Securities and Exchange Commission
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 20, 2002
PARALLEL PETROLEUM CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware
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(State or other
jurisdiction of incorporation)
0-13305 75-1971716
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(Commission file (IRS employer
number) identification number)
1004 N. Big Spring, Suite 400, Midland, Texas 79701
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(Address of principal executive offices) (Zip code)
(915) 684-3727
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(Registrant's telephone number including area code)
110 N. Marienfeld, Suite 465, Midland, Texas 79701
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(Former name or former address, if changed since last report)
Item 2. Acquisition or Disposition of Assets.
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Purchase of Assets
On December 20, 2002, Parallel Petroleum Corporation purchased, through its
subsidiary, Parallel, L.P., 95% of the interest owned by nonaffiliated sellers
in producing oil and gas properties located in Andrews County, Texas in the
Permian Basin of west Texas. The total purchase price for Parallel's interest in
the properties was $46,075,000.00, of which $45,075,000 was paid in cash and
$1,000,000.00 was paid in the form of 454,545 shares of common stock of Parallel
Petroleum Corporation. For purposes of the acquisition, the common stock was
valued at $2.20 per share, the last sale price of Parallel's common stock on the
day immediately preceding Parallel, L.P.'s execution of a purchase and sale
agreement with the sellers of the properties. Texland Petroleum, Inc., an
unaffiliated third party, acquired the Seller's remaining 5% interest in the
properties. Parallel's working interest in the properties, which consists of
approximately 3,640 gross acres, ranges from 22% to 85%. Texland and Parallel
Petroleum Corporation will co-manage the properties, but Texland is the named
operator.
The acquisition was initially conducted under a competitive bid process and
completed under terms of a negotiated purchase and sale agreement with JMC
Exploration, Inc. and Arkoma Star L.L.C., the sellers of the property. The
parties entered into the agreement on November 27, 2002.
The properties acquired are currently producing approximately 1,150
equivalent barrels of oil per day, net to the interest acquired by Parallel. The
properties produce from the San Andres formation at a depth of approximately
4,400 feet and consist of 128 producing wells, supported by 80 water-injection
wells situated on nine contiguous leases containing approximately 3,640 gross
acres.
The cash portion of the purchase price was financed with loan proceeds
drawn under a revolving credit facility provided to Parallel Petroleum
Corporation and Parallel, L.P. by First American Bank, SSB, Western National
Bank and BNP Paribas. The credit facility provides for revolving loans subject
to a borrowing base and a monthly commitment
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reduction. The current borrowing base is $50 million. The monthly commitment
reduction commences on August 31, 2003 and continues with a like reduction on
the last day of each following month. The amount of the monthly commitment
reduction is determined by dividing (a) the borrowing base on the day
immediately preceding the date of each monthly commitment reduction by (b) the
number of months remaining prior to July 1, 2008. The borrowing base and the
monthly commitment reduction amount will be redetermined by the banks on or
about April 30 and October 31 of each year or at other times requested by
Parallel.
The principal amount outstanding under the revolving credit facility bears
interest at First American Bank's base rate or the libor rate, at the election
of Parallel Petroleum Corporation and Parallel, L.P.. Generally, First American
Bank's base rate is equal to the prime rate published in the Wall Street
Journal, but not less than 4.50%. The libor rate is generally equal to the sum
of (a) the rate designated as "British Bankers Association Interest Settlement
Rates" and offered on one, two, three or six month interest periods for deposits
of $1,000,000, and (b) a margin ranging from 2.25% to 2.75%, depending upon the
outstanding principal amount of the loans. If the principal amount outstanding
is equal to or greater than 75% of the borrowing base established by the banks,
the margin is 2.75%. If the principal amount outstanding is equal to or greater
than 50%, but less than 75% of the borrowing base, the margin is 2.50%. If the
principal amount outstanding is less than 50% of the borrowing base, the margin
is 2.25%.
In the case of base rate loans, interest is payable on the last day of each
month. In the case of libor loans, interest is payable on the last day of each
applicable interest period.
If the total outstanding borrowings under the facility are less than the
borrowing base, an unused commitment fee is required to be paid to the bank
lenders. The amount of the fee is .25% of the daily average of the unadvanced
amount of the borrowing base. The fee is payable quarterly, commencing on March
31, 2003.
All outstanding principal under the revolving credit facility is due and
payable on December 20, 2006. The loan is secured by substantially all of the
oil and gas properties owned by Parallel Petroleum Corporation and Parallel,
L.P., including the properties acquired from JMC Exploration, Inc. and Arkoma
Star, L.L.C. Parallel, L.L.C., a subsidiary of Parallel Petroleum Corporation,
guaranteed payment of the loans.
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Item 7. Financial Statements and Exhibits.
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(a) Financial Statements.
It is impractical to provide the financial statements required by Item 7 of
this Report on Form 8-K at the time of filing hereof. Such financial statements
will be filed not later than March 7, 2003.
(b) Exhibits.
Exhibit No. Description
10.1 Purchase and Sale Agreement, dated
as of November 27, 2002
10.2 First Amended and Restated Credit Agreement,
dated December 20, 2002, by and among
Parallel Petroleum Corporation,
Parallel, L.P., Parallel, L.L.C.,
First American Bank, SSB,
Western National Bank and BNP Paribas
10.3 Guaranty, dated December 20, 2002, between
Parallel, L.L.C.and First American Bank,
SSB, as Agent
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: December 20, 2002
PARALLEL PETROLEUM CORPORATION
By: /s/ Larry C. Oldham
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Larry C. Oldham, President
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EXHIBIT 10.1
PURCHASE AND SALE AGREEMENT
JMC EXPLORATION, INC./ARKOMA STAR L.L.C.
FULLERTON PROPERTIES
ANDREWS COUNTY, TEXAS
DATED AS OF NOVEMBER 27, 2002
JMC Exploration, Inc., an Oklahoma corporation, and Arkoma Star L.L.C., an
Oklahoma limited liability company, collectively referred to herein as Seller,
and Parallel L.P., a Texas limited partnership and Texland Petroleum, Inc., a
Texas corporation, herein collectively referred to as Purchaser, hereby enter
into this Purchase and Sale Agreement, herein called the Agreement, in
consideration of Seller's agreement to sell, and Purchaser's agreement to buy,
Seller's interests in the property described in this Agreement, all pursuant to
the terms and conditions of this Agreement. Seller and Purchaser may also be
referred to herein individually as a Party, or collectively, as the Parties.
