLE 12: Arbitration..........................................................................................55
Section 12.1 ARBITRATION................................................................................55
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EXHIBITS
Exhibit A Properties
Exhibit B-1 Advancing Note
Exhibit B-2 EnCap Junior Note
Exhibit C Property Operating Statement
Exhibit D Request for Advance
Exhibit E Cost Certificate
Exhibit F-1 Assignment of Note and Liens (EnCap)
Exhibit F-2 Assignment of Note and Liens (BOCP)
Exhibit G Parent Guaranty
Exhibit H Debt Restructure Agreement
Exhibit I Overriding Royalty Interest Conveyance
Exhibit J Cash Collateral Account Agreement
Exhibit K EnCap Purchase and Sale Agreement
Exhibit L Coral Letter Agreement
Exhibit M Shell Letter Agreement
Exhibit N IMI Property
Exhibit O Participating Creditor Dedicated Receivables
Exhibit P Assignment of Note and Liens (EnCap Junior Note)
SCHEDULES
Schedule 1 Target Ending Balance
Schedule 2 Permitted Non-Participating Creditor Encumbrances
Schedule 2.1(a) Existing Debt
Schedule 2.1(b) Development Operations
Schedule 2.8 Purchasers of Production
Schedule 4.1(g) Material Transactions
Schedule 4.1(h) Other Obligations and Restrictions
Schedule 4.1(j) Litigation
Schedule 4.1(k) ERISA Plans
Schedule 4.1(l) Places of Business
Schedule 4.1(m) Unpaid Bills
Schedule 4.1(o) Affiliates; Debt to Affiliates
Schedule 4.1(s) Employment Contracts
Schedule 7.1(b) Existing Hydrocarbon Sales Agreements
Schedule 7.1(f)(i) Hydrocarbon Pricing Parameters
Schedule 7.1(s) Compliance with Environmental and Other Laws
Schedule 7.1(cc) Development Program
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CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made and entered into on August 19, 1999,
by and between TEXSTAR PETROLEUM, INC., a Texas corporation (the "BORROWER"),
and AQUILA ENERGY CAPITAL CORPORATION, a Delaware corporation (the "LENDER").
WHEREAS, the Borrower has requested that the Lender: (i) purchase
and modify the terms of certain Existing Debt (as defined herein); and (ii)
make available, and the Lender is willing to make available to the Borrower
on the terms and conditions hereinafter set forth, loans to finance certain
costs in connection with the development of certain oil and gas properties
located in Mississippi and Texas.
NOW, THEREFORE, the parties hereto in consideration of the foregoing
and the terms, covenants, provisions and conditions hereinafter set forth
hereby agree as follows:
ARTICLE 1: DEFINITIONS AND REFERENCES
Section 1.1 DEFINED TERMS. As used in this Agreement, each of the
following terms has the meaning given it in this SECTION 1.1 or in the
sections and subsections referred to below.
"AAA" means the American Arbitration Association.
"ADVANCING NOTE" has the meaning given to such term in SECTION
2.1(a).
"ADVANCING NOTE DEBT SERVICE" means the principal and interest due
on the Advancing Note for any Interest Period.
"ADVERSE EFFECT" means (i) any changes or effects that individually
or in the aggregate impact the business, operations, prospects or condition
(financial or other) of the Borrower adversely and in an amount exceeding
$500,000 or impact the Collateral adversely and in an amount exceeding
$300,000, (ii) the material impairment of the ability of the Borrower in any
respect to perform its obligations under any of the Loan Documents to which
it is a party, or (iii) any material impairment of the validity or
enforceability of any of the Loan Documents or the rights, powers and
privileges of the Lender under any of the Loan Documents.
"AFE" has the meaning given to such term in SECTION 7.1(v).
"AFFILIATE(S)" of a specified Person means:
(a) any other Person directly or indirectly owning,
controlling or holding with power to vote five percent (5%) or more of
the outstanding voting equity interests of the specified Person;
(b) any other Person five percent (5%) or more of whose
outstanding voting equity interests are directly or indirectly owned,
controlled or held with power to vote by the specified Person;
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(c) any other Person directly or indirectly controlling,
controlled by or under common control with such Person; or
(d) any officer, director, partner, trustee, sanguineous or
affined kin, or trust for the benefit of one or more Persons that
include sanguineous or affined kin of the specified Person or of any
other Person described in CLAUSE (c) above.
"AGREEMENT" means this Credit Agreement, as the same may be amended,
supplemented, restated or otherwise modified from time to time in compliance
with applicable provisions hereof.
"ARBITRATION NOTICE" has the meaning given to such term in SECTION
12.1(c).
"ASSIGNEES" has the meaning given to such term in SECTION 8.4.
"ASSIGNMENTS OF NOTE AND LIEN" means the Assignments of Note and
Liens from the Existing Debt Holders to the Lender in the forms attached as
EXHIBITS F-1 and F-2.
"ASSIGNMENT OF JUNIOR NOTE AND LIENS" means the Assignment of Note
and Liens (EnCap Junior Note) in the form attached as EXHIBIT P.
"BASE NET REVENUE" means, for a given Interest Period, the lesser
of: (i) the Net Revenue for such Interest Period; or (ii) the amount equal to
(x) the sum of (1) the outstanding balance of the Loans at the beginning of
such Interest Period, (2) accrued interest on the Loans for such Interest
Period, and (3) advances made on the Loans during such Interest Period, minus
(y) the Target Ending Balance for such Interest Period.
"BORROWER" has the meaning given such term in the first paragraph
of this Agreement, and its permitted successors and assigns.
"BORROWER SUB-ACCOUNT" has the meaning given such term in SECTION
2.7(a).
"BUSINESS DAY" means a day, other than a Saturday or Sunday, on
which commercial banks are open for business with the public in Houston,
Texas.
"CASH COLLATERAL ACCOUNT" has the meaning given to such term in the
Cash Collateral Account Agreement.
"CASH COLLATERAL ACCOUNT AGREEMENT" means the Cash Collateral
Account Agreement in the form attached hereto as EXHIBIT J.
"CHANGE OF CONTROL" means: (a) the acquisition, in any instance in
which the Borrower does not retain control of the resulting entity, by any
Person or two or more Persons acting in concert (other than the Person with
such beneficial ownership on the Closing Date) of beneficial ownership
(within the meaning of Rule 13d-3, promulgated by the Securities and Exchange
Commission and now in effect under the Securities Exchange Act of 1934, as
amended) of 50% or more of the outstanding capital stock or 50% or more of
any outstanding class of capital stock of the Borrower or Parent; or (b) the
sale, transfer, lease, conveyance or other disposition
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(including by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of the Borrower to
any Person.
"CLOSING" has the meaning given such term in SECTION 9.1.
"CLOSING DATE" has the meaning given such term in SECTION 9.1.
"COLLATERAL" means all property of any kind which, pursuant to any
Loan Document, is subject to a Lien in favor or for the benefit of the Lender
or is purported to be subject to such a Lien, including, without limitation,
the Equipment and the Properties.
"CORAL" means Coral Energy Resources, L.P.
"CORAL LETTER AGREEMENT" means that certain letter agreement from
the Parent to and agreed by Coral in the form attached hereto as EXHIBIT L.
"CORAL TRANSACTION" means the payment by the Parent to Coral of the
sums specified in, and the execution and delivery by Coral of, that certain
Termination of Contract Rights Agreement in accordance with the Coral Letter
Agreement.
"COST CERTIFICATE" has the meaning given such term in SECTION
2.1(b), each such certificate to be in the form attached hereto as EXHIBIT E.
"DEBT" means, as to the Borrower, all indebtedness, liabilities and
obligations of the Borrower, whether matured or unmatured, liquidated or
unliquidated, primary or secondary, direct or indirect, absolute, fixed or
contingent, and whether or not required to be considered debt pursuant to
GAAP, excluding contingent abandonment liabilities not yet accrued.
"DEBT RESTRUCTURE AGREEMENT" means that certain agreement by and
among the Parent, the Borrower, the Participating Creditor Collateral Agent,
the Participating Creditor Deposit Agent, the Participating Creditors and,
for the limited purposes stated therein, the Lender, a copy of which is
attached hereto as EXHIBIT H.
"DEBT TO AFFILIATES" means Debt with respect to which the payee or
obligee is an Affiliate of the Borrower.
"DEFENSIBLE TITLE" means, with respect to the Properties, such legal
record title (subject to only the Permitted Encumbrances) that, with respect
to each well or Unit located on the Leases: (A) entitles the Borrower to
receive, free and clear of all royalties, overriding royalties and net
profits interests (except the Overriding Royalty Interest), or other burdens
on or measured by production of Hydrocarbons, not less than the Net Revenue
Interests of the Borrower reflected in EXHIBIT A for such xxxxx or Units for
the productive life of such well or Unit (subject only to the Permitted
Encumbrances); and (B) obligates the Borrower to bear costs and expenses
relating to the maintenance, development and operation of such well or Unit
in an amount not greater than the Working Interests of the Borrower reflected
in EXHIBIT A for the productive life of such well or Unit (subject only to
the Permitted Encumbrances); free and clear of any security interest, lien,
encumbrance, mortgage, claim, security agreement or other charge,
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other than the Permitted Encumbrances and any liens, mortgages, and security
interests in favor of the Lender and its Affiliates or which are expressly
permitted hereunder.
"DEVELOPMENT LOAN" means the loan or loans made or to be made, in
accordance with SECTION 2.1(b), by the Lender to the Borrower, as evidenced
by the Advancing Note, to finance certain costs of the Development Operations.
"DEVELOPMENT OPERATIONS" means those operations described on
SCHEDULE 2.1(b) attached hereto.
"DEVELOPMENT PROGRAM" means the schedule for conducting and
completing the Development Operations as set forth on SCHEDULE 7.1(cc).
"DIRECT TAXES" means (a) Property Taxes, (b) Severance Taxes, (c) ad
valorem taxes, (d) conservation taxes, and (e) any other taxes of any kind or
character, excluding only income taxes and franchise taxes, imposed on the
Borrower in connection with or as a result of its ownership of the Properties
or Hydrocarbon production allocable to the Properties.
"DRAWDOWN TERMINATION DATE" means the one-year anniversary of the
Closing Date.
"ENCAP BUYERS" means EnCap Equity 1996 Limited Partnership and
Energy Investment Company PLC.
"ENCAP INVESTMENT" means the purchase by the EnCap Buyers of
$4,400,000 principal amount of the Borrower's 10% Class A Preferred Stock
Series I for $4,000,000 in accordance with the EnCap Purchase and Sale
Agreement.
"ENCAP JUNIOR NOTE" has the meaning given such term in SECTION
2.1(a).
"ENCAP PURCHASE AND SALE AGREEMENT" means that certain Purchase and
Sale Agreement between Parent and EnCap Buyers in the form attached hereto as
EXHIBIT K.
"ENGINEERS" means, unless specifically provided otherwise, the
following petroleum engineering firms: X.X. Xxxxxx & Associates, Inc.,
Netherland, Xxxxxx & Assoc., Xxxxx Xxxxx Company and such other petroleum
engineering firms as may be mutually agreeable to the Borrower and the Lender.
"ENVIRONMENTAL LAWS" means any and all federal, state or local
statutes, laws (including common law), regulations, ordinances, rules,
judgments, orders, decrees, permits, grants, franchises, licenses, agreements
or other governmental restrictions relating to the environment or to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals or industrial, toxic or hazardous substances or
wastes into the environment, including ambient air, surface water, ground
water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, chemicals or industrial, toxic or hazardous
substances or wastes. For purposes of this definition, "chemicals" includes
all substances referred to in the second sentence of the definition herein of
"Hazardous Materials."
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"EQUIPMENT" means the Borrower's undivided interest in all equipment
of every kind and nature used for or in the operation of the Properties,
equivalent to the undivided interest of the Borrower constituting the
Property on which such Equipment is used, including but not limited to,
pipelines, well and lease equipment and surface equipment, casing, tubing,
connections, rods, pipe, machines, compressors, gathering systems, meters,
motors, pumps, tankage, fixtures, storage and handling equipment and all
other equipment or movable property of any kind and nature and wherever
situated now or hereafter owned by the Borrower or in which the Borrower may
now or hereafter have any interest (to the extent of such interest), together
with all additions and accessions thereto, all replacements and all
accessories and parts therefor, all logs and records in connection therewith,
all rights against suppliers, warrantors, manufacturers, sellers or others in
connection therewith, and together with all substitutes for any of the
foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, together with all rules and regulations
promulgated with respect thereto.
"ERISA PLAN" means any employee pension benefit plan which is
maintained by any Person subject to Title IV of ERISA.
"EPA" means the Environmental Protection Agency.
"EVENT OF DEFAULT" has the meaning given such term in SECTION 10.1.
"EXCESS NET REVENUE" means, for a given Interest Period, the amount
equal to (i) the Net Revenue for such Interest Period minus (ii) the Base Net
Revenue for such Interest Period.
"EXISTING DEBT" has the meaning given such term in SECTION 2.1(a).
"EXISTING DEBT HOLDERS" means BOCP Energy Partners, L.P. and EnCap
Energy Capital Fund III, L.P.
"EXISTING LIENS" has the meaning given such term in SECTION 2.1(a).
"FACILITY FEE" means the expenses owed by the Borrower to the Lender
as consideration, in part, for entering into the transactions contemplated
under this Agreement and the other Loan Documents.
"FISCAL QUARTER" means a three-month period ending on March 31, June
30, September 30 or December 31 of any calendar year.
"FISCAL YEAR" means a twelve-month period ending on December 31 of
any calendar year.
"GAAP" means those generally accepted accounting principles and
practices which are recognized as such by the Financial Accounting Standards
Board (or any generally recognized successor).
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"XXXXXXX NOTE" means that certain promissory note dated April 22,
1998, issued by the Borrower to Xxxx X. Xxxxxxx in the principal amount of
$70,000.
"GROSS RECEIPTS" means, for a given Interest Period, the sum of: (i)
all sums received by the Borrower during such Interest Period in connection
with the production of Hydrocarbons from or allocable to the Properties,
including any proceeds under gas purchase agreements, oil purchase
agreements, natural gas liquids purchase agreements and any other receipts
relating to or arising from the sale or other disposition of Hydrocarbons
from or allocable to the Properties; (ii) all Swap Settlement Proceeds
received during such Interest Period; and (iii) any other sums received by
the Borrower during such Interest Period constituting proceeds from the sale
or other disposition of Equipment; PROVIDED, HOWEVER, that Gross Receipts
shall not include sums received by the Borrower constituting proceeds from
the sale or other disposition of Equipment to the extent such sums are used
by Borrower, within 30 days of receipt thereof, to replace such Equipment in
accordance with the Loan Documents.
"HAZARDOUS MATERIALS" means any substances regulated under any
Environmental Law, whether as pollutants, contaminants or chemicals, or as
industrial, toxic or hazardous substances or wastes, or otherwise. "Hazardous
Materials" also includes (a) any petroleum, any fraction of petroleum,
natural gas, natural gas liquids, liquefied natural gas and synthetic gas
usable for fuel (including any mixtures of the foregoing) that has been or
may be emitted, discharged or released into the environment, and (b) any
drilling fluids, produced waters and other wastes associated with the
exploration, development or production of crude oil, natural gas or
geothermal reserves.
"HYDROCARBONS" means crude oil, condensate, natural gas, natural gas
liquids and other hydrocarbons.
"HYDROCARBON PURCHASE AND SALE AGREEMENT" means that certain Base
Agreement for Natural Gas Purchase Transactions of even date herewith between
the Borrower and Aquila Energy Marketing Corporation, and such agreement
governing oil purchase transactions, if any, as may be entered into between
the Borrower and the Lender or its designated Affiliate in accordance with
SECTION 7.1(b).
"IMI PROPERTY" means the property described on EXHIBIT N attached
hereto.
"INDEBTEDNESS" means and includes: (i) all obligations for borrowed
money of any kind or nature, including funded and unfunded debt or guarantees
thereof and contingent obligations in respect of any of the foregoing
including, without limitation, reimbursement obligations in respect of
letters of credit; and (ii) all obligations for the acquisition or use of any
fixed asset or improvements thereto, including capitalized leases but
excluding operating leases, which are payable over a period longer than one
year or guarantees thereof, regardless of the term thereof or the Person or
Persons (each as hereinafter defined) to whom the same is payable; provided,
however, that Indebtedness shall not include trade payables incurred in the
ordinary course of business so long as the same are being paid within thirty
(30) days after becoming due (or, with respect to any vendor, within such
longer period as is acceptable to such vendor) or are being contested in good
faith.
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"INITIAL LOAN" means the loan made by the Lender to the Borrower, as
evidenced by the Advancing Note, comprised of: (i) amounts of Existing Debt
purchased by the Lender; and (ii) amounts advanced by the Lender to the
Borrower to permit the Borrower to pay certain amounts due as described in
SECTION 2.1(a) and SECTION 2.2 of this Agreement.
"INITIAL RESERVE REPORT" means that certain reserve report dated
April 19, 1999, prepared by X.X. Xxxxxx & Associates, Inc. with respect to
the Properties.
"INTEREST PERIOD" means each period beginning on (and including) the
Repayment Date in one calendar month and ending on (but not including) the
Repayment Date in the next following calendar month, provided that the first
Interest Period for the Advancing Note and Loans shall begin on the Closing
Date and end on the day before the first Repayment Date.
"LAW" means any law (including common law), statute, ordinance,
rule, regulation, license, permit, judgment, order or decree and the right of
any governmental, statutory or public authority to regulate any Collateral in
any manner.
"LEASE" or "LEASES" means, whether one or more: (i) those certain
oil and gas leases set forth in the description of each Property on EXHIBIT A
attached hereto, and any extension, renewal, correction, modification,
election or amendment (such as those relating to unitization) of any such
Lease; or (ii) other oil, gas and/or mineral leases or other interests
pertaining to the Properties which may now and hereafter be made subject to
the Lien of any of the Security Documents and any extension, renewal,
correction, modification, election or amendment (such as those relating to
unitization) of any such lease or leases.
"LENDER" has the meaning given to such term in the first paragraph
of this Agreement, and, subject to any limitations set forth in any
instrument (including the Assignment of Junior Note and Liens), its
successors and assigns as holders of any Note. For the avoidance of doubt,
the holder of the EnCap Junior Note is a "Lender" under the EnCap Junior Note
only, and shall have no obligation or commitment to make any Loans hereunder
or under the Advancing Note.
"LETTERS IN LIEU" means those certain letters in lieu of transfer
orders, duly executed by the Borrower, in form satisfactory to the Lender.