1. Property Being Sold or Exchanged. Subject to the terms and conditions set
forth hereinafter, Seller agrees to convey to Purchaser the Property (as
defined below) and Purchaser agrees to accept the Property, and tender
consideration therefor, in the manner and of the type and amount as
hereinafter required. For purposes of this Agreement, the Property shall
mean all of Seller's right, title, and interest in and to all property and
property interests listed in subsections (a) through (i) of this Section 1,
but excluding (1) all interest arising under and in and to the Fullerton
Field Clearfork Formation Unitization Agreement, as amended, effective
February 1, 1954; (2) all interest in and to those depths lying below the
stratigraphic equivalent of the top of the Wolfcamp Formation; and (3) the
property listed in subsection (j).
a) Leases. Leasehold interest in the oil, gas or other mineral leases
described in the "Leases" Section of Exhibit A, including working
interests, carried working interests, rights of assignment and
re-assignment, and other interests under or in oil, gas or minerals
leases, and interests in rights to explore for and produce oil, gas
and other minerals and the Wells (as defined below).
b) Fee Interests. Fee interests to the surface and in oil, gas or other
minerals (including rights under mineral deeds,
conveyances or assignments) of and under the lands described in any of
the oil, gas and/or mineral leases listed on Exhibit A or in the
conveyances and assignments listed on Exhibit A.
c) Rights in Production. Royalties, overriding royalties, production
payments, rights to take royalties in kind, or other interests in the
oil, gas or other minerals produced from the lands and Wells described
in any of the oil, gas and/or mineral leases listed on Exhibit A or in
the conveyances and assignments listed on Exhibit A.
d) Rights, Working Interests. Rights and interests in or derived from
hydrocarbon marketing or sales agreements to the extent they cover
production from the Property, unit agreements, orders or decisions of
state and federal regulatory authorities establishing units, joint
operating agreements, enhanced recovery and injection agreements,
farmout agreements and farmin agreements, options, drilling
agreements, exploration agreements, assignments of operating rights,
working interests, subleases and rights above certain footage depths,
horizons or interests with respect to the properties and interests
described in subsection (a) above, including, without limitation,
those contracts described on Exhibit E.
e) Easements. To the extent transferable, rights-of-way, surface or
ground leases, easements, servitudes and franchises located on or
granting rights to the property or property interests described in
Exhibit A hereto and acquired or used in connection with operations
for the exploration, production, processing and transportation of oil,
gas or other minerals with respect to the properties and interests
described in subsections (a) - (d) above.
f) Permits. To the extent transferable, permits and licenses of any
nature owned, held or operated in connection with operations for the
exploration, production, processing and transportation of oil, gas or
other minerals from the properties and interests described in
Subsections (a) - (d) above.
g) Wells. Producing, non-producing, shut-in and abandoned oil and gas
wells, saltwater disposal wells, injection wells and water wells
located on the property or property interests
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described in Exhibit A hereto and used in connection with the
properties or interests described in subsections (a) - (d) above.
h) Facilities. All facilities, buildings, improvements, gathering lines,
flowlines, injection lines and pipelines and appurtenance located on
the real property and on lands included in, or which are subservient
to, the property and property interests described on Exhibit A.
i) Equipment. All surface and downhole equipment, fixtures, inventory and
personal property located on the property and property interests
described in Exhibit A hereto, and used in connection with the
properties or interests described in subsections (a) - (h) above.
j) Geophysical Data. Unless otherwise specifically agreed to by the
parties, all proprietary or other geophysical data in the possession
of Seller shall be excluded from this sale.
2. Sale or Exchange. Seller may elect to effect all or part of the required
conveyances under this Agreement through either a sale of the Property to
Purchaser for cash or through an exchange of all or part of the Property
with a Qualified Intermediary pursuant to the likekind exchange provisions
of Section 1031 of the Internal Revenue Code of 1986, as amended, and the
regulations promulgated thereunder. The term "Qualified Intermediary" shall
have the same meaning as prescribed in Treasury Regulations ss.
1.1031(k)-1(g)(4). Prior to Closing, Seller shall provide Purchaser written
notice of such election, the choice being within the sole discretion of
Seller. In the event Seller deems it necessary, in its sole opinion, the
Parties shall agree on a division in the value of the Property between
tangibles and intangibles.
Purchaser may elect to effect all or part of the required conveyances to it
under this Agreement through either a purchase of the Property for cash or
through an exchange of all or part of the Property with a Qualified
Intermediary pursuant to the like-kind exchange provisions of Section 1031
of the Internal Revenue Code of 1986, as amended, and the regulations
promulgated thereunder. The term "Qualified Intermediary" shall have the
same meaning as prescribed in Treasury Regulations ss. 1.103 (k)-(1)(g)(4).
Prior to Closing, each Purchaser shall provide Seller written notice of
such election, the choice being within the sole discretion of each
Purchaser.
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3. Purchase Price. As consideration for the Property, Purchaser shall pay to
Seller, or deliver to Seller's nominees, at Closing (subject to the terms
of subsection 5(b) below), the sum of Forty Seven Million, Five Hundred
Thousand and no/100 Dollars ($47,500,000.00) (the "Cash Purchase Price")
and 454,545 shares of common stock, par value $.01 of Parallel Petroleum
Corporation (the "Shares") (the Cash Purchase Price and the Shares are
collectively referred to as the "Purchase Price"). Seller shall determine
the portion of the Purchase Price that shall be allocated to personal
property and shall deliver such allocation in writing to Purchaser at
Closing. Seller and Purchaser shall prepare all tax returns consistent with
such allocation and the Allocated Values set forth on Exhibit D.
4. Closing and Performance Deposit
a) Closing. Closing shall occur on or before December 31, 2002, or at
such other date as may be agreed by the Parties or provided by this
Agreement, (the Closing Date), at a time and place to be designated by
Seller. Closing shall mean the consummation of the sale or exchange by
transfer of Seller's ownership in the Property and deposit or payment
of the Cash Purchase Price and the delivery of certificates
representing the Shares issued to Seller and its five owners, and in
such amounts as Seller shall reasonably request.
b) Performance Deposit. Immediately upon execution of this Agreement,
Purchaser shall deposit by wire transfer, into an interest-bearing
account designated by Seller, the sum of Four Million Eight Hundred
Fifty Thousand Dollars ($4,850,000), as a good faith deposit The sum
so deposited by Purchaser (inclusive of any interest or income earned
thereon) shall become a performance deposit (the Performance Deposit),
to be held and disbursed by Seller in accordance with the terms of
this Agreement. The Performance Deposit shall be non-refundable to
Purchaser, except as otherwise expressly provided herein and shall be
applied to the Purchase Price at Closing.
5. Exchange Election. If prior to the Closing Date either Seller or Purchaser
has notified the other Party of its election to effect an exchange of the
Property or portions
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of the Property for properties of a like-kind pursuant to Section 1031 of
the Internal Revenue Code of 1986, as amended, then at Closing:
a) Payment. Purchaser or Purchaser's designee shall make payment by wire
transfer to accounts designated by Seller in an aggregate amount equal
to the Purchase Price (less the Performance Deposit). Prior to
Closing, Seller will notify Purchaser of the amounts to be deposited
in each designated account.
b) Conveyance. Seller will convey the Property to Purchaser or
Purchaser's designee by executing and delivering (i) an Assignment and
Conveyance, and (ii) a Personal Property Agreement and Bill of Sale,
in substantially the form attached hereto as Exhibits B and C
respectively. Prior to Closing, Purchaser will notify Seller of the
identity of Purchaser's designee.
6. Sale Election. If prior to the Closing Date, neither Party has notified the
other of its election to effect an exchange of the Property, then at
Closing:
a) Payment. Purchaser shall make payment of the Purchase Price (less the
Performance Deposit) by wire transfer to an account to be designated
by Seller.
b) Conveyance. Seller will convey the Property to Purchaser by executing
and delivering (i) an Assignment and Conveyance, and (ii) a Personal
Property Agreement and Bill of Sale in substantially the form attached
hereto as Exhibits B and C respectively.
7. Further Assurances. Seller and Purchaser each agree to execute and deliver
to the other Party all division orders, transfer orders, and all other
documents necessary to fully vest in Purchaser the rights, obligations and
benefits acquired pursuant to this Agreement.
8. Conveyance Effective Date. The conveyance from Seller to Purchaser shall be
effective as of December 31, 2002, at 11:59 p.m. Central Standard Time,
herein called the Effective Date.
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9. Pre-Acquisition Review.
a) Conditions to Review. Purchaser agrees to conduct the Pre-Acquisition
Review of the Property in accordance with the terms and conditions set
out below.
1) Purchaser shall not conduct a Phase II environmental assessment
or any other environmental assessment of any portion of the
Property that is more extensive than a Phase I assessment without
the express written consent of Seller.
2) Purchaser shall agree to maintain the results of its
investigation, testing, and evaluation and review of files and
records, including title examination reviews, confidential in
accordance with the provisions, terms and conditions of that
certain Confidentiality Agreement dated October 23, 2002, between
Seller and Purchaser (referred to herein as the Confidentiality
Agreement).
3) Purchaser shall agree to provide Seller a copy of any assessment
reports of or about the Property, including, without limitation,
any reports, data and conclusions developed pursuant to the
Pre-Acquisition Review, promptly after such assessment report has
been furnished to or obtained by Purchaser, and Seller shall be
permitted to discuss the contents of any such assessment reports
with the party who prepared such reports.
4) Purchaser and its employees, agents, contractors and consultants
shall agree to abide by Seller's safety rules, regulations and
other operating policies applicable to the Property while
conducting their activities on the Property. Purchaser recognizes
that some or all of the Property is operated by Texland
Petroleum, Inc and that Seller's ability to obtain access to such
portions of the Property, and the manner and extent of such
access, is subject to the cooperation of Texland Petroleum, Inc.
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5) If Purchaser conducts any examination or inspection under this
Section or otherwise, then (a) such access, examination and
inspection shall be at Purchaser's sole risk, cost and expense
and Purchaser waives and releases all claims against Seller (and
their affiliates and the respective directors, officers,
employees, attorneys, contractors and agents of such parties)
arising in any way therefrom or in any way connected therewith or
arising in connection with the conduct of its directors,
officers, employees, attorneys, contractors and agents in
connection therewith and (b) Purchaser shall indemnify, defend
and hold harmless Seller (and their affiliates and the respective
officers, directors, employees, attorneys, contractors and agents
of such parties) from any and all claims, actions, causes of
action liabilities, damages, losses, costs or expenses
(including, without limitation, court costs and attorneys fees),
or liens or encumbrances for labor or materials, arising out of
or in any way connected with such matters. THE FOREGOING RELEASE
AND INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH CLAIMS,
ACTIONS, CAUSES OF ACTION, LIABILITIES, DAMAGES, LOSSES, COSTS OR
EXPENSES ARE CAUSED, OR CONTRIBUTED TO, BY (i) THE NEGLIGENCE OR
FAULT OF SELLER OR (ii) STRICT LIABILITY.
b) Review. Commencing upon the execution of this Agreement by Purchaser
and Seller and ending seven (7) days before the Closing Date (the
"Review Period"), Purchaser and its employees, agents and contractors
shall have the right, but not the obligation, to conduct the following
(the Pre-Acquisition Review) at its sole cost and expense but with the
cooperation of Seller:
1) To the extent Seller has the right to grant such rights to
Purchaser, and only after notice to Seller, to enter all or any
part of the Property at any reasonable time during normal
business hours, during the Review Period, and to inspect,
inventory, investigate (including environmental assessments and
evaluations), study and examine the same and the operations
conducted thereon; provided
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that Seller shall have the right to witness and review the
results of any such inspections, inventories, investigations
(including environmental assessments and evaluations), studies
and examination; and
2) To inspect, review and copy at reasonable times and upon
reasonable notice, all non-privileged and non-proprietary files,
records, documents and data related to the above matters,
including, but not limited to, any of the following which Seller
may have: Original Well Record Files on all active wells (i.e.,
all existing wells situated on the Property which have not been
previously plugged and abandoned), Regulatory, Accounting,
Marketing, Environmental, Pipeline, Lease, Contract, Fee
Property, Right-of-Way , Maintenance, Transportation, Processing,
Production and Engineering files and records.
c) Review Results.