"LIEN" means, with respect to the Properties or other Collateral,
any right or interest therein of a creditor to secure Debt owed to it or any
other arrangement with such creditor which provides for the payment of such
Debt out of such property or assets or which allows it to have such Debt
satisfied out of such property or assets prior to the satisfaction of general
creditors of the owner of such property or assets, including any lien,
mortgage, security interest, pledge, deposit, production payment, rights of a
vendor under any title retention or conditional sale agreement or lease
substantially equivalent thereto, tax lien, mechanic's or materialman's lien,
or any other charge or encumbrance for security purposes, whether arising by
Law or agreement or otherwise, but excluding any right of offset which arises
without agreement in the ordinary course of business. "LIEN" also means any
filed financing statement, declaration or memorandum of operating agreement
or any such agreement filed to perfect liens or rights of security under such
agreements, any registration of a pledge (such as with an issuer of
unregistered securities), or any other arrangement or action which would
serve to perfect a Lien
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described in the preceding sentence, regardless of whether such financing
statement is filed, such registration is made, or such arrangement or action
is undertaken before or after such Lien exists.
"LOANS" means, collectively, the Initial Loan and the Development
Loans and "Loan" means, individually, the Initial Loan or any Development
Loan as described in SECTION 2.1. For the avoidance of doubt, the EnCap
Junior Note constitutes a Loan Document but amounts outstanding thereunder
are not part of the Loans.
"LOAN DOCUMENTS" means this Agreement, the Assignments of Note and
Liens, the Subordination Agreements, the Mortgages, the Security Agreement,
the Assignment of Junior Note and Liens, the Notes, the Overriding Royalty
Interest Conveyance, the Hydrocarbon Purchase and Sale Agreement, the Swap
Agreement, the Cash Collateral Account Agreement, any other Security
Documents, and all other agreements or instruments now, heretofore or
hereafter delivered by or on behalf of the Borrower or the Parent to the
Lender or any Affiliate of the Lender in connection with this Agreement or
any transaction contemplated hereby (exclusive of (i) the term sheets,
commitment letters, correspondence and similar documents used in the
negotiation hereof, except to the extent that same contain information about
the Borrower or its Affiliates or their properties, business or prospects and
such information is the subject of a written representation or certificate
upon which the Lender relied and (ii) the EnCap Purchase and Sale Agreement).
"LOAN TERMINATION DATE" means the earlier of (a) the fourth
anniversary of the Closing Date, (b) the date of payment and performance in
full of all the Obligations of the Borrower under the Loan Documents (other
than the Overriding Royalty Interest Conveyance), and (c) the date on which
the Lender notifies the Borrower, as provided in SECTION 10.2, of the
acceleration of payment of all Obligations because of the occurrence of an
Event of Default.
"MAXIMUM RATE" means the maximum non-usurious rate of interest that
the Lender is permitted under applicable law to contract for, take, charge,
or receive from the Borrower.
"MORTGAGES" has the meaning given such term in SECTION 3.1.
"NET REVENUE" means, for any Interest Period: (i) the Gross Receipts
received during such Interest Period; minus (ii) the sum of (a) Operating
Expenses, Direct Taxes, royalties, overriding royalty interests and other
interests payable out of or measured by the production of Hydrocarbons
allocable to the undivided Working Interests of the Borrower constituting
each Property and payable during such Interest Period and (b) Swap Settlement
Payables payable during such Interest Period.
"NET REVENUE INTEREST" or "NRI" has the meaning given such term in
Exhibit A of the Mortgage.
"NET REVENUE REIMBURSEMENT AMOUNT" means the amounts released to the
Borrower and/or its designee(s) pursuant to SECTION 2.7(b) hereof.
"NOTE" means the Advancing Note in the form attached hereto as
EXHIBIT B-1 and the EnCap Junior Note in the form attached hereto as EXHIBIT
B-2.
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"NOTEHOLDER" means the Lender and subsequent holders of a Note or
any part thereof or any interest therein.
"NOTICE OF ASSIGNMENT OF PROCEEDS" has the meaning given such term
in SECTION 3.4.
"XXXXX NOTE" means that certain promissory note dated April 22,
1998, issued by the Borrower to Xxxxxx Xxxxx in the principal amount of
$30,000.
"OBLIGATIONS" means all Debt from time to time owing from the
Borrower to the Lender or any of the Lender's Affiliates under or pursuant to
any of the Loan Documents in connection with this Agreement or any
transaction contemplated hereby, including without limitation, all principal,
interest, fees, expenses, costs and indemnities.
"OPERATING AGREEMENTS" means operating agreements relating to the
Properties, including, without limitation, all those certain operating
agreements which relate to or arise from the Properties pursuant to which the
Borrower is or hereafter becomes the operator, whether entered into or
amended before or after the date of this Agreement.
"OPERATING EXPENSES" means: (i) direct lease operating, compression,
transportation and processing expenses and well maintenance expenses (such
well maintenance expenses shall be limited to $50,000 per event, net to the
Borrower's Working Interest constituting the relevant Property, without the
Lender's prior written consent), which arise from the Borrower's Working
Interests constituting the Properties in the xxxxx that are subject to the
Mortgages and that are billed to the Borrower by the Operator or incurred by
the Borrower, as Operator, of the Properties; (ii) such Working Interests'
shares of expenses incurred in the repair, maintenance and replacement of
damaged or obsolete Equipment; and (iii) such Working Interests' shares of
overhead charges payable to a third party Operator pursuant to an applicable
Operating Agreement in effect on the Closing Date with respect to any of the
Properties (or such new Operating Agreements or amendments to existing
Operating Agreements that are approved in writing by the Lender), excluding
contract Operators employed by the Borrower who own no interest in the
Properties.
"OPERATING REPORT" has the meaning attributable to such term in
SECTION 7.1(dd).
"OPERATOR" means any operators, including contract operators, of the
Properties (as such terms are generally understood in the oil and gas
industry) on the later of date hereof or the date of acquisition thereof, as
applicable, and such other operators as may be approved by the Lender
pursuant to SECTION 8.6.
"OVERRIDING ROYALTY INTEREST" has the meaning attributable to such
term in the Overriding Royalty Interest Conveyance.
"ORRI OPTION" means the Borrower's option to purchase the Overriding
Royalty Interest from the Lender after such interest has been valued by
mutually agreeable Engineers.
"ORRI SALE DATE" has the meaning given such term in SECTION 8.4.
9
"OVERRIDING ROYALTY INTEREST CONVEYANCE" means a conveyance, in the
form attached hereto as EXHIBIT I, whereby the Borrower assigns to the Lender
the Overriding Royalty Interest.
"PARENT" means Benz Energy Inc., a Delaware corporation.
"PARENT GUARANTY" means that certain performance guaranty issued by
Parent to the Lender in the form attached hereto as EXHIBIT G.
"PARTICIPATING CREDITORS" means the Persons party to the Debt
Restructure Agreement as Participating Creditors.
"PARTICIPATING CREDITOR COLLATERAL AGENT" means Xxxxxxx Xxxx in his
capacity as Collateral Agent under the Debt Restructure Agreement and any
successor to such Person.
"PARTICIPATING CREDITOR DEDICATED RECEIVABLES" means the receivables
identified as such on EXHIBIT O.
"PARTICIPATING CREDITOR DEPOSIT AGENT" means Xxxxxxx Xxxx in his
capacity as Deposit Agent under the Debt Restructure Agreement and any successor
to such Person.
"PERMITTED NON-PARTICIPATING CREDITOR ENCUMBRANCES" means, (i) for the
period from the Closing Date through December 31, 1999, Liens in favor of
Persons identified on Schedule 2 to secure the indebtedness identified on
Schedule 2, and (ii) thereafter, none.
"PERMITTED ENCUMBRANCES" means: (i) the liens, claims and encumbrances
described in the Debt Restructure Agreement and subordinated to the liens and
Encumbrances of the Security Documents thereunder; (ii) Liens of lessors,
vendors, mechanics, materialmen, laborers, operators, non-operators, joint
interest owners, taxing and other governmental authorities, and other similar
liens arising by Law, or otherwise arising in the ordinary course of business,
in each case, for sums not yet due; (iii) obligations under the Leases; (iv)
easements, rights-of-way, permits, surface leases and other rights in respect of
surface operations, pipelines, grazing, logging, canals, ditches, reservoirs and
the like, and easements of streets, alleys, highways, pipelines, telephone
lines, power lines, railways and other easements and rights-of-way on, over or
in respect of any interest; (v) non-consent provisions in operating agreements,
exploration agreements, and similar agreements affecting the Properties, but not
including any non consent penalties resulting from any election previously made
(or otherwise currently effective) not to participate in an operation, unless
the effect of such non consent penalties is reflected in the Net Revenue
Interest of Borrower set forth in the Exhibits to Mortgage; (vi) specific
exceptions and encumbrances affecting each of the Properties as described in the
exhibits to any Loan Document 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; (vii) minor irregularities
in title which do not (a) materially interfere with the occupation, use and
enjoyment by the Borrower of the subject Property or (b) materially impair the
value thereof; (viii) rights of third parties under gas balancing agreements
containing terms and conditions customary in the industry (provided that the
inclusion of such agreements in "Permitted Encumbrances" shall not and does not
effect any representation, warranty or covenant of the Borrower with respect to
the obligations of the Borrower under any such agreements); (ix) rights of third
parties under unit agreements and farmout agreements which do
10
not and will not result in a decrease in the NRI or increase in the WI from
that represented and warranted in the relevant Mortgage; (x) rights of third
parties under purchase and sale agreements listed on SCHEDULE 2.8 as such
agreements are in effect on the Closing Date; (xi) farmout agreements, unit
agreements, operating agreements participation agreements, purchase and sale
agreements, hydrocarbon marketing agreements, stipulations of interest and
other agreements which are customary in the oil and gas exploration business,
to the extent that the same contain terms and provisions customary in the
industry, and do not and will not (a) reduce the Net Revenue Interest of
Borrower in the Asset affected thereby below, or increase the Working
Interest of Borrower above, that set forth in Exhibits to the mortgage, (b)
require the payment of more than $50,000 in any 12 month period, or (c)
otherwise materially and adversely affect the value of the Property affected
thereby; (xii) Permitted Non-Participating Creditor Encumbrances; and (xiii)
any Lien explicitly approved in writing by the Lender on or after the date of
this Agreement.
"PERSON" means an individual, corporation, partnership, limited
liability company, association, joint stock company, trust or trustee thereof,
estate or executor thereof, unincorporated organization or joint venture, court
or governmental unit or any agency or subdivision thereof, or any other legally
recognizable entity.
"PROPERTIES" means those certain properties described in EXHIBIT A
attached hereto and incorporated herein, to the extent of the specific undivided
interest of the Borrower in any such Property stated therein.
"PROPERTY OPERATING STATEMENT" means the monthly statement, in the form
attached hereto as EXHIBIT C, to be prepared and delivered by the Borrower to
the Lender, pursuant to SECTION 2.6 hereof.
"PROPERTY TAXES" means taxes imposed annually on the Borrower which are
based on or measured by the estimated value (at the time such taxes are
assessed) of any Hydrocarbons underlying the lands covered by or pooled with the
Leases attributable to the undivided interests of the Borrower in the various
Leases constituting the Properties.
"PROVED RESERVES" means the current estimated quantity of Hydrocarbons
which analysis of geologic and engineering data demonstrate with reasonable
certainty to be recoverable in the future from known oil and gas reservoirs
under existing economic and operating conditions based on either actual
production or conclusive formation tests.
"PURCHASERS OF HYDROCARBONS" shall mean the Persons listed on
SCHEDULE 2.8 attached hereto, and all other Persons who, now or in the future,
purchase Hydrocarbons attributable or allocable to the Borrower's Net Revenue
Interests constituting the Properties and are approved by the Lender in writing.
"PURCHASE PRICE" has the meaning given such term in SECTION 8.4.
"REPAYMENT DATE" means the date of payment in full of the Obligations
(other than the Overriding Royalty Interest Conveyance) and, prior to such date,
the later of: (i) the twenty-fifth (25th) day of each calendar month, or (ii)
the first Business Day after the twenty-fifth (25th) day of such month following
the deposit into the Cash Collateral Account of the Gross Proceeds for
11
the Interest Period that ends in such month (but in no event later than the
last Business Day of the relevant calendar month); the first such Repayment
Date to occur during September, 1999.
"REQUEST FOR ADVANCE" means a written request from the Borrower to the
Lender for an advance of funds as a Development Loan, in the form attached
hereto as EXHIBIT D.
"RESERVE REPORT" means, unless specifically denoted otherwise, the
petroleum engineering report defined in SECTION 7.1(f) hereof.
"RULES" has the meaning given such term in SECTION 12.1(c).
"SECURITY AGREEMENT" means a security agreement (Accounts, Equipment,
General Intangibles and Inventory) executed by the Borrower as debtor in favor
of the Lender as secured party dated as of the date hereof, in form and
substance mutually satisfactory to the Lender and the Borrower, as the same may
be modified, amended or supplemented pursuant to the terms of this Agreement.
"SECURITY DOCUMENTS" means the Mortgages and all other security
agreements, deeds of trust, mortgages, chattel mortgages, pledges, guaranties,
financing statements, continuation statements, extension agreements and other
agreements or instruments now, heretofore, or hereafter delivered by the
Borrower to the Lender in connection with this Agreement or any transaction
contemplated hereby to secure or guarantee the payment of any part of the
Obligations.
"SEVERANCE TAXES" means taxes imposed on the Borrower or such
production at the time Hydrocarbons are produced from a well situated on any of
the Leases or on lands pooled therewith which are based on or measured by the
amount or value of such Hydrocarbon production allocable to the Properties.
"SHELL" means Shell Capital Inc.
"SHELL LETTER AGREEMENT" means that certain letter agreement from the
Borrower to and agreed by Shell in the form attached hereto as EXHIBIT M.
"SHELL PAYMENT" the payment by the Borrower to Shell of $8,142,127 in
accordance with the Shell Letter Agreement.
"SHELL TRANSACTION" means the payment by the Borrower to Shell of the
Shell Payment, the issuance by the Parent to Shell of the shares of the Parent's
Preferred Class A Series II, the execution and delivery by Shell, the Borrower,
and the Parent of that certain Conveyance of Overriding Royalty Interest and
Termination of Contract Rights, and the execution and delivery by Shell of that
certain Release of Liens and Security Interests, in each case in accordance with
the Shell Letter Agreement.
"STARBUCKS NOTE PAYABLE" means that certain promissory note dated April
22, 1998, issued by the Borrower to the Starbucks Trust in the principal amount
of $200,000.
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"STARBUCKS NOTE RECEIVABLE" means that certain promissory note dated
January 1, 1998, issued by the Starbucks Trust to the Borrower in the principal
amount of $2,500,000.
"SUBORDINATION AGREEMENTS" means the subordination agreements executed
by or on behalf of the holders of the Debt to Affiliates in favor of the Lender
dated as of the date hereof in form and substance acceptable to the Lender, as
the same may be modified, amended or supplemented in accordance therewith.
"SWAP AGREEMENT" means any swap agreement, cap, collar, floor, exchange
transaction, forward agreement or exchange or protection agreement related to
Hydrocarbons or any option with respect to such transaction, as more
specifically provided in those certain master swap agreements on International
Swap Dealers Association forms and the schedules thereto and any confirmations
thereunder which the Borrower enters into with or through the Lender of even
date herewith and any other confirmations which the Borrower may hereafter enter
into with or through the Lender.
"SWAP SETTLEMENT PAYABLES" means any settlement amounts payable by the
Borrower under the terms of any executed Swap Agreement.
"SWAP SETTLEMENT PROCEEDS" means any settlement amounts paid to the
Borrower under the terms of any executed Swap Agreement.
"TARGET ENDING BALANCE" means, for a given Interest Period, the amount
set forth on SCHEDULE 1 for the calendar month that includes the Repayment Date
for such Interest Period.
"TAX CLAIM" means, excluding claims for taxes by the State of
Mississippi disclosed in writing to the Lender by the Borrower that will be paid
at Closing, any claim by a taxing authority that the Borrower owes any amount of
taxes of any kind other than claims for Severance Taxes and Property Taxes.
"TITLE OPINIONS" means those certain title opinions (copies of which
shall be delivered to the Lender) addressed to the Borrower and Lender and dated
on or prior to the Closing Date, as the same may be or are required to be
utilized in conjunction with preparing a nothing further certificate under this
Agreement, covering all of the Properties.
"XXXXXXXXX NOTE" means that certain promissory note dated April 22,
1998, issued by the Borrower to Xxxxxxx X. Xxxxxxxxx, Xx. in the principal
amount of $1,700,000.
"UNIT" means a pooled unit or proration unit as designated by an
effective designation of unit, proration unit plan, or other instrument of
similar impact properly filed with the appropriate governmental authority.
"UNMATURED EVENT OF DEFAULT" means any event or condition which would,
with the giving of any requisite notices and/or the passage of any requisite
periods of time, constitute an Event of Default.
"WORKING INTEREST" or "WI" have the meaning given such terms in Exhibit
A of the Mortgage.
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Section 1.2 EXHIBITS AND SCHEDULES. All exhibits and schedules
attached to this Agreement are incorporated herein by reference and made a
part hereof for all purposes.
Section 1.3 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; provided, that
nothing contained in this section shall be construed to authorize any such
renewal, extension, modification, amendment or restatement.
Section 1.4 REFERENCES AND TITLES. Unless otherwise expressly
provided, 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. Section and subdivision headings are for convenience only, do not
constitute any part of such sections or subdivisions and shall be disregarded
in construing the language contained in such sections or 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 sections or subdivisions unless expressly so
limited. The phrases "this section" and "this subsection" and similar phrases
refer only to the sections or subsections hereof in which such phrases occur.
The word "or" is not exclusive, and 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.
Section 1.5 CALCULATIONS AND DETERMINATIONS. All calculations
pursuant to the Loan Documents of fees and of interest shall be made on the
basis of actual days elapsed (including the first day but excluding the last)
and a year of 365 days. Unless otherwise expressly provided herein or the
Lender otherwise consents in writing, all financial statements and reports to
be furnished to the Lender under the Loan Documents shall be prepared and all
financial computations and determinations made pursuant to the Loan
Documents, and with respect to the financial statements, shall be made in
accordance with GAAP.
ARTICLE 2: THE LOANS
Section 2.1 THE LOANS.
(a) THE INITIAL LOAN. The Borrower desires to (i) refinance
certain existing debt (as set forth on SCHEDULE 2.1(a), the "EXISTING
DEBT") secured by Liens encumbering the Borrower's right, title and
interest in certain of the Properties and (ii) make the Shell Payment.