1) If, as to any portion of the Property: (i) there is a material
violation of Environmental Law or (ii) there has been such a
substantial deterioration in the physical condition of the
Property as it existed on the Effective Date that Purchaser will
be unable to possess, operate, use or maintain the Property in
substantially the same manner that the Property was possessed,
operated, used or maintained by Seller on the Effective Date (
any such material violation or substantial deterioration
described (i) and (ii) above is called an "Environmental
Condition"); then, Purchaser may give written notice to Seller on
or before the last day of the Review Period of such Environmental
Condition. Such notice must describe the Environmental Condition
in reasonable detail and include Purchaser's estimated cost to
cure or remedy the Environmental Condition. FAILURE TO GIVE ANY
SUCH NOTICE WITHIN THE REVIEW PERIOD SHALL FORECLOSE PURCHASER
FROM SECURING THE BENEFITS OF SUBSECTION 9.(c)(2) AND SHALL NOT
EXCUSE PURCHASER FOR FAILING TO CLOSE BECAUSE OF MATTERS ARISING
OUT OF SUCH PRE-ACQUISITION REVIEW.
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2) Within the period between the date of receipt of such notice and
the Closing Date, Seller may, at its option and in its sole
discretion, (i) remedy or agree to remedy, to a degree agreed
upon prior to Closing, such Environmental Condition (in the event
current remediation of such Environmental Condition is required
by a Federal, State or local agency, Seller and Purchaser agree
that the condition shall be remedied in accordance with and to
the satisfaction of the appropriate agency's requirements); (ii)
agree with Purchaser on an adjustment to the Purchase Price which
adjustment shall reflect Purchaser's cost to remedy such
Environmental Condition; (iii) remove the affected portion or
portions of the Property from the Property to be conveyed and
reduce the Purchase Price by the value allocated to affected
portion or portions of the Property as set forth on Exhibit D; or
(iv) agree to indemnify and hold Purchaser harmless from any
third party Claims arising out of such Environmental Condition
for a period of two (2) years after the Closing, to the extent
the amount of such third party Claims, in the aggregate, exceeds
10% of the Purchase Price. The failure to do one of the above
prior to the extended Closing Date shall permit either Party to
terminate this Agreement by giving written notice of such
termination to the other on or after the extended Closing Date.
Upon the giving of such termination notice, neither Party shall
have any further rights or obligations hereunder except for
Purchaser's obligations and Seller's rights under the
Confidentiality Agreement and the Indemnification Agreement, and
Purchaser shall be entitled to a return of the Performance
Deposit. If Seller agrees to remedy any Environmental Condition,
then Purchaser and Seller agree that all negotiations and
contacts with state, federal and local agencies for approval and
review of such remedial action shall be made by Seller.
3) If the aggregate of the Environmental Conditions set forth in the
notice are not Material, notwithstanding anything herein to the
contrary, Seller shall convey the Property to Purchaser at
Closing and PURCHASER SHALL ACCEPT THE PROPERTY, INCLUDING THE
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PORTION(S) AFFECTED BY THE NONMATERIAL ENVIRONMENTAL CONDITIONS,
"WHERE IS" AND "AS IS" WITH NO RIGHT TO RECOVER FROM SELLER FOR
ANY LIABILITIES, COSTS OR EXPENSES RELATED TO SUCH NONMATERIAL
ENVIRONMENTAL CONDITIONS (INCLUDING, WITHOUT LIMITATION,
ENVIRONMENTAL CONDITIONS AND DAMAGES TO NATURAL RESOURCES).
ACQUISITION OF THE PROPERTY CONTAINING SUCH NON-MATERIAL
CONDITIONS "WHERE IS" AND "AS IS" SHALL CONSTITUTE PURCHASER'S
GENERAL RELEASE AND AGREEMENT TO DEFEND, INDEMNIFY AND HOLD
SELLER, ITS AFFILIATES, DIRECTORS, OFFICERS, EMPLOYEES, AGENTS
AND REPRESENTATIVES HARMLESS FROM ALL LIABILITIES, COSTS OR
EXPENSES RELATED TO SUCH NON-MATERIAL ENVIRONMENTAL CONDITIONS
(INCLUDING, WITHOUT LIMITATION, NON-MATERIAL ENVIRONMENTAL
CONDITIONS AND DAMAGES TO NATURAL RESOURCES).
4) For purposes of this Section 9.(c), "Material" shall be defined
as a cost to cure or remedy Environmental Conditions in excess of
Ten Percent (10%) of the Purchase Price (i.e. Thousand and no/100
Dollars
10. Baseline Study. A Pre-Acquisition Review assessment report of the Property
by Purchaser, if made and accepted in writing by Seller, shall establish
the true and correct condition of the Property as of the Effective Date and
such assessment report shall be used as the only environmental, safety or
other baseline study in the event a dispute arises after Closing concerning
the condition of the Property. Seller shall have the right, but not the
obligation, at any time to conduct its own assessment of the Property.
11. Disclaimers/ Acknowledgments.
a) Warranty. Except as provided below, CONVEYANCE OF THE PROPERTY SHALL
BE WITHOUT REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS, STATUTORY,
OR IMPLIED, INCLUDING, BUT WITHOUT LIMITATION, AS TO TITLE,
DESCRIPTION, PHYSICAL AND ENVIRONMENTAL
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CONDITION OF THE PROPERTY, QUALITY, VALUE, FITNESS FOR PURPOSE,
MERCHANTABILITY, OR OTHERWISE. Purchaser shall satisfy itself, prior
to the Closing, as to the type, condition, quality and extent of the
property and property interests which comprise the Property it is
receiving pursuant to this Agreement and under this sale or exchange.
Notwithstanding the foregoing, Seller agrees to warrant and defend the
title to the items of Property described in subsections 1(a)-(d)
against the lawful claims and demands of all parties claiming or to
claim the same, by, through and under Seller, but not otherwise.