The Existing Debt is secured by Liens (the "EXISTING LIENS") under
those security instruments executed by the Borrower listed on
SCHEDULE I to each Assignment of Note and Liens. Subject to the
conditions precedent set forth in SECTIONS 9.2 and 9.3, the Lender
shall, contemporaneously with the Closing, purchase the entire Existing
Debt from the Existing Debt Holders in accordance with and subject to
the terms and conditions of the Assignments of Note and Liens. Upon
such purchase, the Borrower shall issue to the Lender (i) a promissory
note in the form of EXHIBIT B-1, appropriately
14
completed (as amended, restated, supplemented or otherwise modified
from time to time, the "ADVANCING NOTE") in the face principal
amount of Thirty-Two Million, Six Hundred Twenty-Seven Thousand,
Seven Hundred Forty-Four and No/100 Dollars ($32,627,744.00) and
(ii) a promissory note in the form of EXHIBIT B-2, appropriately
completed (the "ENCAP JUNIOR NOTE") in the face principal amount of
Two Million Eight Hundred Eighty-Six Thousand Eight Hundred
Thirty-One and No/100 Dollars ($2,886,831.00) which Advancing Note
and EnCap Junior Note shall modify the terms (including the interest
rate) of, but not extinguish or novate, the Existing Debt and which
Advancing Note shall evidence both the Initial Loan (including
Existing Debt in the amount of $17,867,195) and the Development
Loans. Immediately following the issuance to it of the EnCap Junior
Note, the Lender shall sell the entire EnCap Junior Note, and
reconvey a portion of the Existing Liens, to EnCap Energy Capital
Fund III, L.P., in accordance with and subject to the terms and
conditions of the Assignment of Junior Note and Liens. Subject to
the conditions precedent set forth in SECTIONS 9.2 and 9.3, the
Lender shall, at the Closing, advance to the Borrower so that the
Borrower may make the Shell Payment and pay amounts payable by the
Borrower as provided in SECTION 7.1(y), the amount of Eight Million
One Hundred Ninety-Two Thousand One Hundred and Twenty-Seven and
No/100 Dollars ($8,192,127.00) such amount, together with the
portion of outstanding principal balance of the Existing Debt to be
evidenced by the Advancing Note, and the Six Hundred Thousand Five
Hundred Forty-Four Dollars ($600,544) payment made by the Lender
pursuant to the next sentence of amounts payable by the Borrower
under SECTION 7.1(z), shall constitute the Initial Loan. In lieu of
the Lender disbursing the amount necessary to pay the Facility Fee
to the Borrower and the Borrower remitting such sum to the Lender,
the Lender shall simply add such amount to the principal of the
Initial Loan. The interest rate on such Advancing Note shall be as
specified therein and the final maturity date of such Advancing Note
shall be the Loan Termination Date. The interest rate on and
maturity date of the EnCap Junior Note shall be as specified
therein. Both the Advancing Note and the EnCap Junior Note shall be
secured by the Mortgages and the other Security Documents.
(b) THE DEVELOPMENT LOANS. The Lender shall make additional
advances to the Borrower of Development Loan(s), up to an aggregate of
Three Million, Eight Hundred Twenty-Seven Thousand Two Hundred Dollars
($3,827,200) to be used exclusively to finance Development Operations
described on SCHEDULE 2.1(b), subject to the condition that either: (i)
no Unmatured Event of Default or Event of Default shall have occurred
and be continuing on the proposed funding date; or (ii) the Lender has
confirmed its obligation to advance funds in accordance with the
following paragraph pursuant to a properly prepared and submitted
Request for Advance covering a Development Operation that the Borrower
has commenced and has provided written notice to the Lender of such
commencement. With respect to any Development Operations, if any
non-operator, co-owner, or other participant of or with the Borrower
non-consents or otherwise elects not to participate in any such
operation, the Lender shall have the right, but not the obligation, to
increase the aggregate amount of the Development Loan(s) by an amount
that would include such non-consenting or non-participating party's
share of such costs and the amount of any such increase shall be added
to the Obligations and shall be payable under the terms of the
Advancing Note.
15
The Development Loan(s) (together with the Initial Loan) shall
be evidenced by the Advancing Note and secured by the Mortgages and
other Security Documents. Subject to the condition precedent that no
Unmatured Default or Event of Default shall have occurred and be
continuing, within ten (10) days after the receipt from the Borrower,
on or before fifteen (15) days prior to the Drawdown Termination Date,
of a Request for Advance (and any applicable AFEs) listing all
applicable expenditures that the Borrower desires to make to conduct
Development Operations described on SCHEDULE 2.1(b), the Lender shall
confirm its obligation to advance the funds necessary to pay the
Borrower's share of the costs and expenses attributable to such
proposed operations (not to exceed the greatest of (i) the amount
requested in the Request for Advance, (ii) one hundred and thirty
percent (130%) of the Borrower's share of the estimated costs and
expenses attributable to such proposed operations as set forth on
SCHEDULE 2.1(b), and (iii) the amount by which $3,827,200 exceeds the
aggregate amount of Development Loans theretofore advanced or with
respect to which the Lender has confirmed that it is obligated to
advance funds in accordance with this SECTION 2.1(b)). Subject to the
other conditions of this SECTION 2.1(b), such advances shall be made by
the Lender within five (5) Business Days after receipt from the
Borrower of a certificate, duly executed by an officer of the Borrower,
certifying the amount of costs and expenses that either: (a) have been
paid or incurred by the Borrower and are payable in connection with
such proposed development operations, or (b) are required to be
incurred and paid by the Borrower on or before the last day of the
calendar month following the calendar month in which such certificate
is submitted to the Lender (each a "COST CERTIFICATE"), together with
the supporting documentation referred to in the form of Cost
Certificate attached hereto as EXHIBIT E.
Any Request for Advance shall be made by the Borrower and
submitted to Xxx-Xxx Choo of the Lender, as the designated contact for
such requests, for business opportunities, projects, and/or uses that
are described on SCHEDULE 2.1(b) or otherwise approved by the Lender
subject, without limitation, to the following:
(i) All statements of costs and estimates
provided to the Lender shall be rendered in sufficient detail
to give the Lender complete and accurate information as to the
purpose for and amount of all items included therein, and the
Lender shall be entitled to such additional information
regarding such expenditures as the Lender may reasonably
request. All such data shall be subject to audit by the
Lender's representatives at any time mutually agreeable to the
parties, provided, however, that the Lender's audit of such
data shall not be a basis to delay the funding addressed in
any Request for Advance unless the Request for Advance does
not apply to a Development Operation described on SCHEDULE
2.1(b), or the information presented in the Request for
Advance is patently inadequate with respect to the level of
detail required to be set forth therein pursuant to this
SECTION 2.1; and
(ii) The parties acknowledge that the amounts and
scope of the Development Loan(s) identified in this SECTION
2.1 are based upon estimated costs of the planned development
activities described on SCHEDULE 2.1(b) and may not accurately
reflect the ultimate cost of the contemplated activities.
16
Notwithstanding the foregoing or anything else herein to the
contrary, in no event shall the Lender be obligated to make
any Development Loans pursuant to this SECTION 2.1 in excess
of $3,827,200.
Section 2.2 USE OF PROCEEDS. Initial Loan proceeds shall be used by the
Borrower for the purposes of: (a) refinancing the Existing Debt, (b) making the
Shell Payment, (c) paying costs and expenses pursuant to SECTION 7.1(y) and the
Facility Fee pursuant to SECTION 7.1(a), and (d) other corporate purposes
approved in writing by the Lender. Development Loan proceeds may be used by the
Borrower for the purposes of funding the Borrower's share of costs and expenses
relating to the conduct of the Development Operations described on
SCHEDULE 2.1(b) hereof, or such other development operations as may be
subsequently approved in writing by the Lender. The Borrower shall also be
allowed to pay with Development Loan proceeds to the extent permissible under
applicable law, any mortgage filing fees which may be required to properly file
any and all Security Documents.
Section 2.3 REPAYMENT OF THE LOANS AND THE ENCAP JUNIOR NOTE. The
Borrower shall repay the Loans plus all interest accrued thereon by the Loan
Termination Date. Provided that no Unmatured Event of Default or Event of
Default exists or would result therefrom, the Borrower shall repay the EnCap
Junior Note at the stated maturity thereof.
Section 2.4 PREPAYMENT OF THE LOANS. The Borrower, from time to time
after the Closing Date and without premium or penalty, may prepay the Advancing
Note, in whole or in part. Other than from the proceeds from the sale of, or
exercise of remedies with respect to, the "EnCap Properties" (as defined in the
Assignment of Junior Note and Liens) the Borrower may not prepay the EnCap
Junior Note without the prior written consent of the holder of the Advancing
Note, in which event the Borrower may prepay the EnCap Junior Note without
premium or penalty to the extent provided in such consent. Any principal prepaid
pursuant to this section shall be in addition to, and not in lieu of, all
payments otherwise required to be paid under the Loan Documents at the time of
such prepayment, including any Swap Settlement Payables associated with any Swap
Agreement that must be terminated as a result of such prepayment. If the
Borrower (i) prepays any principal pursuant to this SECTION 2.4 and (ii) elects
to maintain in effect any Swap Agreement not required to be terminated as a
result of such prepayment, the Security Documents securing the Borrower's
obligation to pay any Swap Settlement Payables associated with any such Swap
Agreement shall remain in force and effect (and shall be promptly amended by the
Borrower and the Lender to the extent necessary) so long as any Swap Agreements
remain outstanding. Similarly, in the event of any such prepayment after which
any Swap Agreement remains outstanding, the Borrower shall be entitled to
receive and retain any Swap Settlement Proceeds associated with the relevant
Swap Agreement, subject to the terms of any applicable Security Documents.
Section 2.5 COMMENCEMENT OF OVERRIDING ROYALTY INTEREST PAYMENTS. The
Overriding Royalty Interest will be applicable with respect to all oil, gas and
other minerals produced, saved and sold or used off the premises of the relevant
Lease or Unit from or attributable to the Properties from the first day of the
calendar month following the Loan Termination Date. The Borrower may purchase
the Overriding Royalty Interest from the Lender in accordance with SECTION 8.4.
17
Section 2.6 APPLICATION OF RECEIPTS. Net Revenue shall be calculated by
the Lender based on each Property Operating Statement. The Borrower shall
prepare and deliver a Property Operating Statement to the Lender no later than
the 20th day of each calendar month. Such Property Operating Statement shall
detail: (i) the Borrower's actual (or estimated, to the extent that actual data
is not then available) crude oil, condensate, natural gas liquids and natural
gas revenue, and any other income with respect to each Property relating to
production and operations for the prior calendar month to the extent that such
production is sold to someone other than Aquila or an Affiliate of Aquila; and
(ii) all direct lease operating costs, transportation, processing and marketing
costs, ad valorem and severance taxes, royalties and overriding royalties with
respect to each Property, together with such other detailed information as is
prescribed in the form of Property Operating Statement attached hereto as
EXHIBIT C. The first Property Operating Statement shall be delivered on
September 20, 1999, and, excluding any payments made pursuant to the properties
acquired pursuant to the Shell Transaction, will detail Gross Receipts
attributable to the production of Hydrocarbons from the Properties during the
month of August, 1999, and Operating Expenses, Direct Taxes, royalties,
overriding royalty interests and other payments out of or measured by production
relating to production and operations for August, 1999. On each Repayment Date
Gross Receipts reflected in the relevant Property Operating Statement and Gross
Receipts relating to production sold to Aquila and its Affiliates shall be
applied as follows:
(a) First, to the Borrower, for payments of such sums, the
amount necessary to pay the Operating Expenses, Direct Taxes,
royalties, overriding royalties and other interests payable out of or
measured by production, if any, associated with the Properties, and
Swap Settlement Payables for the second prior calendar month as
reflected in the relevant Property Operating Statement;
(b) Second: (i) eighty-five percent (85%) of the Base Net
Revenue; and (ii) fifty percent (50%) of the Excess Net Revenue, as
reflected in the relevant Property Operating Statement and the records
of the Lender and its Affiliates (in the case of production sold to the
Lender and its Affiliates), to the Lender for payment of amounts which
are included within Advancing Note Debt Service and other Obligations
payable to the holder of the Advancing Note for the relevant Interest
Period. The percentage stated in clause (i) of the preceding sentence
shall be known as the "BASE DEDICATION RATES" and the percentage stated
in clause (ii) of the preceding sentence shall be known as the "EXCESS
DEDICATION RATE". Notwithstanding anything contained in the first
sentence of this subpart (b) to the contrary, upon the occurrence and
during the continuation of an Event of Default under SECTION 10.1(r),
the Base Dedication Rate shall be one hundred percent (100%) and upon
the occurrence and during the continuation of any other Event of
Default the Base Dedication Rate shall be ninety-five percent (95%).
The amount paid to the Lender pursuant to this subpart (b) shall be
applied first to any interest due on the Advancing Note until all
accrued interest is paid in full, and any remaining amounts paid to the
Lender pursuant to this subpart (b) shall be applied to remaining
principal of the Advancing Note; and
(c) Third, any remaining amount of Gross Receipts properly
reflected in the relevant Property Operating Statement shall be paid to
the Borrower in accordance with SECTION 2.7(b).
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Section 2.7 BORROWER SUB-ACCOUNT.
(a) Until the Loan Termination Date, the Borrower shall, and
shall cause each Operator to, direct and cause all Purchasers of
Hydrocarbons, to deposit all payments of any nature whatsoever due and
owing by such Persons with respect to the Properties or Hydrocarbons
produced therefrom to the Borrower directly into the Cash Collateral
Account; provided, however, that Purchasers of Hydrocarbons may make
distributions to royalty interest owners and third-party working
interest owners and may withhold severance taxes. The Cash Collateral
Account shall be administered in accordance with the terms of the Cash
Collateral Account Agreement. The Lender shall establish a sub-account
(the "BORROWER SUB-ACCOUNT") on its internal books and records and
shall credit to such the Borrower Sub-Account all collected funds which
constitute payments referred to in the preceding SECTION 2.6. The
Borrower authorizes the Lender to debit the Borrower Sub-Account for
the payment of all Obligations hereunder when due and payable,
including all amounts paid by the Lender pursuant to SECTION 8.2, and
including any such debit that would cause the Borrower Sub-Account to
be in a negative status.
(b) On each Repayment Date, and after satisfying all
distributions to the Lender pursuant to SECTION 2.6, the Lender will
release or cause to be released to the Borrower from the Cash
Collateral Account an amount of funds from amounts credited to the
Borrower Sub-Account in order to pay the expenses provided for in
SECTION 2.6(a) incurred for the preceding calendar month, plus an
amount equal to the difference between one hundred percent (100%) of
Net Revenue and the sum of: (i) the product of the Base Dedication Rate
and the Base Net Revenue; and (ii) the product of the Excess Dedication
Rate and the Excess Net Revenue, such sum to be applied to repayment of
the Advancing Note Debt Service pursuant to SECTION 2.6 hereof ("NET
REVENUE REIMBURSEMENT AMOUNT"). The Borrower will have one hundred
eighty (180) days after each receipt of such funds to contest the
amount of funds released, after which time the amount released will be
deemed conclusively correct.
Notwithstanding anything to the contrary contained herein and
regardless of whether any Event of Default exists hereunder, any
amounts deposited into the Cash Collateral Account owing to third party
working interest and royalty interest holders or to taxing authorities
for Severance Taxes and Property Taxes shall be released by the Lender
to the Borrower within five (5) Business Days after receipt of a
certificate from the Borrower or such other Person (which may, but need
not, be an Affiliate of the Borrower) as Borrower may designate on no
less than ten (10) Business Days prior written notice to the Lender,
which certificate details such amounts and the party to be paid so that
the Borrower may return such amounts to such third party working
interest and royalty interest holders and taxing authorities. The
Lender shall have the right to undertake audit procedures during normal
business hours and upon prior written notice to confirm periodically
that the Borrower or any such designee on behalf of the Borrower has
paid all obligations for which funds were released to the Borrower or
any such designee as Net Revenue Reimbursement Amounts. The Lender
shall have the right at its option, but not the obligation, to make
such payments directly from the Cash Collateral Account to the third
party working interest and royalty interest holders and taxing
authorities upon the occurrence of and during the continuance of an
Event of Default
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hereunder; provided that if the Lender elects not to make such
payments, The Lender shall release such funds to the Borrower to
make payments to third party working interest and royalty interest
holders and taxing authorities.
Section 2.8 PURCHASERS OF PRODUCTION. The Borrower shall notify the
Lender promptly of any changes to the list of Persons who purchase Hydrocarbons
produced from or allocated to the Properties, as set forth on SCHEDULE 2.8
attached hereto, if, as and when any change occurs in the Persons who purchase
such Hydrocarbons.
Section 2.9 MANDATORY PREPAYMENT OF THE LOANS. The Borrower shall pay
promptly to the Lender the product of the Base Dedication Rate multiplied by all
proceeds of sales of any assets of the Borrower (except to the extent proceeds
of sales of Equipment are utilized within 60 days of such sale to purchase
replacements of such Equipment) that comprise any part of the Collateral and not
otherwise constituting Gross Receipts and paid into the Cash Collateral Account
(provided, however, that this provision is subject to SECTION 7.2(a) and shall
not be deemed to be a consent by the Lender to any such sale). All proceeds of
any such sale shall be immediately applied to repayment of the Loans and accrued
interest thereon in accordance with SECTION 2.6(b) hereof.
Section 2.10 INITIAL SWAP AGREEMENT. At Closing, the Borrower and the
Lender shall enter into a Swap Agreement in form and substance mutually
satisfactory to the Lender and the Borrower.
ARTICLE 3: SECURITY
Section 3.1 SECURITY. The Obligations will be secured by the Collateral
as set forth in the various Security Documents concurrently or hereafter
delivered by the Borrower, including, without limitation, any and every Deed of
Trust, Assignment of Production, Security Agreement and/or Financing Statement
(the "MORTGAGES") executed by the Borrower in favor of the Lender covering the
Borrower's interest in the Properties in form and substance mutually
satisfactory to the Lender and the Borrower. Pursuant to certain of the Loan
Documents, the Borrower will grant to the Lender a first mortgage lien on and a
first priority perfected security interest in the Collateral, subject only to
Permitted Encumbrances.
Section 3.2 PERFECTION AND PROTECTION OF SECURITY INTERESTS AND LIENS.
The Borrower will from time to time deliver to the Lender any security
agreements, financing statements, continuation statements, extension agreements,
amendments, confirmations and other documents, properly completed and executed
(and acknowledged when required) by the Borrower and any relevant third parties
in form and substance reasonably satisfactory to the Lender, which the Lender
reasonably requests for the purpose of perfecting, confirming, protecting or
establishing the priority of any Liens or other rights in the Collateral
securing any Obligations.
Section 3.3 RELEASE OF COLLATERAL. Upon the payment and performance in
full by the Borrower of all Obligations under the Loan Documents, other than the
Overriding Royalty Interest Conveyance, the Lender shall deliver or cause to be
delivered to the Borrower, at the Borrower's expense, releases and satisfactions
of all financing statements, mortgages and other
20
registrations of security with respect to the Collateral and the Borrower
shall deliver to the Lender a general release of all of the Lender's
liabilities and obligations under the Loan Documents, other than the
Overriding Royalty Interest Conveyance, and an acknowledgment that the same
have been terminated.
Section 3.4 ACCOUNT DEBTORS. All Purchasers of Hydrocarbons relating to
the Borrower's Net Revenue Interests in the Properties will receive notification
from the Lender (as assignee) and the Borrower, in form and substance reasonably
satisfactory to the Lender, of the assignment into the Cash Collateral Account
of all proceeds (the "NOTICE OF ASSIGNMENT OF PROCEEDS") from sales of all
production from or allocable to the Borrower's respective Net Revenue Interests
constituting the Properties. The Borrower shall use commercially reasonable
efforts to assist the Lender in obtaining, within sixty (60) days after the
Closing Date, from all Purchasers of Hydrocarbons, an executed Notice of
Assignment of Proceeds which will instruct the Purchasers of Hydrocarbons to
remit all proceeds from sales of all production from or allocable to the
Borrower's respective Net Revenue Interests constituting the respective
Properties to the Cash Collateral Account.
ARTICLE 4: REPRESENTATIONS AND WARRANTIES
Section 4.1 REPRESENTATIONS AND WARRANTIES OF BORROWER. To confirm the
Lender's understanding concerning the Borrower and the Borrower's businesses,
properties and obligations, and to induce the Lender to enter into this
Agreement and to make the Loans and otherwise perform this Agreement, the
Borrower represents and warrants to the Lender that:
(a) NO DEFAULT. No event has occurred and is continuing which
would constitute an Event of Default or an Unmatured Event of Default.
(b) ORGANIZATION AND GOOD STANDING. The Borrower is a
corporation duly organized, validly existing and in good standing under
the laws of Texas, having all powers necessary to carry on its
businesses and to enter into and consummate the transactions
contemplated by the Loan Documents. The Borrower is duly qualified, in
good standing, and authorized to do business in all other jurisdictions
wherein the character of the properties owned or held by it or the
nature of the business transacted by it makes such qualification
necessary or desirable and the failure to be so qualified could
reasonably be expected to have an Adverse Effect.
(c) CAPITALIZATION: COMPLIANCE WITH SECURITY LAWS. Parent is
the sole stockholder of the Borrower. The Borrower is not subject to
any agreement under which there may become outstanding, nor are there
currently outstanding, any rights to purchase, or securities
convertible into or exchangeable for, any stock of the Borrower
including, but not limited to, options, warrants or rights that are not
terminable at the Borrower's will, other than in favor of Parent. The
Borrower is under no obligation (contingent or otherwise) to purchase
or otherwise acquire or retire any of its stock. Except as contemplated
by this Agreement, no agreements, understandings, plans or arrangements
are in existence which require the Borrower to elect any person on its
board of directors or otherwise pertain to the distribution rights,
voting, sale or transfer of any stock of the Borrower. The Borrower has
complied with all applicable federal and state securities
21
laws and has obtained enforceable releases from any Persons who may
have had federal or state securities law claims against the Borrower.
(d) AUTHORIZATION. The Borrower has taken all actions
necessary to authorize the execution and delivery of the Loan Documents
and to authorize the consummation of the transactions contemplated
thereby and the performance of its obligations thereunder. The Borrower
is duly authorized to borrow funds hereunder.
(e) NO CONFLICTS OR CONSENTS. The execution and delivery by
the Borrower of the Loan Documents, the performance of its obligations
under the Loan Documents, and the consummation of the transactions
contemplated by the various Loan Documents does not and will not: (i)
conflict with any provision of (A) any applicable domestic or foreign
law, statute, rule or regulation, (B) the Articles of Incorporation or
Bylaws of the Borrower, or (C) any agreement, judgment, license, order
or permit applicable to or binding upon the Borrower, (ii) result in
the acceleration of any Debt owed by the Borrower; or (iii) result in
or require the creation of any Lien upon any assets or properties of
the Borrower, except as expressly contemplated in the Loan Documents.
Except as expressly contemplated in the Loan Documents, no consent,
approval, authorization or order of, and no notice to or filing with
(other than routine filings of certain of the Security Documents), any
court or governmental authority or third party is required in
connection with the execution, delivery or performance by the Borrower
of any Loan Document or to consummate any transactions contemplated by
the Loan Documents.
(f) ENFORCEABLE OBLIGATIONS. This Agreement is, and the other
Loan Documents to which the Borrower is a party when executed and
delivered by the Borrower will be, legal, valid and binding obligations
of the Borrower, enforceable in accordance with their terms except as
such enforcement may be limited by bankruptcy, insolvency or similar
laws of general application relating to the enforcement of creditors'
rights or by principles of equity applicable to the enforcement of
creditors' rights generally.
(g) TRANSACTIONS SUBSEQUENT TO DATE OF FINANCIAL STATEMENTS.
Except as disclosed in SCHEDULE 4.1(g),The Borrower has engaged in no
material transactions other than in the ordinary course of business
since the effective date of the most recent financial statements of the
Parent and the Borrower provided to the Lender.
(h) OTHER OBLIGATIONS AND RESTRICTIONS. Except as reflected in
the Debt Restructure Agreement and financial statements of the Parent
and the Borrower most recently provided to the Lender or as disclosed
on SCHEDULE 4.1(h), the Borrower has no outstanding Debt of any kind
(including contingent obligations, tax assessments, and forward or
long-term commitments) which is material to the Borrower other than:
(i) Debt under the Loan Documents; (ii) Debt the repayment of which is
subordinated to the repayment of the Debt under the Loan Documents
pursuant to the Subordination Agreements; (iii) unaccrued plugging and
abandonment Obligations; and (iv) trade accounts payable incurred by
the Borrower in the ordinary course of business and no more than thirty
(30) days beyond the date due (or, with respect to a particular vendor,
such longer period that is acceptable to such vendor). Other than as
disclosed on
22
SCHEDULE 4.1(h), no Tax Claim or other claim for past due Property
Taxes or Severance Taxes exists. The Borrower is not subject to or
restricted by any franchise, contract, deed, charter restriction or
other instrument or restriction which could reasonably be expected
to have an Adverse Effect.
(i) FULL DISCLOSURE. No certificate, statement or other
information delivered herewith or heretofore by the Borrower to the
Lender in connection with the negotiation of this Agreement or in
connection with any transaction contemplated hereby contains any untrue
statement of a material fact or omits to state any material fact known
to the Borrower necessary to make the statements contained herein or
therein not misleading as of the date made or deemed made. No facts are
known to the Borrower that have not been disclosed to the Lender in
writing which could reasonably be expected to have an Adverse Effect;
(j) LITIGATION. Except as set forth in SCHEDULE 4.1(j) and the
Debt Restructure Agreement, no actions, suits or legal, equitable,
arbitrative or administrative proceedings are pending, or to the
knowledge of the Borrower are threatened, against the Borrower or any
Affiliate of the Borrower before any federal, state, municipal or other
court, department, commission, body, board, bureau, agency or
instrumentality, domestic or foreign which could reasonably be expected
to have an Adverse Effect, and no outstanding judgments, injunctions,
writs, rulings or orders by any such governmental entity exist against
the Borrower which could reasonably be expected to have an Adverse
Effect;
(k) ERISA LIABILITIES. Except as disclosed in SCHEDULE 4.1(k),
there are no ERISA Plans with respect to which the Borrower has any
fixed or contingent liability, and the Borrower is in compliance with
ERISA in all material respects;
(l) NAMES AND PLACES OF BUSINESS. Except as disclosed on
SCHEDULE 4.1(l), the Borrower has not during the preceding three (3)
years had, been known by, or used any other corporate, trade or
fictitious name. The principal office and principal place of business
of the Borrower is set forth in SECTION 11.3 hereof. Except as
disclosed on SCHEDULE 4.1(l), the Borrower does not now have and has
not had during the preceding three (3) years any other office or place
of business. The Borrower is not and has not engaged in any business or
activity other than the identification, acquisition, ownership,
operation and development of oil and gas leases and interests therein;
(m) UNPAID BILLS. Except: (i) as disclosed to the Lender in
SCHEDULE 4.1(m); (ii) bills identified in and which will be paid in
accordance with the Debt Restructure Agreement; and (iii) for bills
incurred in the ordinary course of business which are not more than
thirty (30) days beyond the date due (or, with respect to a particular
vendor, such longer period that is acceptable to such vendor), the
Borrower has no knowledge of any unpaid bills with respect to
improvements to any of the Collateral which may give rise to
mechanic's, materialman's or other similar liens arising by operation
of applicable law should such bills remain unpaid;
23
(n) TITLE. Subject only to Permitted Encumbrances: (i) except
as set forth in the Title Opinions, the Borrower has all beneficial
rights, titles and interests in and to all production from or allocable
to the Borrower's interest in the Properties and has the exclusive
right to sell the same subject to any right in the owners of royalty
interests, overriding royalty interests and other interests payable out
of or measured by production of Hydrocarbons to take their interests in
kind; and (ii) the Borrower has good and marketable title to the
Properties, the Equipment and to any other Collateral. The Collateral
is owned by the Borrower free and clear of any Lien other than
Permitted Encumbrances;
(o) AFFILIATES. Except as disclosed in SCHEDULE 4.1(o): (i)
the Borrower does not have any Affiliate or own any stock in any other
corporation or association; (ii) the Borrower is not a member or
partner of any joint venture or association of any type whatsoever; and
(iii) the Borrower has no Debt to Affiliates;
(p) OMISSIONS AND MISSTATEMENTS. To the Borrower's knowledge
after due inquiry, all written data, reports and information which the
Borrower has supplied to the Lender or caused to be supplied by a third
party on its behalf in connection with the obtaining of the credit
facility provided for in this Agreement or in connection with the
business transactions giving rise to the Borrower's seeking such credit
are, taken as a whole, complete and accurate in all material respects
and contain no material omission or misstatement. The Initial Reserve
Report furnished to the Lender prior to the execution of this
Agreement, to the best of the Borrower's knowledge, was prepared in
accordance with customary oil and gas engineering practices and in
accordance with the standards promulgated by the Society of Petroleum
Engineers. The Initial Reserve Report is based on historical
information which, to the best of the Borrower's knowledge, is complete
and accurate in all material respects and contains no material omission
or misstatement; provided, however, that the Borrower makes no
representation or warranty regarding the accuracy of the forecasts,
projections or quantity of reserves or producibility thereof reflected
by such Initial Reserve Report;
(q) HOLDING COMPANY. The 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; and
(r) INVESTMENT COMPANY. The Borrower is not an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended.
(s) EMPLOYEES. Except as disclosed on SCHEDULE 4.1(s),
Borrower is not a party to any existing employment agreements, deferred
compensation, stock option, bonus, consulting or retirement agreements
or plans, or other employee benefit plans of any kind, including
without limitation any pension or welfare benefit plans with any
employee of Borrower whose employment is not terminable at-will. Except
as disclosed on SCHEDULE 4.1(k), Borrower does not maintain nor has it
ever maintained an Employee Pension Benefit Plan as defined in Section
3(a) of ERISA, or a multi employer plan as defined in Section 3(37) of
ERISA. No employees of Borrower are represented by any
24
labor union or collective bargaining agreement, nor is any union
organization effort pending or threatened against Borrower.
ARTICLE 5: NOTICE OF CERTAIN EVENTS
So long as any Obligations are owing to the Lender under this Agreement
or any other Loan Documents, the Borrower shall deliver to the Lender, or notify
the Lender of, as the case may be, the following items:
Section 5.1 NOTICE OF CERTAIN MATTERS. The Borrower shall notify the
Lender as soon as practicable and in any event within five (5) Business Days
after becoming aware of the existence of any Unmatured Event of Default or
Event of Default under this Agreement or after becoming aware of any
developments or other information which may have an Adverse Effect,
including, without limitation, the following:
(a) any dispute (including tax liability disputes) that may
arise between the Borrower and any governmental regulatory body or law
enforcement authority;
(b) the commencement of any litigation or material proceeding
affecting the Borrower (whether by the filing of a complaint, service
of process or by attachment or arrest of any asset);
(c) any labor dispute or controversy resulting in or
threatening to result in a strike or work stoppage against the
Borrower;
(d) any proposal by any public authority to acquire any assets
or business of the Borrower;
(e) the location of Collateral other than at the places
indicated in or as permitted under the Loan Documents and not in
accordance with reasonable and ordinary practice of the Borrower;
(f) any proposed or actual change of the name, identity or
structure of the Borrower;
(g) any material loss or damage to any of the Borrower's
business or operations or to any of the Collateral;
(h) any environmental situation, circumstance or condition
that causes or may cause SECTION 7.1(s) to be false; or
(i) any other matter which has resulted or may result in an
Adverse Effect.
The Borrower shall provide the Lender with written notice specifying
and describing the nature of such Unmatured Event of Default, Event of Default,
development or information, and anticipated effect thereof, which notice shall
be given as soon as reasonably possible.
25
Section 5.2 OTHER INFORMATION. The Borrower shall provide such other
information respecting the respective financial condition of the Borrower,
any Affiliate of the Borrower that is then a party to any Loan Document, or
any Property or other Collateral as the Lender reasonably may request in
writing from time to time.
ARTICLE 6: SPECIAL PROVISIONS RELATING TO EQUIPMENT
Section 6.1 LOCATION: RECORDS. Except in the ordinary course of
business or as otherwise permitted by this Agreement or another Loan Document or
by the prior written consent of the Lender, all Equipment owned by or on behalf
of the Borrower will be kept at the Properties, and except that, so long as no
Unmatured Event of Default or Event or Default shall have occurred and be
continuing, the Borrower may dispose of Equipment in accordance with the terms
of the applicable Operating Agreements and may dispose of obsolete, broken or
worn Equipment, in either case without the Lender's consent but upon prior
written notice to the Lender; provided that either (i) the proceeds of any such
disposition shall be used to purchase substantially similar Equipment or (ii)
the amount of the proceeds multiplied by the applicable Dedication Rate shall be
delivered to the Lender to be applied to the Obligations in accordance with
SECTION 2.6 on the next Repayment Date. Following the occurrence and during the
continuance of an Event of Default or an Unmatured Event of Default, the
Borrower may dispose of Equipment in accordance with the terms of the applicable
Operating Agreements only with the Lender's prior written consent upon ten (10)
days prior written notice to the Lender, which consent shall not be unreasonably
withheld. All of the records of the Borrower regarding the Equipment shall be
available during the Borrower's usual business hours to any officer, employee,
agent or representative of the Lender following reasonable advance written
notice from the Lender.
Section 6.2 MAINTENANCE. The Borrower, acting in accordance with the
prudent operator standard, will keep its Equipment in a good state of repair and
good operating condition, will make repairs and replacements when and where
necessary, will not waste or destroy it or any part thereof, and will not be
negligent in the care or use thereof. The Borrower shall repair and maintain its
Equipment in a manner sufficient to continue the operation of the Properties.
The Borrower shall use its Equipment in accordance with Law and the
manufacturer's instructions.
Section 6.3 DISPOSITIONS. Where the Borrower is permitted to dispose of
any Equipment under this Agreement or by prior written consent thereto hereafter
given by the Lender, the Borrower shall do so in an arm's length transaction, in
good faith and by obtaining the maximum amount of recovery practicable therefor
and without impairing the operating integrity of its remaining Equipment or the
Properties.
ARTICLE 7: COVENANTS OF BORROWER
Section 7.1 AFFIRMATIVE COVENANTS. The Borrower warrants, covenants and
agrees that until full and final repayment of the Obligations and the
termination of each of the Loan Documents, it will comply with the following
covenants:
(a) PAYMENT AND PERFORMANCE. The Borrower will pay all amounts
due to the Lender under the Loan Documents in accordance with the terms
thereof and will observe,
26
perform and comply with every covenant, term and condition expressed
or implied in the Loan Documents.
(b) PREFERENTIAL RIGHT TO PURCHASE HYDROCARBONS. The Borrower
will enter into and perform the Hydrocarbon Purchase and Sale Agreement
in the form of the Base Agreement for Natural Gas Purchase Transactions
and will, upon the written request of the Lender, enter into and
perform a similar document (on terms reasonably acceptable to the
Borrower) with the Lender or such Affiliate of the Lender as the Lender
may designate. For the avoidance of doubt, the Borrower agrees that
prices based on the parameters set forth in SCHEDULE 7.1(f)(i) shall be
deemed reasonable for purposes of any agreement for the purchase and
sale of oil.
(c) COMPLIANCE WITH TAX LAWS. The Borrower shall comply with
all federal, state or local laws and regulations regarding the
collection, payment and deposit of employee' income, employment, and
social security and sales and use taxes and taxes related to royalty
payments.
(d) BOOKS, FINANCIAL STATEMENTS AND REPORTS. The Borrower will
at all times maintain full and accurate books of account and records
and a standard system of accounting and will furnish the following
statements and reports to the Lender at the Borrower's expense:
(i) As soon as available, and in any event within one
hundred twenty (120) days after the end of each Fiscal Year,
complete audited consolidated and consolidating financial
statements of the Parent and the Borrower, prepared in
reasonable detail in accordance with GAAP. These financial
statements shall contain a balance sheet as of the end of such
Fiscal Year and statements of earnings, of cash flows, and of
changes in the capital accounts for such Fiscal Year, each
setting forth in comparative form the corresponding figures
for the preceding Fiscal Year. The auditors shall be
independent certified public accountants acceptable to the
Lender in its reasonable discretion, provided that the
accountants that audited the Fiscal Year 1998 financial
statements of the Parent and the Borrower are deemed
acceptable to the Lender.
(ii) As soon as available, and in any event within
sixty (60) days after the end of each Fiscal Quarter, the
Parent and the Borrower's consolidated and consolidating
balance sheet as of the end of such Fiscal Quarter and
statements of the Borrower's earnings and cash flows for the
period from the beginning of the then current Fiscal Year to
the end of such Fiscal Quarter, all in reasonable detail and
prepared in accordance with GAAP, subject to changes resulting
from normal year-end adjustments.
(iii) As and when furnished, copies of all reports
and other information provided by any Person (other than the
Lender) to the Parent or the Borrower in connection with the
Loan Documents, except such as are subject to attorney-client
privilege, attorney work product privilege or any other
privilege. The Borrower
27
may arrange for such reports and information to be provided
directly to the Lender by the Person providing the same to
the Parent and the Borrower.