Purchaser shall have the right of full substitution and subrogation to
any and all rights and actions of which Seller has or may have against
any and all preceding owners or vendors of the Property.
b) Acknowledgments of Purchaser at Closing. By closing on the transaction
provided for in this Agreement, Purchaser shall be deemed to have
acknowledged and does acknowledge and admit that: (i) Purchaser has
been given the opportunity to adequately inspect the Property for all
purposes prior to Closing; (ii) Purchaser is aware that the Property
has been used for the exploration, development, production, treating,
and transporting of oil and gas and that physical changes may have
occurred as a result of such use and that Seller has disclosed, and
Purchaser is further aware, that there exists the possibility that
there could have occurred from such use one or more releases of
hazardous substances or releases of Chemical Substances (as defined in
Subsection 22(e)(2)), or other pollution or contamination of or into,
the ambient air, surface water, ground water, or land surface and
subsurface strata of any real property included in the Property and of
contiguous, or a series of contiguous, real properties not associated
with the Property; (iii) Purchaser has entered into this Agreement on
the basis of its own investigation of the physical condition of the
Property and the land related thereto (including the environmental
condition of the Property); and (iv) Purchaser, with full knowledge of
the foregoing and after conducting the above described investigation
and evaluation, IS ACQUIRING THE PROPERTY ON A "WHERE IS" AND "AS
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IS" BASIS; and, except with respect to Seller's indemnification
obligations specified in Sections 22.(c) below, PURCHASER, BY
ACQUIRING THE PROPERTY ON A "WHERE IS" AND "AS IS" BASIS WAIVES ANY
OTHER RIGHTS OF INDEMNIFICATION, CONTRIBUTION OR RECOURSE IT MAY HAVE
AGAINST OR FROM SELLER WITH RESPECT TO THE CONDITION OF THE PROPERTY,
INCLUDING, WITHOUT LIMITATION, THE ENVIRONMENTAL CONDITION OF THE
PROPERTY AND DAMAGE TO NATURAL RESOURCES ASSOCIATED WITH THE PROPERTY.
12. Independent Evaluation. Purchaser has made an independent evaluation of the
Property. SELLER MAKES NO REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS,
STATUTORY, OR IMPLIED, INCLUDING, BUT WITHOUT LIMITATION AS TO DESCRIPTION,
TITLE, VALUE, QUALITY, PHYSICAL AND ENVIRONMENTAL CONDITION OF THE
PROPERTY, MERCHANTABILITY, OR FITNESS FOR PURPOSE OF ANY OF THE PROPERTIES
OR THE WELLS, EQUIPMENT, PIPELINE FACILITIES, OR OTHER PROPERTY LOCATED
THEREON OR USED IN CONNECTION THEREWITH. Purchaser further acknowledges
that, in entering into this Agreement, it has relied solely upon its
independent examination of the Property and public records relating to the
Property and its independent estimates, computations, evaluations, reports
and studies based thereon. Purchaser acknowledges that all information and
data furnished by Seller is furnished only as a convenience to the
Purchaser. Seller makes no warranty or representation as to the accuracy,
completeness or usefulness of any information furnished to Purchaser,
whether furnished by Seller. SELLER, ITS OFFICERS, DIRECTORS, EMPLOYEES AND
AGENTS ASSUME NO LIABILITY FOR THE ACCURACY, COMPLETENESS OR USEFULNESS OF
THE MATERIALS FURNISHED BY SELLER. RELIANCE ON ANY MATERIALS FURNISHED BY
SELLER, THE DATA UPON WHICH THEY ARE BASED, OR ANY OTHER INFORMATION
FURNISHED BY SELLER SHALL NOT GIVE RISE TO ANY CAUSE, CLAIM OR ACTION
AGAINST SELLER, OR THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES OR
AGENTS. ANY SUCH RELIANCE SHALL BE AT PURCHASER'S SOLE RISK.
13. Consents; Preferential Rights. In the event any of the interests to be
conveyed or transferred to Purchaser as part of the Property (i) are
burdened with a preferential right in a third person to purchase such
interest, or (ii) require the consent of a third party to assign Seller's
interest, then the conveyance or transfer of the interest subject to such
preference or consent shall be conditioned
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up Seller's obtaining the necessary waiver or consent and this Agreement
shall not constitute an assignment or attempted assignment thereof without
such consent or waiver. Provided, however, if such requirement for third
party consent is subject to an express or implied provision to the effect
that such consent may not be unreasonably withheld and Seller in its sole
discretion, determines that such consent is being unreasonably withheld,
Seller may, at its risk, assign such interest to Purchaser. Except for any
liability of Seller to a third party with respect to an assignment pursuant
to the preceding sentence, Seller shall not be liable to Purchaser by
reason of any inability or failure to obtain any such waiver of
preferential rights or consent to assignment. The value allocated to each
interest on Exhibit D shall become the price to such third party for each
interest burdened by a preferential right. If Seller is unable to obtain a
required waiver or consent, or determines that such consent has been
unreasonably withheld but elects not to assign the interest, such failure
to obtain the waiver or consent, or to assign the interest where consent is
unreasonably withheld, shall be considered a Title Defect subject to the
provisions of subsection 14.(b) hereof unless waived in writing by
Purchaser.
14. Title.
a) Title Examination. PURCHASER ASSUMES THE RISK OF DESCRIPTION AND TITLE
TO THE PROPERTY AND AGREES TO SATISFY ITSELF WITH RESPECT THERETO.
Seller will make available to Purchaser for examination by Purchaser
such title information and abstract coverage as may be available in
Seller's land and contract files. During the period commencing on the
date of this Agreement and ending no later than seven (7) days before
the Closing Date (the "Title Examination Period"), Purchaser shall
have the right to examine, at Seller's offices during normal working
hours, all division order and land files and records which relate to
the Property. Purchaser shall have the right to copy all such files
made available for its examination at Purchaser's sole cost and
expense.
b) Title Defect.
1) As used in this Agreement, the term Title Defect shall include
(i) a lien or encumbrance on the Property that is
-13-
not released at Closing, (ii) any defect which results or is
reasonably likely to result in a loss of title in Seller such
that Seller's net revenue interest as shown on Exhibit F with
respect to an interest which is part of the Property is or is
reasonably likely to be reduced or Seller's expense bearing
percentage as shown on Exhibit F with respect to an interest
which is part of the Property is or is reasonably likely to be
increased without a corresponding increase in Seller's net
revenue interest, or (iii) the inability of Seller to obtain the
waiver of a preferential right or consent to assignment of an
interest included in the Property or the election of Seller not
to assign such interest when Seller believes consent is being
unreasonably withheld as specified in Section 13 above. Purchaser
shall give Seller written notice of such title defect at least
seven (7) days before the Closing Date, together with full
particulars relating thereto. PURCHASER SHALL BE DEEMED TO HAVE
WAIVED ALL TITLE DEFECTS AND ANY OTHER DEFECT OF WHICH SELLER HAS
NOT BEEN GIVEN WRITTEN NOTICE AT LEAST FOURTEEN (14) DAYS BEFORE
THE CLOSING DATE. Any title defects must be, in the aggregate in
excess of a loss of One Percent (1%) of the Purchase Price (i.e.
$ ) before any adjustment will be made in the Purchase Price and
an adjustment shall only be made for the amount in excess of One
Percent (1%) of the Purchase Price. In the event Seller's net
revenue interest is or is reasonably likely to be increased or
its working interest is or is reasonably likely to be decreased
without a corresponding decrease in net revenue interest, then
the Purchase Price shall be increased by an amount agreed upon by
Seller and Purchaser.
2) Interests which have Title Defects shall be excluded from the
Property and the Purchase Price shall be reduced by the value
allocated to such interests on Exhibit D unless: (i) prior to
Closing, the basis for the Title Defects has been removed by
action of either Party (provided, however, Seller shall have no
obligation to obtain such removal); (ii) Purchaser agrees to
accept the affected interest "as is" without a reduction in the
Purchase
-14-
Price; (iii) Purchaser agrees to acquire the Property, including
the interest, with an appropriate and mutually agreed upon
reduction in the Purchase Price; or (iv) Seller agrees to
indemnify Purchaser against losses, costs, expenses, and
liabilities with respect to such Title Defect to the extent they
exceed, in the aggregate, One Percent (1%) of the Purchase Price.
If the Parties cannot agree prior to Closing upon an adjustment
to the Purchase Price for interests which are burdened by a title
defect and which are to be acquired by Purchaser with a
reduction. in the Purchase Price, then either Party may give
written notice to the other Party to terminate this Agreement.
Moreover, the right to terminate provided in the preceding
sentence shall not apply if Seller removes the title defect
pursuant to subsection (i) or indemnifies Purchaser pursuant to
subsection (iv) or if Purchaser accepts the interest "as is"
pursuant to subsection (ii).
c) Leaseline Producing/Injecting Wells. It is understood several
leaseline wells, both producing and injecting, have been drilled on or
near the property lines on one or more of the leases described in
Exhibit A hereof as part of Seller's waterflood development of the San
Andres Formation under the Property. It is further understood Seller
has participated in the drilling and operation of such leaseline wells
without the consent or approval of any royalty and/or overriding
royalty owners and without the benefit of a fieldwide unitization.
Purchaser hereby acknowledges that Seller has disclosed the existence
of the various leaseline wells to Purchaser. Purchaser hereby
stipulates and agrees any existing, potential, or contingent
liabilities relating to the drilling and subsequent operation of said
leaseline wells shall not be a Title Defect under this Agreement and
shall not in any event be the basis for a claim by Purchaser for a
reduction of the Purchase Price.
15. Representations by Seller. Each Seller represents to Purchaser, each of
which representations shall survive Closing, that as of the date of this
Agreement and as of Closing:
-15-
a) Due Organization. Each Seller is and entity duly organized, validly
existing, and in good standing under the laws of the state of
Oklahoma.
b) Power. Each Seller has all requisite power and authority to carry on
its business as presently conducted, to enter into this Agreement and
to perform its obligations under this Agreement. The consummation of
the transactions contemplated by this Agreement will not materially
violate, nor be in material conflict with, (i) any provision of its
charter or bylaws, or (ii) any agreement or instrument to which it is
a party or is bound (except for preferential rights to purchase and
required third party consents to assignment, if any).
c) Duly Executed. This Agreement has been duly executed and delivered on
behalf of each Seller, and at Closing all documents and instruments
required hereunder to be executed and delivered by it shall have been
duly executed and delivered.
d) No Litigation. There are no pending or, to the best of Seller's
knowledge, threatened (by written notice from a third party) claims,
lawsuits, administrative proceedings, or governmental investigations
or governmental inquiries involving Seller's right to consummate the
sale contemplated hereunder, except those claims, lawsuits,
administrative proceedings, and governmental investigations and
governmental inquiries that Seller has disclosed to Purchaser in
writing.
e) Securities Representations.
1) Except for any distribution of the Shares to its owners, Seller
will each hold the Shares for its own account for investment
purposes only, and not with a view to, or for resale in
connection with, any distribution of all or any part thereof,
except in compliance with applicable federal or state securities
laws.
2) Seller understands that (A) the Shares (1) have not been
registered under the Securities Act of 1933, as amended (the
"Act"), or any state securities laws, (2) will be issued in
reliance upon exemptions from registration under the
-16-
Act and applicable state securities laws for an offer and sale of
securities not involving a public offering, (3) may not be sold,
transferred or otherwise disposed of without satisfaction of
certain conditions, including registration under, or the
availability of any exemption from registration under the Act and
applicable state securities laws, and (4) the Shares will be
characterized as "restricted securities" under Rule 144
promulgated under the Act and Seller understands the resale
limitations imposed thereby and by the Act and (B) Seller must
therefore bear the economic risk of such investment indefinitely
unless a subsequent disposition thereof is registered under the
Act and applicable state securities laws or is exempt therefrom.
Seller further understands that such exemptions depend upon,
among other things, the nature of the investment intent of Seller
expressed herein.