(e) OTHER INFORMATION AND INSPECTIONS. The Borrower will
furnish to the Lender any information which the Lender may from time to
time reasonably request in writing concerning any covenant, provision
or condition of the Loan Documents or any matter in connection with the
Parent or the Borrower's assets, business and/or operations (other than
geological, geophysical and other technical data relating to assets
other than the Properties). The Borrower will (and will cause the
Parent to) permit representatives appointed by the Lender (including
independent accountants, agents, attorneys, appraisers and any other
Persons), at the risk and expense of the Lender or such
representatives, to visit and inspect, during reasonable business hours
and upon reasonable prior written notice, its books of account and
other books and records relating to the Properties and other
Collateral, and any facilities or other business assets relating to the
Collateral, and to make photocopies and/or photographs thereof, and to
write down and record any information such representatives obtain, and
the Borrower shall (and will cause the Parent to) permit the Lender or
its representatives to investigate and verify the accuracy of the
information furnished to the Lender in connection with the Loan
Documents and to discuss all such matters with its officers, employees
and representatives. In addition, the Borrower will (and will cause the
Parent to) permit any such representatives appointed by the Lender, at
the risk and expense of the Lender or such representatives, to visit
and inspect, during reasonable hours and upon similar advance written
notice, the Properties and other Collateral. The Lender agrees that it
will take all reasonable steps to keep confidential any proprietary
information given to it by the Borrower and the Parent; provided,
however, that this restriction shall not apply to information which (i)
is at the time in question publicly available, (ii) is required to be
disclosed by law or by any order, rule or regulation (whether valid or
invalid) of any court or governmental agency, or authority, (iii) is
disclosed to the Lender's Affiliates, auditors, attorneys, lenders or
agents, or (iv) is disclosed in the course of the defense or
enforcement of the Loan Documents or the defense or enforcement of the
Lender's exercise of its rights thereunder, provided that, with respect
to information furnished to Persons identified in clause (iii) (except
when furnished pursuant to clause (iv)), such Person shall be subject
to the foregoing confidentiality obligations applicable to the Lender.
Nothing in this SECTION 7.1(e) shall be construed to require (i) the
Borrower (or the Parent) to deliver to the Lender any data, records, or
other information in violation of confidentiality agreements or other
restrictions against disclosure or transfer under agreements between
the Borrower and any third person, (ii) such delivery in the absence of
compliance by the Lender with the conditions to such disclosure or
transfer under such agreements, or (iii) the Borrower (or the Parent)
to pay any licensing fee due in connection with any such disclosure or
transfer, all such licensing fees being for the account of the Lender
to the extent disclosed in writing to the Lender prior to such
disclosure or transfer.
(f) RESERVE REPORTS. On or before each March 30 after the
Closing Date until the Loan Termination Date, the Borrower shall cause
the preparation and delivery to the Lender of petroleum engineering
reports, in a form satisfactory to the Lender, relating to the
Properties and prepared as of the preceding December 31 (collectively,
the "RESERVE REPORTS" and individually, a "RESERVE REPORT"). The Lender
may request one additional
28
Reserve Report per calendar year. Each annual Reserve Report
required hereby shall be prepared by Engineers and shall be prepared
at the Borrower's sole expense. Any additional Reserve Reports shall
be prepared by Engineers but at the expense of the requesting party.
Each Reserve Report shall set forth updated estimates of proved
developed producing reserves, proved developed non-producing
reserves, proved undeveloped reserves, projected production profiles
and overall economics of the Properties. Each Reserve Report will be
based on the following assumptions:
(i) Hydrocarbon pricing used will be determined by
the Lender using the parameters set forth on SCHEDULE
7.1(f)(i).
(ii) Average lease operating expenses and production
taxes will be derived by the Engineers who prepare such report
from the Operator's best estimate and historical operating
expenses.
(g) NOTICE OF INVESTIGATIONS OR PROCEEDINGS. The Borrower
shall give the Lender prompt written notice of any proceeding at law or
in equity against the Borrower, or any investigation or proceeding
before or by any administrative or governmental agency relating to the
Borrower or any of the Collateral if, in any case, such could
reasonably be expected to have an Adverse Effect.
(h) NOTICE OF DAMAGE TO COLLATERAL. The Borrower shall give
the Lender prompt written notice of any destruction or substantial
damage to any material portion of the Collateral and of the occurrence
of any condition or event which has caused, or may cause, material loss
or depreciation in the value of any property subject to the Lender's
Liens or the Mortgage.
(i) MAINTENANCE OF LICENSES. The Borrower shall maintain all
licenses, permits, charters and registrations which are required for
the conduct of its business and where the failure to have such could
reasonably be expected to have an Adverse Effect.
(j) MAINTENANCE OF RIGHTS; DEFENSE OF PRIORITY. The Borrower
will maintain, preserve, protect and keep all of its contractual and
property rights with respect to the Collateral, other than those
released to the Lender in connection with the Loan Documents, and will
not waive, amend or release any such rights, except when to do so could
not reasonably be expected to have an Adverse Effect. Notwithstanding
the fact that the liens, claims and encumbrances described in the Debt
Restructure Agreement are Permitted Encumbrances, if any Participating
Creditor asserts a lien, claim or encumbrance with respect to the
Collateral that purports to have priority over the claims or Liens
granted pursuant to the Loan Documents, then the Borrower will take all
necessary action to defend in good faith, at the Borrower's sole cost,
the priority of the claims of Lender and Lender's Affiliates granted
pursuant to the Loan Documents.
(k) MAINTENANCE OF EXISTENCE AND QUALIFICATIONS. The Borrower
will maintain and preserve its corporate existence and its rights and
franchises in full force and effect and will qualify and/or remain
qualified to do business as a foreign corporation in all
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states or jurisdictions where required by applicable law and the
failure to do so could reasonably be expected to have an Adverse
Effect.
(l) PAYMENT OF TAXES AND TRADE DEBT. The Borrower will (i)
make all payments to the Participating Creditors required under Section
8.01 of the Debt Restructure Agreement on or before the earlier of the
fifteenth day after the Closing Date and the day by which such payments
are required to have been made under the Debt Restructure Agreement;
(ii) make all payments of Convenience Claims (as defined in the Debt
Restructure Agreement) on or before the forty-fifth day after the
Closing Date; and (iii) timely pay all other sums coming due under the
Debt Restructure Agreement. Except to the extent being contested in
good faith, the Borrower will (x) timely pay all taxes, assessments and
other governmental charges or levies imposed upon it or upon its
income, profits or property; (y) within thirty (30) days after the same
becomes due (or, with respect to a particular vendor, such longer
period that is acceptable to such vendor) pay all Debt (other than the
Obligations) owed by it. The Borrower will maintain appropriate
accruals and reserves for all of the foregoing Debt in accordance with
GAAP.
(m) CREDITORS. In addition to the matters disclosed in the
Debt Restructure Agreement, the Borrower shall notify the Lender
promptly if the Borrower fails to make any payment to lessors,
suppliers, vendors, owners of royalty interest, tax authorities or
other Persons, where such nonpayment could reasonably be expected to
result in any Lien, other than a Permitted Encumbrance, against any
item of Collateral or otherwise have an Adverse Effect. At any time
such notification is due, the Borrower shall also provide the Lender
with a statement showing the identity of such creditors, the amount due
to each and the date each payment was due.
(n) INTEREST. The Borrower hereby promises to pay interest to
the Lender pursuant to the terms and at the rate stated in each Note on
all Obligations that relate to such Note (including Obligations to pay
fees or to reimburse or indemnify the Lender) after such Obligations
become due. The Borrower further agrees that (i) any interest which has
accrued on the Advancing Note and is not paid when due shall be added
to and become part of the Loans and (ii) any interest which has accrued
on the EnCap Junior Note and is not paid when due shall be added to the
principal balance thereof.
(o) COMPLIANCE WITH AGREEMENTS AND LAW. The Borrower will
perform all material obligations it is required to perform under the
terms of the Loan Documents. The Borrower will conduct its business and
affairs in compliance with all laws, regulations and orders applicable
thereto, including Environmental Laws, except where the failure to do
so would not have an Adverse Effect.
(p) INSURANCE. The Borrower shall keep, or cause to be kept,
all of the Mortgaged Properties (as that term is defined in the
Mortgages) that are fixtures or personal property insured by insurance
companies having a rating no lower than AAA by A.M. Best Company or
otherwise acceptable to the Lender against loss or damage by fire or
other risk usually insured against by owners or users of similar
properties in similar businesses under extended coverage endorsement
and against theft, burglary and pilferage, in amounts in accordance
with industry standards. All such insurance shall contain
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endorsements in form satisfactory to the Lender showing the Lender
as an additional party insured as its interest may appear. In
furtherance of the foregoing, the following types of insurance
covering the Collateral and the interest and liabilities incident to
the ownership, possession and operation thereof shall be secured by
the Borrower:
(i) Worker's compensation insurance and employer's
liability insurance covering the employees of the Borrower
engaged in operations contemplated hereunder in compliance
with all applicable state and federal law and endorsed to
provide all states coverage and occupational disease coverage,
as follows:
Workers Compensation Statutory
Employers Liability $1,000,000 Each Accident
(ii) Commercial general liability insurance with
coverage as follows:
Each Occurrence $1,000,000
Fire Damage (any one fire) $ 50,000
Medical Expense (any one person) $ 5,000
Personal & ADV Injury $1,000,000
General Aggregate $2,000,000
Products - ( Comp/Op Aggregate) $1,000,000
(iii) Excess umbrella liability insurance with a
combined single limit of not less than $4,000,000 per
occurrence and policy aggregate;
(iv) Automobile liability coverage with a combined
single limit for both hired and non-owned autos of $1,000,000;
(v) OEE coverage with a COC limit of $10,000,000 and
CCC limit of $10,000,000; and
(vi) Property insurance fully covering the personal
property and fixtures subject to this Agreement.
During the period of the drilling of xxxxx and the
construction of any other improvements comprising a part of
the Collateral, the Borrower shall, or as applicable, shall
cause its contractors or subcontractors to, obtain and
maintain well control insurance (including coverage for costs
of redrilling) and builder's risk insurance, as applicable, in
such form and amounts as the Lender may from time to time
reasonably request in writing and worker's compensation
insurance covering all persons employed by the Borrower or its
agents or subcontractors of any tier in connection with any
construction affecting the Collateral, including, without
limitation, all agents and employees of the Borrower and the
Borrower's subcontractors with respect to whom death or bodily
injury claims could be asserted against the Borrower.
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(q) CERTIFICATES OF INSURANCE. The Borrower shall deliver to
the Lender valid certificates of all insurance policies and all
endorsements thereto which are required under SECTION 7.1(p) to be
obtained and maintained by the Borrower. The Borrower shall deliver to
the Lender such certificates of insurance at the time of execution
hereof, and on or before the renewal date of each such policy of
insurance. If and when the Lender so requests in writing, the Borrower
shall also deliver to the Lender copies of the policy or policies of
such insurance.
(r) PRUDENT OPERATIONS. The Borrower shall prudently develop
and operate, and cause the prudent operation and maintenance of, the
Properties in a good and workmanlike manner consistent with prudent
operator practices to maximize production from or allocable to the
Properties over the productive life thereof.
(s) ENVIRONMENTAL AND OTHER LAWS. Except as disclosed in
SCHEDULE 7.1(s) and except where non-compliance would not reasonably be
expected to have an Adverse Effect, (i) the Borrower is conducting its
business in compliance with all applicable federal, state or local
laws, including Environmental Laws, and has been and is in compliance
with any licenses and permits required under any such laws which affect
or relate to the Collateral; (ii) none of the operations or properties
of the Borrower is the subject of federal, state or local investigation
evaluating whether any remedial action is needed to respond to a
release of any Hazardous Materials into the environment or to the
improper storage or disposal (including storage or disposal at offsite
locations) of any Hazardous Materials; (iii) the Borrower has not filed
or received any notice under any federal, state or local law indicating
that the Borrower is or may be responsible for the improper release
into the environment, or the improper storage or disposal, of any
Hazardous Materials or that any Hazardous Materials has been improperly
released, or is or has been improperly stored or disposed of, upon the
Properties; and (iv) the Borrower is not aware of contingent liability
under any Environmental Laws or in connection with the release into the
environment, or the storage or disposal, of any Hazardous Materials,
upon the Properties.
(t) DAILY FIELD ACTIVITY REPORTS. At the Lender's written
request, the Borrower shall provide the Lender, to the extent possible,
by telecopy or e-mail, a daily report detailing all drilling,
completions and workovers from the preceding day with respect to the
Properties in form and substance reasonably satisfactory to the Lender.
(u) REPORTS. The Borrower shall provide the Lender with weekly
(or daily, as appropriate) reports by telecopy or e-mail setting forth
the quantities, types and specifications of Hydrocarbons produced from
or allocable to each of the Properties, and any notable field
activities with respect to the Properties, in form and substance
satisfactory to the Lender.
(v) AFE'S. The Borrower will provide the Lender with all
material authorizations for expenditures ("AFES") with respect to the
Properties, representing an estimate of work to be done, prior to
commencing the activity contemplated by such AFE. For purposes of this
SECTION 7.1(v), an AFE shall be deemed to be material if the aggregate
amount to be expended thereunder is greater than or equal to $25,000.
If any such AFE
32
is inconsistent with or relates to an operation not contemplated by
SCHEDULE 2.1(b), such AFE shall be supported by appropriate invoices,
bids, estimates, contracts and all other relevant, available supporting
information.
(w) COOPERATION. The Borrower will provide the Lender with
copies of any tax assessments of any personal property of the Borrower
in the State of Mississippi and will provide such other records and
cooperation as the Lender may reasonably request in connection with
determining and minimizing the tax liability, if any, of the Lender to
pay Mississippi Finance Company Privilege Tax. The Borrower will
cooperate with the reasonable requests of the Lender for purpose of
preparing any return with respect to any such tax liability.
(x) POST-CLOSING TITLE OPINIONS. The Borrower will, within
sixty (60) days following the Closing Date, deliver to the Lender
"bring down" or "nothing further" certificates covering the Properties
and showing Defensible Title in the Properties in the Borrower subject
only to: (i) first priority liens created by the Mortgages in favor of
the Lender and (ii) other Permitted Encumbrances and otherwise
reasonably satisfactory in form and substance to the Lender.
(y) LEGAL FEES. The Borrower will pay on or before the Closing
Date, all reasonable legal expenses incurred by the Lender in
connection with the Credit Agreement and the Loan Documents; provided,
however, the Borrower shall not be obligated to pay in excess of
$50,000 in the aggregate for legal, title, environmental and other due
diligence expenses incurred by the Lender, and, thereafter, will
reimburse the Lender for all reasonable legal expenses incurred in
connection with any subsequent amendment, mortgage, extension or
renewal of any Loan Document or the legal expenses attributable to the
enforcement of the same.
(z) FACILITY FEE. The Facility Fee in the amount of $600,544
shall be payable by the Borrower to the Lender on the Closing Date.
(aa) LIMITATION ON MANAGEMENT CHANGES. The Borrower will,
during the term of this Agreement, retain the officers elected to their
offices on the Closing Date.
(bb) MAINTENANCE OF COLLATERAL VALUE. The Borrower will use
its best efforts to, and will cause each Operator to use its best
efforts to, maintain the economic value (other than ordinary depletion)
during the term of this Agreement of the Hydrocarbon reserves
constituting Collateral.
(cc) DEVELOPMENT OPERATIONS; ENCAP JUNIOR NOTE. The Borrower
will complete the Development Operations as set forth on SCHEDULE
2.1(b) in accordance with the Development Program as set forth on
SCHEDULE 7.1(cc) and will pay the EnCap Junior Note in accordance with
the terms thereof. Notwithstanding anything to the contrary in this
Agreement or in any other Loan Document, the undertakings of the
Borrower in this SECTION 7.1(cc) shall be and are full recourse
obligations of the Borrower.
(dd) OPERATING REPORTS; QUARTERLY MEETINGS. Within thirty (30)
days of the Closing Date, and on a calendar quarterly basis thereafter
on or before the fifth Business
33
Day of each calendar quarter, the Borrower shall provide the Lender
with a rolling revenue, lease operating expense and capital
expenditure forecast by month covering the Borrower's interest in
the Properties for the succeeding twelve (12) month period (each
such forecast, an "OPERATING REPORT"). Such Operating Reports shall
include a brief discussion by the Borrower of operating and
financial variances from the prior Operating Report delivered to the
Lender. On or before the tenth Business Day of each calendar quarter
the Borrower shall make available responsible management to discuss
the most recently delivered Operating Report with representatives of
the Lender.
Section 7.2 NEGATIVE COVENANTS. The Borrower warrants, covenants and
agrees that until the full and final repayment of the Obligations and the
termination of each of the Loan Documents:
(a) NET WORTH. The Borrower will not permit its stockholders'
equity (determined in accordance with GAAP) to be less than zero at the
end of any calendar month;
(b) LIMITATION ON SALES OF COLLATERAL. The Borrower will not
convey, sell, transfer, lease, assign, exchange, alienate or otherwise
dispose of any Collateral or any interest therein, except for the sale
of Hydrocarbons in the ordinary course of business and/or other sales
to the extent pursuant to or as expressly allowed under this Agreement
and the Security Documents encumbering such Collateral;
(c) COMPENSATION. The Borrower shall not, directly or
indirectly, enter into any employment agreement or other arrangement
with or for the benefit of an officer, director or employee of the
Borrower other than for reasonable compensation for services as an
officer, director or employee;
(d) LIMITATION ON CREDIT EXTENSIONS. Neither the Borrower nor
any of its Affiliates will extend credit, make advances or make loans
to any Person other than in the ordinary course of business; provided,
however, that amounts outstanding on the Starbucks Note Receivable on
the Closing Date may remain outstanding but no additional sums may be
advanced thereunder.
(e) CERTAIN CONTRACTS; AMENDMENTS. The Borrower shall not
amend or permit any amendment to any contract or lease with respect to
the Collateral which releases, qualifies, limits, makes contingent or
otherwise modifies in a manner reasonably expected to have an Adverse
Effect;
(f) INDEBTEDNESS; LIENS. Except for Permitted Encumbrances or
as otherwise expressly provided herein, the Borrower shall not create,
incur, assume or suffer to exist any Liens against the Collateral, nor
shall the Borrower create, incur, assume or suffer to exist any Debt
except Obligations to the Lender hereunder, trade payables incurred in
the ordinary course of the Borrower's business, the Xxxxxxx Note, the
Xxxxx Note and Debt to Affiliates the repayment of which has been
subordinated to the repayment of the Obligations pursuant to the
Subordination Agreements. The Borrower shall not sell, discount or
factor its accounts, instruments, intangibles, leases or chattel paper
constituting a part of the Collateral;
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(g) LIABILITIES. Except as expressly provided herein, the
Borrower shall not assume, guaranty, or endorse or otherwise become
directly or contingently liable in connection with any other liability
of any other Person other than majority owned Affiliates, except for
the indemnification contained herein; provided, however, that the
foregoing shall not prohibit the endorsement of negotiable instruments
for deposit or collection or incurrence of obligations under operating
agreements and similar transactions in the ordinary course of business.