3) Seller has been furnished by Parallel Petroleum Corporation all
information (or provided access to all information) regarding the
business and financial condition of Parallel Petroleum
Corporation, the attributes of the Shares and the merits and
risks of an investment in the Shares which Seller has requested
to evaluate an investment in the Shares. Specifically, Seller
acknowledges that Seller has had an opportunity to review the
Parallel Petroleum Corporation Annual Report on Form 10-K for the
year ended December 30, 2001 and all documents and reports filed
by Parallel Petroleum Corporation with the Securities and
Exchange Commission subsequent to December 31, 2001 (the "SEC
Documents").
4) Seller is an "accredited investor" as defined in Rule 501 of
Regulation D promulgated under the Act, and Seller, or those
persons retained by Seller, have knowledge, skill and experience
in financial, business and investment matters relating to an
investment of the same nature as the Shares and are capable of
evaluating the merits and risks of such investment and protecting
Seller in connection with the purchase and an investment in the
Shares. Seller has, to the extent
-17-
deemed necessary, retained, at its own expense, and relied upon,
appropriate professional advice regarding the investment, tax and
legal merits and consequences of an investment in the Shares.
Seller has examined the SEC Documents, or caused the same to be
examined, by its representatives to the extent it deems necessary
or appropriate. Seller has not received any legal, business, tax
or other advice from Parallel Petroleum Corporation, its counsel
or other representatives.
5) No person or entity, other than Parallel Petroleum Corporation,
has been authorized to give any information or to make any
representations on behalf of Parallel Petroleum Corporation in
connection with the Shares, and if given or made, such
information or representations have not been relied upon by
Seller as having been made or authorized by Parallel Petroleum
Corporation.
6) Parallel Petroleum Corporation has provided Seller the
opportunity to ask questions of, and receive answers from,
Parallel Petroleum Corporation and its officers and directors
concerning the purchase and the Shares and to obtain any
appropriate additional information necessary to the investment
decision being made by Seller in connection with the Shares.
7) Seller understands that the certificates representing the Shares
shall conspicuously set forth on the face or back thereof, a
legend in substantially the following form:
"The securities represented by this certificate have not
been registered under the Securities Act of 1933 or any
state securities acts. The securities have been acquired for
investment and may not be sold, transferred or offered for
sale in the absence of an effective registration statement
for the securities under the Securities Act of 1933 and
applicable state securities acts, or an opinion of counsel
satisfactory to the Company that such registration is not
required under such act or acts."
-18-
16. Representations of Purchaser. Purchaser represents to Seller, each of which
representations shall survive Closing, that as of the date of this
Agreement and as of Closing:
a) Due Organization. Parallel L.P. is a limited partnership duly
organized, validly existing, and in good standing under the laws of
the state of its formation and is duly qualified to do business in
Texas. Texland Petroleum, Inc. is a corporation duly incorporated,
validly existing, and in good standing under the laws of the state of
its incorporation and is duly qualified to do business in Texas.
b) Corporate Power. Purchaser has all requisite power and authority to
carry on its business as presently conducted, to enter into this
Agreement, to purchase the Property on the terms described in this
Agreement and to perform its other obligations under this Agreement.
The consummation of the transactions contemplated by this Agreement
will not materially violate, nor be in material conflict with (i) any
provision of its charter, bylaws, articles of partnership or
partnership agreement (as the case may be) or (ii) any agreement or
instrument to which it is a party or is bound.
c) Duly Executed. This Agreement has been duly executed and delivered on
behalf of Purchaser, and at Closing, all documents and instruments
required hereunder to be executed and delivered by it shall have been
duly executed and delivered and the transactions contemplated hereby
shall have been duly and validly authorized by all requisite
corporation or partnership action (as the case may be).
d) No Litigation. There are no pending or, to the best of Purchaser's
knowledge, threatened claims, lawsuits, administrative proceedings, or
governmental investigations or inquiries involving Purchaser's right
to consummate the sale contemplated hereunder except those claims,
lawsuits, administrative proceedings, and governmental investigations
and inquiries that Purchaser has disclosed to Seller in writing.
-19-
e) Shares Authorized. The shares to be delivered by Parallel Petroleum
Corporation as part of the Purchase Price have been duly authorized by
Parallel Petroleum Corporation and when delivered in accordance with
the terms of this Agreement, will be validly issued, fully paid and
non-assessable.
17. Seller's Conditions. The obligations of Seller to be performed at Closing
are subject to satisfaction of the following conditions, at or prior to
Closing, any of which may be waived by Seller.
a) Representations True. All representations of Purchaser contained in
this Agreement shall be true in all material respects at and as of
Closing as if such representations were made at and as of Closing, and
Purchaser shall have performed and satisfied in all material respects
all obligations required by this Agreement to be performed and
satisfied by it at or prior to Closing.
b) No Pending Suits. No suit or other proceeding shall be pending or
threatened before any court or governmental agency seeking to
restrain, prohibit or declare illegal, or seeking substantial damages
in connection with, the contemplated purchase or exchange.
c) No Act of Termination. Seller shall not have exercised any rights it
may have hereunder to terminate this Agreement.
d) H-S-R. All applicable waiting periods shall have expired under the
Hart-Scott-Rodino Antitrust Improvements Act or early termination of
such waiting periods shall have been granted by the appropriate
governmental authorities.
e) Indemnity Obligation. No Claim shall exist for which Seller is
obligated to indemnify Purchaser pursuant to Section 22(c) of this
Agreement.
18. Purchaser's Conditions. The obligations of Purchaser to be performed at
Closing are subject to satisfaction of the following conditions, at or
prior to Closing, any of which may be waived by Purchaser:
-20-
a) Representations True. All representations of Seller contained in this
Agreement shall be true in all material respects at and as of Closing
as if such representations were made at and as of Closing, and Seller
shall have performed and satisfied in all material respects all
obligations required by this Agreement to be performed and satisfied
by it at or prior to Closing.
b) No Pending Suits. No suit or other proceeding shall be pending or
threatened before any court or governmental agency seeking to
restrain, prohibit or declare illegal, or seeking substantial damages
in connection with, the contemplated purchase.
c) No Act of Termination. Purchaser shall not have exercised any rights
it may have hereunder to terminate this Agreement.
d) H-S-R. All applicable waiting period shall have expired under the
Hart-Scott-Rodino Antitrust Improvements Act or early termination of
such waiting period shall have been granted by the appropriate
governmental authorities.