For the purposes hereof, "guaranty" shall include any agreement,
whether such agreement is on a contingency basis 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 such case primarily for the purpose
of enabling another Person to make payment of any such debt or
liability, or to make any payment (whether as a capital contribution,
purchase of any equity interest or otherwise) to assure a minimum
equity, asset base, working capital or other balance sheet or financial
condition, in connection with Debt or liability of another Person, or
to supply funds to or in any manner invest in another Person in
connection with such Person's Debt or liability;
(h) CANCELLATION OF CLAIMS. The Borrower shall not cancel any
claim of or debt owed the Borrower relating to the Properties in excess
of a total of $50,000 during the term of the Loans, except for
reasonable consideration and in the ordinary course of its business;
(i) DEFAULTS. Except as previously disclosed to the Lender,
the Borrower shall not cause a default under any lease, mortgage, deed
of trust or lien with respect to the Properties;
(j) SECURITY INTERESTS AND LIENS. Subject to the Borrower's
right to contest in good faith or cure within thirty (30) days of the
filing of any Lien, and except as provided in the Debt Restructure
Agreement, the Borrower shall not suffer to exist any valid Lien
against the Properties or consent to the filing of any financing
statements on any of the Collateral, other than the Liens created by
the Security Documents and other Permitted Encumbrances;
(k) LIMITATION ON FUNDAMENTAL CHANGES. The Borrower will not
enter into any merger, consolidation or amalgamation, or liquidate,
wind up or dissolve itself (or suffer any liquidation or dissolution),
or make any material change in its present method or conducting
business;
(l) LIMITATION ON LOCATION CHANGES. The Borrower shall not
transfer its principal office or its registered offices outside of the
State of Texas or keep Collateral at any location(s) other than those
at which the same are presently kept in accordance with SECTION 6.1
without prior written notice to the Lender and the execution and
delivery to the Lender of such additional Security Documents as may be
reasonably required by the Lender in connection therewith; and
(m) AFFILIATE TRANSACTIONS. The Borrower shall not sell or
transfer any property or assets to, or purchase or acquire any property
or assets from, or otherwise engage in any
35
transactions with any of its Affiliates except in the ordinary
course of business and on terms no less favorable to the Borrower
than could be obtained on an arm's length basis from unrelated third
parties.
ARTICLE 8: FURTHER RIGHTS OF LENDER AND BORROWER
Section 8.1 MAINTENANCE OF SECURITY INTERESTS. Until the Obligations
are repaid in full, the Borrower, at its own expense, shall do all things
reasonably requested by the Lender in writing and shall deliver all instruments
reasonably requested by the Lender in writing to protect or perfect any security
interest, mortgage or lien given hereunder or under any Security Documents,
including, without limitation, financing statements under the Uniform Commercial
Code. The Borrower hereby authorizes the Lender, during the continuance of any
Event of Default, to appoint such Person or Persons as the Lender may designate
as its attorney-in-fact to endorse the name of the Borrower on any checks,
notes, drafts or other forms of payment or security that may rightfully come
into the possession of either the Lender or any Affiliate of the Lender, to sign
the Borrower's name on invoices or bills of lading, drafts against customers,
notices of assignment, verifications and schedules that relate exclusively to
the Collateral and, generally, to do all things reasonably necessary to carry
out this Agreement and the Security Documents to the extent required of the
Borrower pursuant to this SECTION 8.1 and SECTION 11.10. The powers granted
herein, being coupled with an interest, are irrevocable so long as any
Obligations are outstanding. Neither the Lender nor its attorney-in-fact shall
be liable for any act or omission, error in judgment or mistake of law so long
as the same is not the result of a malicious act, willful misconduct, or gross
negligence of the Lender or its attorney-in-fact. Upon payment and performance
of all Obligations of the Borrower to the Lender, such power of attorney will
become null and void, and, upon request by the Borrower, the Lender or any
Noteholder will provide an instrument in recordable form that terminates such
procuration.
Section 8.2 PERFORMANCE OF OBLIGATIONS. In the event that the Borrower
fails to purchase or maintain insurance in accordance with the requirements of
this Agreement, or to pay any tax, assessment, government charge or levy, except
as the same may be otherwise permitted hereunder, or in the event that any Lien
prohibited hereby shall not be paid in full or discharged, or in the event that
the Borrower shall fail to perform or comply with any other covenant, promise or
Obligation to the Lender hereunder or under any Loan Document, which failure may
reasonably be expected to cause an Adverse Effect, the Lender may, following
written notice to the Borrower affording the Borrower ten (10) days after the
date of such notice to cure the relevant circumstance, but shall not be required
to, perform, pay, satisfy, discharge or bond the same for the account of the
Borrower, and all monies so paid by the Lender, including, without limitation,
reasonable attorneys' fees and disbursements, shall, at the Lender's option,
either be treated as an additional Obligation of the Borrower to the Lender
hereunder and under the other Loan Documents, or be treated as a debit to the
Borrower Sub-Account in accordance with SECTION 2.7(a). If the Lender has
attempted to send the notice required hereby but, as the result of inadvertence
not constituting gross negligence or willful misconduct, such notice is
improperly addressed or is not timely delivered, the failure of the Borrower to
have timely received such notice shall not in any way prohibit or otherwise
limit the exercise by the Lender of its rights under this Section.
36
Section 8.3 OVERRIDING ROYALTY INTEREST. At Closing, the Borrower shall
assign the Overriding Royalty Interest to the Lender by executing, and
delivering to the Lender, the Overriding Royalty Interest Conveyance.
Section 8.4 ORRI OPTION. Pursuant to the terms of the Overriding
Royalty Interest Conveyance, the Borrower shall have an option to repurchase the
Overriding Royalty Interest after the Closing Date at a price (the "PURCHASE
PRICE") to be determined by a Reserve Report that incorporates, without
limitation, forward pricing determined by the Engineers pursuant to the
parameters set forth on SCHEDULE 7.1(f)(i), historical operating expenses
verified by the Engineers and proven reserves attributable to the Overriding
Royalty Interest that is prepared by Engineers, such as Xxxxx Xxxxx, Netherland
Xxxxxx or the Engineers that prepared the Reserve Report most recently delivered
hereunder, using a ten percent (10%) discount rate; provided, however, that the
ORRI Option is a non-assignable option granted by the Lender solely to the
Borrower and, notwithstanding any right that may be granted to the Borrower in
the Overriding Royalty Interest Conveyance to assign, sell, transfer or
otherwise convey any of the Properties, the exercise of the ORRI Option shall be
solely by the Borrower and shall be with relation to the entire Overriding
Royalty Interest as granted in the Overriding Royalty Interest Conveyance.
Furthermore, any notice to the Borrower hereunder shall be deemed as actual
notice to its assignees of the Properties ("ASSIGNEES"), if any. The Borrower
may exercise its option by sending written notice of such exercise to the Lender
specifying an effective date for the determination of the Purchase Price that is
the first day of the month preceding the month in which the notice is delivered
to the Lender ("ORRI SALE DATE"), accompanied by the Reserve Report that
establishes the Purchase Price, and stating that the Borrower is ready, willing
and able to close such purchase and pay the Purchase Price within thirty (30)
days from the date of the notice, without any conditions with respect to
obtaining financing, or otherwise. If the Purchase Price established in the
Reserve Report was appropriately determined based on the parameters set forth in
SCHEDULE 7.1(f)(i), then the parties shall proceed to close such purchase and
sale transaction within thirty (30) days from the Lender's receipt of the
Borrower's option exercise notice. At the closing, the Borrower shall pay the
Purchase Price to the Lender in cash or by wire transfer to an account
designated by the Lender, and the Lender shall assign the Overriding Royalty
Interest to the Borrower by recordable form of assignment with a special
warranty of title by, through or under the Lender, but not otherwise. The
Purchase Price shall be adjusted downward by the amount of any net revenues
received by the Lender prior to the closing for production attributable to the
Overriding Royalty Interest subsequent to the ORRI Sale Date, and shall be
adjusted upward for any revenues that have accrued with respect to the
Overriding Royalty Interest for production prior to the ORRI Sale Date, that
have not yet been paid to the Lender. After the closing, any revenues received
by the Lender that are attributable to the Overriding Royalty Interest shall be
promptly remitted to the Borrower. If the Lender does not agree with the
Purchase Price proposed by the Borrower in the option exercise notice, it shall
notify the Borrower promptly and in any event within ten (10) days after the
receipt of such notice, and the parties shall endeavor to reach agreement on the
Purchase Price within thirty (30) days thereafter. If they are able to do so,
closing, as provided above, shall occur within ten (10) days after they have
reached agreement on the Purchase Price. If they are unable to reach agreement
on the Purchase Price, either party may elect to have the Purchase Price
determined through arbitration in accordance with ARTICLE 12 hereof, and the
closing shall then occur within ten (10) days after the arbitrator(s) have
notified the Lender and the Borrower of the Purchase Price that has been so
determined. After the Borrower has notified the Lender of the Borrower's
37
election to exercise its option to purchase the Overriding Royalty Interest,
such election shall not be revocable, and the Lender shall have the right to
enforce specific performance of the Borrower's resulting obligation to purchase,
so long as the Lender can deliver title to the Overriding Royalty Interest to
the Borrower without being in violation of its special warranty of title.
Section 8.5 NON-RECOURSE. It is expressly understood and agreed that,
except as set forth in SECTION 7.1(cc), the undertaking of the Borrower to pay
any indebtedness or perform any obligation under the Loan Documents is included
herein for the sole purpose of establishing the continuing existence of the debt
and the maturity of such debt. Except as set forth in SECTION 7.1(cc), and
notwithstanding anything else in the Loan Documents to the contrary, including,
but not limited to, this Agreement and any certificate, opinion, or documents of
any nature whatsoever, neither the Lender nor its successors or assigns, nor any
Noteholder, nor any other holder or holders of the indebtedness will have any
claim, remedy, or right to proceed against the Borrower for the payment of any
deficiency or any other sum or performance of any obligation of any nature
whatsoever under the Loan Documents from any source other than the Collateral,
for the payment of such indebtedness or the satisfaction of such liability or
for the satisfaction of any obligation by the Borrower to the Lender, whether
sounding in contract, tort or otherwise; provided, however, that nothing
contained herein will limit, restrict, or impair the rights of the holders of
the debt: (i) to accelerate the maturity of the debt during the continuance of
an Event of Default, to bring suit and obtain a judgment against the Borrower on
the debt for purposes of enforcement of any Security Document, provided that the
satisfaction of such judgment is limited solely to the Collateral, and the
exercise of all of the Lender's rights and remedies to foreclose or otherwise
realize upon the Collateral, including rights to collect sums due or to become
due under the Collateral; or (ii) in the event of fraud or misapplication of
funds on the part of the Borrower.
Section 8.6 REMOVAL AND APPOINTMENT OF OPERATOR. Subject to the terms
of operating agreements affecting the Properties, the Lender shall, in its
reasonable discretion, have the right to approve or disapprove any action taken
by the Borrower to appoint, remove or replace the Operator of any of the
Properties. The Borrower shall not directly or indirectly modify or amend
(including, without limitation, by waiver of any term thereof) any Operating
Agreement, or appoint, remove or replace any Operator, without the prior written
consent of the Lender.
Section 8.7 SET-OFF RIGHTS. Upon the occurrence and during the
continuance of an Event of Default, the Lender shall have the right to set-off
and apply against the Obligations in such manner as the Lender may determine,
upon written notice at any time to the Borrower, any and all deposits (general
or special, time or demand, provisional or final) or other sums at any time
credited by or owing from the Lender or any depositary to the Borrower whether
or not the Obligations are then due, except there shall not be such right
against any amounts owing to third-party working interest and royalty interest
holders of which the Lender shall have been notified. The Lender shall provide
notice to the Borrower not later than five (5) days following any application of
such funds.
38
ARTICLE 9: CLOSING; CONDITIONS TO CLOSING
Section 9.1 CLOSING. Subject to the conditions set forth in this
Agreement, the closing of the transactions contemplated by this Agreement (the
"CLOSING") shall occur at a mutually agreeable time on or before August 20,
1999. The date the Closing actually occurs is hereby called the "CLOSING DATE."
The Closing shall be held at the offices of Akin, Gump, Strauss, Xxxxx & Xxxx,
L.L.P. in Houston, Texas, or at such other place as the Borrower and the Lender
may agree in writing.
Section 9.2 CONDITIONS TO CLOSING. As conditions precedent to the
making of the Initial Loan hereunder and to the making of any Development
Loans:
(a) the Borrower shall deliver to the Lender (except as
otherwise provided below) the following documents duly executed and in
form and substance satisfactory to the Lender:
i. the Advancing Note and the Encap Junior
Note, multiple counterparts of this
Agreement;
ii. a certificate of the secretary or assistant
secretary of the Borrower dated the Closing
Date, certifying the incumbency of its
officers executing this Agreement and any
other documents required hereby and
certifying resolutions adopted by the board
of directors of the Borrower authorizing
the Borrower's execution and delivery of
this Agreement, the Notes, the Mortgage and
all other documents and instruments
contemplated by this Agreement;
iii. a certificate of the president or a vice
president of the Borrower dated the Closing
Date, certifying the truth and accuracy of
the representations and warranties of the
Borrower set forth in this Agreement and
the Borrower's performance and compliance
with all agreements and covenants required
by this Agreement to be performed or
complied with prior to the making of the
Loans;
iv. a copy of the Articles of Incorporation of
the Borrower certified by the Secretary of
State of the State of Texas and a copy of
its bylaws certified by the secretary or an
assistant secretary of the Borrower;
v. certificates, as of the most recent dates
practicable, of the Secretary of State of
the State of Texas attesting to the
Borrower's existence, and from the
appropriate governmental authority of each
state in which the Borrower is qualified to
do business as a foreign corporation
attesting to such qualification, and from
the office of the comptroller
39
of public accounts, department of revenue
or taxation, or other appropriate
governmental authority of each of the
foregoing states, attesting to the good
standing of the Borrower;
vi. a certificate of the president or chief
financial officer of the Borrower,
certifying: (A) a consolidated and
consolidating balance sheet of the Parent
and the Borrower which is complete and
correct in all respects and fairly presents
the Parent's and the Borrower's financial
condition in accordance with GAAP; (B) that
the Borrower has no contingent liabilities,
liabilities for taxes, unusual forward or
long term commitments, or unrealized or
unanticipated losses from any unfavorable
commitments which are not disclosed in such
balance sheet, which either individually or
in the aggregate would be material;
(C) that no action or proceeding is pending
or is threatened against the Borrower at
law, in equity or otherwise, before any
court, board, commission, agency or
instrumentality of the federal or state
government or of any municipal government
or any agency, or before any arbitrator,
and no investigation has been commenced
before any such entity other than disclosed
in writing to the Lender; (D) that as of
Closing and other than has been disclosed
in writing to the Lender, no unpaid bills
for improvements to any of the Properties
exist which may give rise to mechanics',
materialmen's or other similar liens or
privileges arising by operation of law,
except for unpaid bills not yet due and
payable; and (E) that no suit or other
proceeding by any third party is pending or
threatened before any court or governmental
agency seeking to restrain, enjoin or
prohibit or declare illegal, or seeking
damages from the Borrower or any Operator,
in connection with the transactions
contemplated herein;
vii. [intentionally omitted];
viii. the Mortgages dated as of the Closing Date
and in as many counterparts as the Lender
may require;
ix. U.C.C.-1 financing statements to be filed
under the Uniform Commercial Code;
x. the written opinion of the Borrower's Texas
and Mississippi counsel, as applicable,
dated the Closing Date and addressed to the
Lender in form and substance satisfactory
to the Lender, stating that: (A) the
Borrower is duly incorporated and validly
existing; (B) the Loan
40
Documents executed at Closing are validly
authorized and executed, and are
enforceable in accordance with their terms;
(C) the Loans do not violate any applicable
state or federal laws; (D) the Lender, its
Affiliates, the Lender's counsel and the
Lender's lenders and their respective
counsels may rely on the opinion; and
(E) such other matters as the Lender or its
counsel may require;
xi. evidence that the Borrower has obtained
insurance in accordance with SECTIONS
7.1(p) and (q) hereof;
xii. a Reserve Report satisfactory to the
Lender's staff petroleum engineer from an
engineer attesting to the quantity of
reserves underlying the Properties and
their classification (e.g., proved
undeveloped), as calculated in accordance
with the Society of Petroleum Engineers
standards;
xiii. Title Opinions satisfactory to the Lender
establishing that the Borrower has acquired
Defensible Title to the Properties, subject
only to Permitted Encumbrances and the
Existing Liens;
xiv. the Swap Agreement;
xv. the results of Uniform Commercial Code
searches showing all financing statements
and other documents or instruments on file
against the Borrower, in the Offices of the
Secretaries of State of the State of Texas
and Mississippi and in the counties or
parishes in which Properties are deemed to
be located for recording purposes;
xvi. evidence that any and all fees required
under this Agreement as of the date of the
making of the relevant Loan are paid in
full;
xvii. the Security Agreement;
xviii. the Overriding Royalty Interest Conveyance;
xix. the Hydrocarbon Purchase and Sale
Agreement;
xx. the Cash Collateral Agreement;
xxi. [intentionally omitted]; and
xxii. such other documents and instruments as the
Lender may reasonably request.
41
None of the foregoing instruments will be required to be redelivered at the
time of the advance of any Development Loans subsequent to the date of the
making of the Initial Loan, with the exception of those identified in
paragraph (a)(iii), paragraph (a)(ix) (if the operations to be funded by such
Development Loan involve the installation of additional major items of
Equipment for which the Lender desires to file a new UCC-1 or UCC-3), and
paragraphs (a)(xv) and (a)(xxii) (only if requested by the Lender).
(b) the Lender shall have entered into the Assignments of Note
and Liens with the Existing Debt Holders and consummated the
transactions thereunder;
(c) the Lender shall have entered into the Subordination
Agreements with the holders of all Debt to Affiliates other than Xxxx
X. Xxxxxxx;
(d) the Parent shall have executed and delivered the Parent
Guaranty and delivered certificates and instruments similar to those
contemplated in clauses (a)(ii) through (a)(v) above;
(e) the Borrower and the EnCap Buyers shall have executed and
delivered the EnCap Purchase and Sale Agreement;
(f) the Parent and Coral shall have executed and delivered
the Coral Letter Agreement and consummated the Coral Transaction;
(g) the Borrower and Shell shall have executed and delivered
the Shell Letter Agreement and consummated the Shell Transaction; and
(h) The Parent, the Borrower, the Participating Creditor
Collateral Agent, the Participating Creditor Deposit Agent, and
Participating Creditors holding no less than eighty-five percent (85%)
by dollar amount of the Eligible Claims (as such term is defined in
the Debt Restructure Agreement), and the Lender (for the limited
purpose stated therein) shall have executed and delivered the Debt
Restructure Agreement.
Section 9.3 CONDITIONS PRECEDENT TO FUNDING. The Lender shall not be
obligated to make any loan available (other than advances under a Development
Loan for which: (i) a conforming Request for Advance has been submitted to the
Lender; (ii) the amount is within the limitations set forth in SECTION 2.1(b);
and (iii) the Lender has confirmed its obligation to advance in accordance with
SECTION 2.1(b)) unless the following conditions precedent have been satisfied:
(a) There is no Event of Default, Unmatured Event of Default
or Tax Claim under this Agreement, the Mortgage or any other Loan
Document;
(b) all of the Borrower's representations and warranties made
in any Loan Document shall be true and correct as if made on the date
of such advance (except to the extent that the facts upon which such
representation are based have been changed by the extension of credit
hereunder);
42
(c) the Borrower shall have performed and complied with all
agreements and conditions in the Loan Documents which are required to
be performed or complied with by it on or prior to the date of such
Loans;
(d) no law, regulation, order, judgment or decree of any
governmental authority is in effect or pending which shall enjoin,
prohibit or restrain such loan or impose, or result in the imposition
of, any adverse condition upon the Lender;
(e) the Lender shall have received all documents and
instruments which the Lender has then reasonably requested as to: (i)
the accuracy and validity of or compliance with all representations,
warranties and covenants made by the Borrower in any Loan Document;
(ii) the satisfaction of all conditions contained herein or therein;
and (iii) all other matters pertaining hereto and thereto. All such
additional documents and instruments shall be satisfactory to the
Lender (in reasonable exercise of its discretion) in form, substance,
and date;
(f) the Lender shall have received satisfactory due diligence
analysis including, but not limited to, financial and operational
data, title and environmental review, all such data to be provided by
the Borrower;
(g) the Lender shall have received satisfactory information
regarding existing gas sales and oil sales with respect to production
of Hydrocarbons from or allocable to the Properties, which will
include, for gas sales on a well-by-well basis, where applicable,
transportation costs, gathering costs, processing costs, gas stream
heating content, then-current market prices for gas of similar quality
and copies of existing sales contracts and for oil sales, individual
well specific gravity of produced oil, transportation costs, sulfur
content, purchase bonuses, then-current market prices for oil of
similar quality, and copies of existing sales contracts; and
(h) no material adverse change has occurred in the financial
condition or operations of the Borrower or any Operator, or with
respect to the Properties.
Section 9.4 CONDITION PRECEDENT TO FUNDING DEVELOPMENT LOAN.
Notwithstanding anything contained in this Agreement or any other Loan
Document to the contrary, the Lender shall not in any event be obligated to
make any loan under the Development Loan until such time, if any, as the
Lender has received certified copies of resolutions of the board of directors
of the Borrower and any required shareholder consents authorizing the
Development Program.
ARTICLE 10: EVENTS OF DEFAULT AND REMEDIES
Section 10.1 EVENTS OF DEFAULT. Each of the following events
constitutes an Event of Default under this Agreement:
(a) The Lender fails to receive its portion of Net Revenue
(Base Net Revenue and Excess Net Revenue multiplied by the applicable
Dedication Rates) in accordance with SECTION 2.7(b) when the same is
due and payable;
43
(b) projected Net Revenue attributable to Proved Reserves,
based on the most recent Reserve Report delivered to the Lender after
the Closing Date, is insufficient to fully amortize the Loans by their
stated maturity or Borrower's share of projected Net Revenues
attributable to Proved Reserves, based on such Reserve Report, is
insufficient to fully pay the EnCap Junior Note at maturity;
(c) any Loan Document or the Debt Restructure Agreement at any
time ceases to be valid, binding and enforceable against the Borrower
or any other Person party thereto other than the Lender for any reason
other than its release or subordination made with the prior written
consent of the Lender, and such cessation is not remedied in full
within fifteen (15) days after the Borrower receives written notice
thereof;
(d) any "Event of Default", as defined in the Mortgage (other
than an event which is referred to in subsection (a) through (c) of
this SECTION 10.1), occurs under the Mortgage, and the same is not
remedied within the applicable period of grace (if any) provided in
the Mortgage, or any event of default occurs under any Security
Document or commodity price risk management agreement with respect to
the Properties;
(e) the Borrower fails to duly observe, perform or comply
with: (i) SECTION 7.1(l); (ii) any covenant, agreement, condition or
provision set forth in SECTION 7.2; or (iii) any other covenant,
agreement, condition or provision of any Loan Document, and, in the
case of matters referred to in this clause (iii) only, if such failure
is not remedied within thirty (30) days of the time at which the
Borrower receives written notice from the Lender or otherwise knows or
should have known of such failure;
(f) any representation or warranty previously, presently or
hereafter made in writing by or on behalf of the Borrower in
connection with any Loan Document shall prove to have been false or
incorrect in any material respect on any date on or as of which made;
(g) any Lien against any of the Properties resulting from a
Tax Claim for $50,000 or more is asserted against the Borrower and
such Tax Claim is not withdrawn, formally disputed in good faith, or
otherwise disposed of within thirty days (30) thereafter;
(h) any Lien for more than $250,000 is filed of record against
the Properties and is not bonded or discharged within 60 days;
(i) the Borrower or any Operator materially violates any
Environmental Law with respect to the Properties;
(j) the Borrower or any Operator fails to comply in all
material respects with all pertinent federal, state and other laws,
rules and regulations pertaining in any way to the Borrower or the
Properties;
(k) the Borrower withdraws or is removed as operator of the
Properties, and the replacement operator is unacceptable to the
Lender;
44
(l) Subject to Permitted Encumbrances, and except for such
resulting from any failure by the Lender to duly file applicable
Security Documents executed and delivered by the Borrower or
applicable UCC-3 continuation filings not required to be executed by
the Borrower, the Lender shall at any time not have a perfected first
priority security interest and/or Lien on all or any part of the
Collateral;
(m) the Borrower's Working Interest and/or Net Revenue
Interest constituting any Property is decreased, other than by virtue
of the Overriding Royalty Interest Conveyance, from those set forth in
Exhibit A to the Mortgage other than pursuant to a Permitted
Encumbrance or with the prior written consent of the Lender;
(n) the Borrower:
i. has entered against it a judgment,
decree or order for relief by a
court of competent jurisdiction in
an involuntary proceeding commenced
under any applicable bankruptcy,
insolvency or other similar law of
any jurisdiction now or hereafter
in effect, including the federal
Bankruptcy Code, as from time to
time amended, or has any such
proceeding commenced against it
which remains undismissed for a
period of ninety (90) days; or
ii. commences a voluntary case under
any applicable bankruptcy,
insolvency or similar law now or
hereafter in effect, including the
federal Bankruptcy Code, as from
time to time amended; or applies
for or consents to the entry of an
order for relief in an involuntary
case under any such law; or makes a
general assignment for the benefit
of creditors; or fails generally to
pay (or admits in writing its
inability to pay) debts as such
debts become due; or takes
corporate or other action to
authorize any of the foregoing; or
iii. suffers the appointment of or
taking possession by a receiver,
liquidator, assignee, custodian,
trustee, sequestrator or similar
official of all or a substantial
part of its assets or of any part
of the Collateral in a proceeding
brought against or initiated by it,
and such appointment or taking
possession is neither made
ineffective nor discharged within
sixty (60) days after the making
thereof, or such appointment or
taking possession is at any time
consented to, requested by or
acquiesced to by it; or
iv. suffers the entry against it of a
final judgment for the payment of
money in excess of $250,000, unless
the same is covered by insurance or
is discharged within sixty (60)
days after the date of entry
thereof or an appeal or
45
appropriate proceeding for review
thereof is taken within such period
and a stay of execution pending such
appeal is obtained; or
v. suffers a writ or warrant of
attachment or any similar process
to be issued by any court against
all or any substantial part of its
assets or any part of the
Collateral, and such writ or
warrant of attachment or any
similar process is not stayed or
released within sixty (60) days
after the entry or levy thereof or
after any stay is vacated or set
aside; or
vi. fails to pay any one or more items
of Indebtedness (other than
Indebtedness hereunder) in excess
of $250,000.00 in the aggregate or
any interest or premium thereon
when due (whether at scheduled
maturity or by acceleration, demand
or otherwise) and such failure
shall continue after any applicable
grace period specified in the
agreement or instrument relating to
such Indebtedness or any other
event shall occur and continue
after any applicable grace period
specified in such agreement or
instrument, if the effect of such
default or event is to accelerate
or permit the acceleration of, the
maturity of such Indebtedness, or
if, as the result of such a
default, any such Indebtedness
shall be declared to be due and
payable, or is required to be
prepaid, prior to the stated
maturity thereof;
(o) any "Event of Default" as defined in the Debt
Restructure Agreement, whether on the part of the Borrower, the
Participating Creditors, or otherwise, occurs;
(p) any Change of Control occurs;
(q) the approval by the board of directors of the Borrower
and the obtaining of any required shareholder consent with respect
to the Development Program shall not have occurred on or prior to
September 30, 1999;
(r) the completion of the Development Program shall not
have occurred on or prior to the eighteen month anniversary of the
Closing Date;
(s) the EnCap Investment shall not have been consummated
on or before the close of business on the Business Day after the
Closing date;
(t) the Borrower shall not have made all payments required
under Section 8.01 of the Debt Restructure Agreement on or before
the earlier of (i) the fifteenth day after the Closing Date and
(ii) the day by which such payments are required to have been made
under the Debt Restructure Agreement;
46
(u) the Lender shall not have received on or before the
seventh day after the Closing Date written confirmation from the
Parent, the Borrower and the Collateral Agent that all of the
conditions to the obligations of the Parent, the Borrower, the
Participating Creditors or the Collateral Agent under the Debt
Restructure Agreement have been satisfied; or
(v) the Borrower shall not have (i) paid in full the
indebtedness identified on Schedule 2 and (ii) obtained the release of
any Liens filed of record in respect thereof on or before December 31,
1999.
Section 10.2 ACCELERATION.
(a) AUTOMATIC ACCELERATION. Upon the occurrence of an Event of
Default described in SUBSECTION (j)(i), (j)(ii) or (j)(iii) of SECTION
10.1, all of the Obligations shall thereupon be immediately due and
payable, without demand, presentment, notice of demand or of dishonor
and nonpayment, protest, notice of protest, notice of intention to
accelerate, declaration or notice of acceleration, or any other notice
or declaration of any kind, all of which are hereby expressly waived by
the Borrower and each obligor who at any time ratifies or approves this
Agreement. After any acceleration under this subsection, any obligation
of the Lender to make any further Loans or advances of any kind under
any Loan Document shall at the option of the Lender be permanently
terminated.
(b) PARTIAL ACCELERATION. Upon the occurrence and during the
continuance of any Event of Default described in SUBSECTION (a), (c),
(d) or (e) of SECTION 10.1 with respect to any Obligation owing or Loan
Document executed in connection therewith, the Lender at any time and
from time to time may declare any and all such Obligations immediately
due and payable, without demand, presentment, notice of demand or of
dishonor and nonpayment, protest, notice of protest, notice of
intention to accelerate, declaration or notice of acceleration, or any
other notice or declaration of any kind, all of which are hereby
expressly waived by the Borrower. Upon the Lender's acceleration of any
or all of the Obligations, it shall use commercially reasonable efforts
to give the Borrower reasonably contemporaneous written notice thereof,
but any inadvertent error in the timing or manner of giving such notice
shall not affect, in any way, the otherwise proper acceleration under
the terms of this Agreement of such Obligations.
(c) TAX CLAIMS. Upon the occurrence and during the continuance
of an Event of Default described in SUBSECTION (g) of SECTION 10.1, the
Lender may at any time and from time to time and without notice to the
Borrower, except as may otherwise be required hereunder, declare any or
all of the Obligations associated with such Tax Claim (or which the
Lender in its reasonable discretion believes will be likely to become
associated with such Tax Claim or any similar future Tax Claim)
immediately due and payable, and all such Obligations shall thereupon
be immediately due and payable, without demand, presentment, notice of
demand or of dishonor and nonpayment, protest, notice of protest,
notice of intention to accelerate, declaration or notice of
acceleration, or any other notice or declaration of any kind, all of
which are hereby expressly waived by the Borrower. Upon the Lender's
acceleration of any or all of the Obligations, it shall use
commercially
47
reasonable efforts to give the Borrower reasonably contemporaneous
written notice thereof, but any inadvertent error in the timing or
manner of giving such notice shall not affect, in any way, the+
otherwise proper acceleration under the terms of this Agreement of
such Obligations.
(d) OTHER ACCELERATION. Upon the occurrence and during the
continuance of any Event of Default not described in the preceding
SUBSECTIONS (a), (b) or (c) of this SECTION 10.2, the Lender may at any
time and from time to time and without notice to the Borrower, except
as may otherwise be required hereunder, declare any or all of the
Obligations immediately due and payable, and all such Obligations shall
thereupon be immediately due and payable, without demand, presentment,
notice of demand or of dishonor and nonpayment, protest, notice of
protest, notice of intention to accelerate, declaration or notice of
acceleration, or any other notice or declaration of any kind, all of
which are hereby expressly waived by the Borrower. Upon the Lender's
acceleration of any or all of the Obligations, it shall use
commercially reasonable efforts to give the Borrower reasonably
contemporaneous written notice thereof, but any inadvertent error in
the timing or manner of giving such notice shall not affect, in any
way, the otherwise proper acceleration under the terms of this
Agreement of such Obligations.
Section 10.3 REMEDIES. If any Event of Default shall occur and be
continuing, the Lender's obligation to make any Development Loans shall be
suspended, except as expressly provided to the contrary herein, and the
Lender may protect and enforce its rights under the Loan Documents by any
appropriate proceedings, including proceedings for specific performance of
any covenant or agreement contained in any Loan Document, and the Lender may
enforce the payment of any Obligations due or enforce any other legal or
equitable right. All rights, remedies and powers conferred upon the Lender
under the Loan Documents shall be deemed cumulative and not exclusive of any
other rights, remedies or powers available under the Loan Documents or at law
or in equity. Notwithstanding the foregoing, the payment of the Obligations
of the Borrower shall be made solely from the cash flows from the Collateral,
or in the Event of Default by the Borrower, from any amounts derived from the
exercise by the Lender of its rights hereunder, or under any other Loan
Document, with regard to the Collateral including proceeds of foreclosure;
but without recourse by the Lender to any of the cash flows, properties or
other assets of the Borrower not included in or derived from the Collateral.
If any Unmatured Event of Default shall occur and be continuing, the Lender's
obligation to make any Development Loans shall be suspended, except as
expressly provided to the contrary herein, so long as any such Unmatured
Events of Default or resulting Event of Default is continuing.
Section 10.4 INDEMNITY. Except to the extent expressly provided
otherwise in another Loan Document, the Borrower agrees to indemnify the
Lender, upon written 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, 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 the
Lender growing out of, resulting from or in any other way associated with any
of the Collateral, the Loan Documents or 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 Person
48
or any liabilities or duties of any Person with respect to Hazardous
Materials found in or released into the environment). THE FOREGOING
INDEMNIFICATION SHALL APPLY WHETHER SUCH LIABILITIES AND COSTS ARE IN ANY WAY
OR TO ANY EXTENT CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT ACT OR
OMISSION OF ANY KIND BY THE LENDER; PROVIDED, HOWEVER, THAT, UNDER THIS
SECTION, NO PERSON SHALL BE ENTITLED TO RECEIVE INDEMNIFICATION FOR THAT
PORTION, IF ANY, OF ANY LIABILITIES AND COSTS WHICH IS CAUSED BY SUCH
PERSON'S GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. As used in this section the
term "Lender" shall refer not only to the Person designated as such in
Section 1.1, but also to its lender(s) and shareholders and, with respect to
each of the foregoing, each director, officer, agent, attorney, employee,
representative and Affiliate of such Person.
ARTICLE 11: MISCELLANEOUS
Section 11.1 WAIVERS AND AMENDMENTS; ACKNOWLEDGMENTS AND ADMISSIONS.
(a) WAIVERS AND AMENDMENTS. No failure or delay (whether by
course of conduct or otherwise) by the Lender in exercising any right,
power or remedy which the Lender may have under any of the Loan
Documents shall operate as a waiver thereof or of any other right,
power or remedy, nor shall any single or partial exercise by the Lender
of any such right, power or remedy preclude any other or further
exercise thereof or of any other right, power or remedy. No waiver of
any provision of any Loan Document and no consent to any departure
therefrom shall ever be effective unless it is in writing and signed by
the Lender, and then such waiver or consent shall be effective only in
the specific instances and for the purposes for which given and to the
extent specified in such writing. No notice to or demand on the
Borrower shall in any case of itself entitle the Borrower to any other
or further notice or demand in similar or other circumstances. This
Agreement and the other Loan Documents set forth the entire
understanding and agreement of the parties hereto and thereto with
respect to the transactions contemplated herein and therein and
supersede all prior discussions and understandings with respect to the
subject matter hereof and thereof, and no modification or amendment of
or supplement to this Agreement or the other Loan Documents shall be
valid or effective unless the same is in writing and signed by the
party against whom it is sought to be enforced.
(b) ACKNOWLEDGMENTS AND ADMISSIONS. The Borrower hereby
represents, warrants and acknowledges that (i) it has been advised by
counsel in the negotiation, execution and delivery of the Loan
Documents to which it is a party, (ii) it has made independent
decisions to enter into this Agreement and the other Loan Documents to
which it is a party, without reliance on any representation, warranty,
covenant or undertaking by the Lender, whether written, oral or
implicit, other than as expressly set out in this Agreement or in
another Loan Document delivered on or after the date hereof, (iii)
there are no representations, warranties, covenants, undertakings or
agreements by the Lender to the Borrower as to the Loan Documents
except as expressly set out in this Agreement or in another Loan
Document delivered on or after the date hereof, (iv) the Lender owes no
fiduciary duty to the Borrower with respect to any Loan Document or the
49
transactions contemplated thereby, (v) the relationship pursuant to the
Loan Documents between the Borrower, on one hand, and the Lender, on
the other hand, is and shall be solely that of debtor and creditor,
respectively, (vi) no partnership or joint venture exists with respect
to the Loan Documents between the Borrower and the Lender, (vii) should
an Event of Default or Unmatured Event of Default occur or exist the
Lender will determine in its sole discretion and for its own reasons
what remedies and actions it will or will not exercise or take at that
time, (viii) without limiting any of the foregoing, the Borrower is not
relying upon any representation or covenant by the Lender, or any
representative thereof, and no such representation or covenant has been
made, that the Lender will, at the time of an Event of Default or
Unmatured Event of Default, or at any other time, waive, negotiate,
discuss or take or refrain from taking any action permitted under the
Loan Documents with respect to any such Event of Default or Unmatured
Event of Default or any other provision of the Loan Documents, and (ix)
the Lender has relied upon the truthfulness of the acknowledgments in
this section in deciding to execute and deliver this Agreement and to
make the Loans.
THIS WRITTEN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Section 11.2 SURVIVAL OF AGREEMENTS: CUMULATIVE NATURE. The Lender
may assign and/or transfer its rights and privileges under the Loan Documents
at any time and from time to time; provided that the Lender shall remain
liable to perform, or cause to be performed, its obligations to the Borrower
under the terms of the Loan Documents. All of the various representations,
warranties, covenants and agreements of the Borrower in the Loan Documents
shall survive the execution and delivery of this Agreement and the other Loan
Documents and the performance hereof and thereof, including the making or
granting of the Loans and the delivery of the Notes and the other Loan
Documents, and shall further survive until all of the Obligations are paid in
full to the Lender and all of the Lender's obligations to the Borrower are
terminated. The representations, warranties and covenants made by the
Borrower in the Loan Documents, and the rights, powers and privileges granted
to the Lender in the Loan Documents, are cumulative, and, except for
expressly specified waivers and consents, no Loan Document shall be construed
in the context of another to diminish, nullify or otherwise reduce the
benefit to the Lender of any such representation, warranty, covenant, right,
power or privilege. In particular and without limitation, no exception set
out in this Agreement to any representation, warranty or covenant herein
contained shall apply to any similar representation, warranty or covenant
contained in any other Loan Document, and each such similar representation,
warranty or covenant shall be subject only to those exceptions which are
expressly made applicable to it by the terms of the various Loan Documents.
Section 11.3 NOTICES. All notices, requests, consents, demands and
other communications required or permitted under any Loan Document shall be
in writing, unless otherwise specifically provided in such Loan Document, and
shall be deemed sufficiently given or furnished if delivered by personal
delivery, by telecopy, by delivery service with proof of
50
delivery or by registered or certified United States mail, postage prepaid,
(unless changed by similar notice in writing given by the particular Person
whose address is to be changed). Any such notice or communication shall be
deemed to have been given (a) in the case of personal delivery or delivery
service, as of the date of delivery at the address and in the manner provided
herein, (b) in the case of telecopy, upon receipt, or (c) in the case of
registered or certified United States mail three (3) business days after
deposit in the mail.
For mail delivery to:
Xx. Xxxxxx X. Xxxxxx, Senior Vice President and CFO
Texstar Petroleum, Inc.
0000 Xxxxxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
with copies to:
Xx. X. Xxxxxx Yeates
Xxxxxx Xxxxxx, a Professional Corporation
0000 Xxxxxxxxx, Xxxxx 0000
Xxxxxxx, Xxxxx 00000
For mail delivery to:
Aquila Energy Capital Corporation
909 Xxxxxx, Suite 0000
Xxx Xxxxxxx Xxxxxx
Xxxxxxx, Xxxxx 00000-0000
with copies to:
Xx. Xxxxxxx X. Xxxxxx
Akin, Gump, Strauss, Xxxxx & Xxxx, L.L.P.
0000 Xxxxxxxx Xxxxx, Xxxxx Tower
000 Xxxxxxxxx
Xxxxxxx, Xxxxx 00000
Section 11.4 PARTIES IN INTEREST; TRANSFERS. All grants, covenants
and agreements contained in the Loan Documents shall bind and inure to the
benefit of solely the parties thereto and their respective successors and
assigns; provided, however, that the Borrower shall not assign or transfer
any of its rights or delegate any of its duties or obligations under any Loan
Document without the prior written consent of the Lender, which consent shall
not be unreasonably withheld or delayed. Nothing expressed or referred to in
this Agreement shall be construed to give any Person other than the parties
to this Agreement any legal or equitable right, remedy, or claim or any claim
or right under any doctrines or theories of intended or third-party
beneficiaries under or with respect to this Agreement or any provision of
this Agreement. This Agreement and all of its provisions and conditions are
for the sole and exclusive benefit of the parties to this Agreement and their
permitted successors and assigns.
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Section 11.5 GOVERNING LAW; SUBMISSION TO PROCESS. EXCEPT TO THE
EXTENT THAT THE LAW OF ANOTHER JURISDICTION IS EXPRESSLY STIPULATED IN A LOAN
DOCUMENT OR MANDATORILY GOVERNS A LOAN DOCUMENT, THE LOAN DOCUMENTS SHALL BE
DEEMED CONTRACTS AND INSTRUMENTS MADE UNDER THE LAWS OF THE STATE OF TEXAS
AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE
LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
THIS AGREEMENT HAS BEEN ENTERED INTO IN HOUSTON, TEXAS AND SHALL BE
PERFORMABLE FOR ALL PURPOSES IN XXXXXX COUNTY, TEXAS. SUBJECT TO THE
PROVISIONS OF ARTICLE 12, COURTS WITHIN THE STATE OF TEXAS SHALL HAVE
JURISDICTION OVER ANY AND ALL DISPUTES BETWEEN THE BORROWER AND THE LENDER,
WHETHER IN LAW OR EQUITY, INCLUDING, BUT NOT LIMITED TO, ANY AND ALL DISPUTES
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT; AND
VENUE IN ANY SUCH DISPUTE WHETHER IN FEDERAL OR STATE COURT SHALL BE LAID IN
XXXXXX COUNTY, TEXAS.
Section 11.6 LIMITATION ON INTEREST. The Lender, the Borrower and
any other parties to any Loan Documents intend to contract in strict
compliance with applicable usury law from time to time in effect. In
furtherance thereof, the parties stipulate and agree that none of the terms
and provisions contained in the Loan Documents shall ever be construed to
create a contract to pay, for the use, forbearance or detention of money,
interest in excess of the maximum amount of interest permitted to be charged
by applicable law from time to time in effect. Neither the Borrower nor any
present or future guarantors, endorsers or other Persons hereafter becoming
liable for payment of any Obligation shall ever be liable for unearned
interest thereon or shall ever be required to pay interest thereon in excess
of the maximum amount that may be lawfully charged under applicable law from
time to time in effect, and the provisions of this section shall control over
all other provisions of the Loan Documents which may be in conflict or
apparent conflict herewith. The Lender expressly disavows any intention to
charge or collect excessive unearned interest or finance charges in the event
the maturity of any Obligation is accelerated. If (a) the maturity of any
Obligation is accelerated for any reason, (b) any Obligation is prepaid and
as a result any amounts held to constitute interest are determined to be in
excess of the legal maximum, or (c) the Lender or any other holder of any or
all of the Obligations shall otherwise collect moneys which are determined to
constitute interest which would otherwise increase the interest on any or all
of the Obligations to an amount in excess of that permitted to be charged by
applicable law then in effect, then all such sums determined to constitute
interest in excess of such legal limit shall, without penalty, be promptly
applied to reduce the then outstanding principal of the related Obligations
or, at the Lender's or such holder's option, promptly returned to the
Borrower or the other payor thereof upon such determination. In determining
whether or not the interest paid or payable under any specific circumstance
exceeds the maximum amount permitted under applicable law, the Lender and the
Borrower (and any other payors thereof) shall to the greatest extent
permitted under applicable law, (x) characterize any non-principal payment as
an expense, fee or premium rather than as interest, (y) exclude voluntary
prepayments and the effects thereof, and (z) amortize, prorate, allocate and
spread the total amount of interest throughout the entire contemplated term
of the instruments evidencing the Obligations in accordance with the amounts
outstanding from time to time thereunder and the maximum legal rate of
interest from time to time in effect under applicable law in order to
lawfully charge the maximum amount of interest permitted under applicable law.
Section 11.7 TERMINATION; LIMITED SURVIVAL. In their sole and
absolute discretion, the Borrower and the Lender may each, at any time that
no Obligations are owing, elect in a notice
52
delivered to the other to terminate this Agreement; provided that prior to
the Drawdown Termination Date the Lender shall not, without the written
consent of the Borrower, be entitled to terminate its commitment to make
additional Development Loans. Upon receipt of such a notice, if no
Obligations are then owing, this Agreement and all other Loan Documents shall
thereupon be terminated and the parties thereto released from any prospective
obligations thereunder. Notwithstanding the foregoing or anything herein to
the contrary, any waivers or admissions made by the Borrower or the Lender in
any Loan Documents, and any obligations which any Person may have to
indemnify or compensate the Lender shall survive any termination of this
Agreement or any other Loan Document. At the request and expense of the
Borrower, the Lender shall prepare and execute all necessary instruments to
release and effect such termination of the Loan Documents; provided however,
that nothing in this SECTION 11.7 shall affect any and all continuing rights,
validity and enforceability of the Overriding Royalty Interest.
Section 11.8 SEVERABILITY. If any term or provision of any Loan
Document shall be determined to be illegal or unenforceable, all other terms
and provisions of the Loan Documents shall nevertheless remain effective and
shall be enforced to the fullest extent permitted by applicable law.
Section 11.9 COUNTERPARTS. This Agreement may be separately executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to constitute
one and the same Agreement.
Section 11.10 FURTHER ASSURANCES. The parties agree (a) to furnish
upon written request to each other such information, (b) to execute and
deliver to each other such documents, and (c) to do such other acts and
things, all as the other party may reasonably request for the purpose of
carrying out the intent of this Agreement and the Loan Documents.
Section 11.11 WAIVER OF PUNITIVE DAMAGES, ETC. THE BORROWER AND THE
LENDER HEREBY (a) IRREVOCABLY WAIVE, TO THE MAXIMUM EXTENT PERMITTED BY LAW
ANY RIGHT THEY MAY HAVE TO CLAIM OR RECOVER IN ANY ARBITRATION ANY SPECIAL,
EXEMPLARY, PUNITIVE, STATUTORY OR CONSEQUENTIAL DAMAGES OR DAMAGES OTHER
THAN, OR IN ADDITION TO, ACTUAL DAMAGES; (b) CERTIFY THAT NO PARTY HERETO NOR
ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED,
EXPRESSLY OR OTHERWISE OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF
ARBITRATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (c) ACKNOWLEDGE THAT
EACH HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS
AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER
INDUCEMENTS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION.
Section 11.12 REPRESENTATIONS AND WARRANTIES OF LENDER. To confirm
the Borrower's understanding concerning Lender and Lender's business and
obligations, and to induce the Borrower to enter into this Agreement and to
make the Loans, Lender represents and warrants to the Borrower that:
53
(a) ORGANIZATION AND GOOD STANDING. Lender is a corporation
duly organized, validly existing and in good standing under the laws of
Delaware, having all powers necessary to carry on its business and to
enter into and consummate the transactions contemplated by the Loan
Documents.
(b) AUTHORIZATION. Lender has taken all actions necessary to
authorize the execution and delivery of the Loan Documents and to
authorize the consummation of the transactions contemplated thereby and
the performance of its obligations thereunder, subject to satisfaction
of the terms and conditions of the Loan Documents. Lender is duly
authorized to lend funds hereunder, subject to satisfaction of the
terms and conditions of the Loan Documents.
(c) NO CONFLICTS OR CONSENTS. Except as expressly contemplated
in the Loan Documents, no consent, approval, authorization or order of,
and no notice to or filing with, any court or governmental authority or
third-party is required in connection with the execution, delivery or
performance by Lender of any Loan Document or to consummate any
transaction contemplated by the Loan Documents.
(d) ENFORCEABLE OBLIGATIONS. This Agreement is, and the other
Loan Documents when executed and delivered by Lender will be, legal,
valid and binding obligations of Lender, enforceable in accordance with
their terms except as such enforcement may be limited by bankruptcy,
insolvency or similar laws of general application relating to the
enforcement of debtor's rights or by principles of equity applicable to
the enforcement of debtor's rights generally.
(e) COMPLIANCE WITH AGREEMENT AND LAW. The Lender will perform
all material obligations it is required to perform under the terms of
the Loan documents. Lender will conduct its business and affairs in
material compliance with laws, regulations and orders applicable
thereto.
Section 11.13 IMI PROPERTY. The Lender has no obligation to fund any
advance in connection with the exploration or development of the IMI
Property. In the event that the Borrower requests the Lender to fund an
advance in connection with the exploration or development of the IMI Property
and the Lender does not elect to fund such advance, the Lender will, upon the
Borrower's written request and at the cost and expense of the Borrower,
execute such documents and take such actions as may be reasonably requested
and necessary to release any Lien of the Lender over the IMI Property.
Section 11.14 PARTICIPATING CREDITOR DEDICATED RECEIVABLES. The
Lender acknowledges that neither this Agreement nor any other Loan Document
is intended to give the Lender any interest in the Participating Creditor
Dedicated Receivables and agrees that it will, upon the Borrower's written
request and at the cost and expense of the Borrower execute such documents
and take such actions as may be reasonably requested and necessary to release
any Lien of the Lender over the Participating Creditor Dedicated Receivables.
54
ARTICLE 12: ARBITRATION
Section 12.1 ARBITRATION.
(a) The Borrower and Lender and any other obligor party (the
"PARTIES") will attempt in good faith to resolve any controversy or
dispute arising out of or relating to this Agreement promptly by
negotiations between themselves. The negotiation process may be started
by the giving of written notice by any party to the other parties in
accordance with the terms of SECTION 11.3 hereof, and the parties agree
to negotiate in good faith, and select an independent mediator to
facilitate the negotiations and conduct up to eight consecutive hours
of mediated negotiations in Houston, Texas within thirty (30) days
after the notice is first sent. If, within ten (10) days after the
initial notice, the parties are not able to agree upon a mediator, the
parties shall immediately proceed to arbitration. Fees and expenses of
the mediator shall be borne equally by the Borrower and Lender.
(b) No litigation or other proceeding may ever be instituted
at any time in any court for any purpose, except as may be set forth in
SECTION 12.1(h) hereof.
(c) If a controversy or dispute is not resolved after
completion of the negotiation process described in SUBSECTION (a)
above, then, upon notice by any party to the other parties (an
"ARBITRATION NOTICE") and to AAA, the controversy or dispute shall be
submitted to an arbitration panel for binding arbitration in Houston,
Texas, in accordance with AAA's Commercial Arbitration Rules (the
"RULES"). The parties agree that they will faithfully observe this
Agreement and the Rules and that they will abide by and perform any
award rendered by the arbitration panel. The arbitration shall be
governed by the Federal Arbitration Act, 9 U.S.C. Section 1-16. The
award or judgment of the arbitration panel shall be final and binding
on all parties and judgment upon the award or judgment of the
arbitration panel may be entered and enforced by any court having
jurisdiction. If any party becomes the subject of a bankruptcy,
receivership or other similar proceeding under the laws of the United
States of America, any state or commonwealth or any other nation or
political subdivision thereof, then, to the extent permitted or not
prohibited by applicable law, any factual or substantive legal issues
arising in or during the pendency of any such proceeding shall be
subject to all of the foregoing mandatory mediation and arbitration
provisions and shall be resolved in accordance therewith. The
agreements contained herein have been given for valuable consideration,
are coupled with an interest and are not intended to be executory
contracts. The fees and expenses of the arbitration panel will be
shared by all parties engaged in the dispute or controversy on a basis
determined to be fair and equitable by the arbitrators, taking into
account the relative fault of each party, the relative credibility and
merit of all claims and defenses made by each party and the
cooperation, speed and efficiency of each party in conducting the
arbitration proceeding and complying with the Rules and with orders and
requests of the arbitrators.
(d) Promptly after the Arbitration Notice is given, each party
will select an arbitrator and the arbitrators so selected will in turn
select an independent and impartial third arbitrator. If the
arbitrators selected by the parties are unable to agree on a third
55
arbitrator, then one of the parties shall notify AAA and AAA shall
select the third arbitrator. Such third arbitrator selected in such
manner shall not be entitled to compensation in excess of compensation
paid to either of the other two arbitrators. The decision of AAA with
respect to the selection of the third arbitrator will be final and
binding in such case. Such three arbitrators will constitute the
arbitration panel. Any arbitration regarding the Purchase Price for the
Overriding Royalty Interest shall be conducted by arbitrators who are
petroleum engineers employed by one or more of the firms designated in
SECTION 7.1(f) hereof.
(e) Within 10 days after the selection of the arbitration
panel, the parties and their counsel will appear before the arbitration
panel at a place and time in Houston, Texas, as may be designated by
the arbitration panel for the purpose of each party making a one hour
or less presentation and summary of the case. Thereafter, the
arbitration panel will set dates and times for additional hearings
until the proceeding is concluded. The desire and goal of the parties
is, and the arbitration panel will be advised that its goal should be,
to conduct and conclude the arbitration proceeding as expeditiously as
possible.
(f) Any arbitral award may be enforced in a District Court of
the State of Texas sitting in Houston, Texas or in the United States
District for the Southern District of Texas, Houston Division, and, by
execution and delivery of this Agreement, the parties hereby accept for
themselves and in respect of their property, generally and
unconditionally, the nonexclusive jurisdiction of the aforesaid courts
for said purpose and the parties hereby irrevocably waive to the
fullest extent permitted by law any objection, including without
limitation, any objection to the laying of venue or based on the
grounds of forum non conveniens, which they may now or hereafter have
to the bringing of any such action or proceeding in such respective
jurisdictions.
(g) The arbitration panel will have no authority to award
punitive or other damages not measured by the prevailing party's actual
damages and may not, in any event, make any ruling, finding, or award
that does not conform to the terms and conditions of this Agreement.
(h) The provisions of this SECTION 12.1 relating to
arbitration of disputes shall not apply to litigation or any other
submission to judicial or administrative process that is instituted for
the sole purpose of: (i) compelling a party to submit to arbitration in
accordance with the provisions of this SECTION 12.1, (ii) obtaining
enforcement of any award or judgment of the arbitrator(s) issued
pursuant to this SECTION 12.1, (iii) accelerating the maturity of any
debt of the Borrower during the continuance of an Event of Default,
(iv) bringing suit and obtaining a judgment against the Borrower on its
debt for purposes of enforcement of any Security Document (provided
that the satisfaction of such judgment is limited solely to the
Collateral), or (v) exercising all of the Lender's rights and remedies
to foreclose or otherwise realize upon the Collateral, including rights
to collect sums due or to become due under the Collateral.
(i) The provisions of this ARTICLE 12 shall terminate
immediately if, as and when the party originally identified herein as
"Lender" no longer owns any rights or interests under this Agreement
and the Obligations of the Borrower arising pursuant hereto;
56
provided that if any arbitration under the provisions of this Article
has been initiated prior to the time that such Lender no longer owns
any such rights or interests under this Agreement and the Obligations,
the provisions of this Article shall continue to be applicable to any
such arbitration that has been commenced.
[The remainder of this page is intentionally left blank.]
57
IN WITNESS WHEREOF, this Agreement is executed as of the date first
written above.
BORROWER:
TEXSTAR PETROLEUM, INC.
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
LENDER:
AQUILA ENERGY CAPITAL CORPORATION
By:
-------------------------------------
Name:
-------------------------------------
Title:
-------------------------------------
[Credit Agreement signature page]
NOTICE TO BORROWER
THIS WRITTEN CREDIT AGREEMENT IS THE FINAL EXPRESSION OF THE CREDIT AGREEMENT
BETWEEN THE BORROWER AND THE LENDER. THIS WRITTEN CREDIT AGREEMENT MAY NOT BE
CONTRADICTED BY EVIDENCE OF ANY PRIOR ORAL CREDIT AGREEMENT OR OF A
CONTEMPORANEOUS ORAL CREDIT AGREEMENT BETWEEN THE BORROWER AND THE LENDER.
AFFIRMATION OF NO UNWRITTEN ORAL CREDIT AGREEMENTS. The Borrower and
the Lender affirm by the initials below of their authorized officers or
representatives that no unwritten, oral credit agreement exists between them.
Borrower's Lender's
Representative's Representative's
Initials Initials