19. Operations and Production After the Effective Date
a) Operations. Seller shall not approve or consent to the drilling,
re-completing, plugging, or re-working of any well on the Property
except as may be required by existing contractual obligations, unless
otherwise agreed to by Purchaser in writing. Upon Closing, Purchaser
shall assume the risk of any change in the condition of the Property,
except to the extent any change in the condition is attributable to
the gross negligence or willful misconduct of Seller in the operation
of the Property after the Effective Date, and not withstanding the
foregoing, except as may be otherwise provided in Section 22. Any
casualty loss on or after the Effective Date shall be for the account
of Purchaser.
b) Expenses. Subject to the provisions of Section 22, Seller shall be
responsible for payment of Seller's pro rata share of all Expenses (as
defined below) related to the Property prior to the Effective Date.
Purchaser shall be responsible for the payment of Seller's pro rata
share of all Expenses related to the
-21-
Property, and for the cost and expenses resulting from the assumption
of the obligations and implied covenants as specified in Section 21,
incurred or accrued from and after the Effective Date. "Expenses" as
used in this Section shall mean any expenses, costs or obligations
incurred or accrued in connection with the operation, use, protection,
maintenance, or ownership of the Property including, without
limitation, expenses for or related to all lease rentals, shut-in
royalties, minimum royalties, payments in lieu of production,
production royalties (including royalties paid in kind), overriding
royalties, production payments, net profits payments, contractual
payments, operating costs, capital expenditures, overhead charges,
fees, vendor and contractor invoices, billings, taxes, charges
(including, without limitation, any charges for overhead provided for
in any Operating Agreements related to the Property at the rates
specified in such agreements), rental payments, franchise fees,
permits, and license fees, assessments and other indebtedness and
obligations due, payable, incurred, accrued or attributable to the
ownership, operation, use, protection or maintenance of or otherwise
relating to or associated with the Property. Any reports or
information provided to Purchaser at Purchaser's request, which are
not routinely generated by Seller, shall be billed to Purchaser at
Seller's actual cost.
c) Allocation of Production and Proceeds. All production from oil and/or
gas wells, and all proceeds from the sale thereof, including, without
limitation, proceeds from any production imbalance settlement and oil
in storage above the pipeline connection, and any collections/rights
and accounts receivable attributable to production and operations
prior to the Effective Date and all other monetary payments
(including, without limitation, proceeds from the sale of mineral
production, credits, tax refunds, insurance proceeds, salvage payments
and reimbursement of joint operating costs and expenses) attributable
to the ownership, use or operation of the Property prior to the
Effective Date shall be the property of Seller . All such production
proceeds, and other monetary payments attributable to production and
operations on and after the Effective Date shall be the property of
Purchaser.
-22-
d) Payment and Collection Services. Seller shall, for the account of and
at the sole cost of Purchaser, pay its pro rata share of all Expenses
(as provided in Section 19 (b)) which are the obligation of Purchaser
and collect all proceeds and other monetary payments which are
allocated to Purchaser (as provided in Section 19 (c)).
e) Post Closing Statement. Within one hundred twenty (120) days after
Closing, Seller and Purchaser shall make a final post-Closing
settlement to account for all production proceeds and other monetary
payments collected for Purchaser' account by Seller and all Expenses,
other costs and expenses and taxes paid for Purchaser's account by
Seller pursuant to this Section 19. Seller and Purchaser agree to
promptly remit any sum determined from such post-Closing settlement to
be owed to the other. After the adjustments are made pursuant to the
post-Closing statement, the Parties shall not make any further
adjustments provided for in this Section 19, except to the extent a
Party is indemnified pursuant to Section 22.
f) Audit. Within one hundred eighty (180) days of the Closing, either
Party may at its own expense audit the other Party's books, accounts,
and records relating to production proceeds, other monetary payments,
Expenses, other costs and expenses and taxes paid or received which
are related to the Property to be conveyed hereunder and which have
been adjusted on account of this transaction. Such audit shall be
conducted so as to cause a minimum of inconvenience to the audited
Party.
g) No Application to Income Taxes. All references in Sections 19 and 20
to taxes and tax refunds shall not apply to
income taxes and income tax refunds.
h) Removal. Without the Purchaser's prior approval, Seller shall not
approve the sale, exchange or otherwise transfer or remove any
equipment, fixtures, inventory or other personal property which is
located on the lands described in Exhibit A and which is to be
transferred to Purchaser hereunder.
-23-
20. Taxes, Costs and Fees.
a) Taxes. Purchaser shall be responsible for the economic burden and
payment of all taxes relating to the Seller's interests in the
Property from and after the Effective Date, regardless of when they
are actually assessed. Seller shall be responsible for the economic
burden and payment of all taxes relating to the Property prior to the
Effective Date, regardless of when they are actually assessed.
Purchaser shall pay to Seller at Closing, in addition to and separate
from the Purchase Price, an amount equal to all state and local taxes
payable by Seller on the transfer of ownership of any tangible
personal property calculated at the then current rates. Purchaser
shall indemnify Seller and hold Seller harmless from any liability,
including, without limitation, penalties, interest and attorney's
fees, arising out of Purchaser's failure to pay to Seller at Closing,
in addition to and separate from the Purchase Price, the amount equal
to all state and local taxes payable by Seller on the transfer of
ownership of any tangible personal property. Purchaser shall pay all
costs associated with documentary transfer taxes, other transfer taxes
and any recording costs assessed by any federal, state, county, or
other governmental offices or other transfer fees and shall indemnify
and hold Seller harmless for such transfer taxes, costs, and fees. Ad
valorem taxes for year 2002 shall be prorated between Seller and
Purchaser based upon the portion of the year each Party owns the
Property subject to any such tax.
b) No Brokers. Each Party shall pay, and INDEMNIFY AND HOLD THE OTHER
PARTY HARMLESS FROM, any commission or brokerage fee it has incurred
in connection with this transaction.
21. Operations by Purchaser
a) Assumption of Obligations. Upon Closing, Purchaser shall assume, as of
the Effective Date, and agree to perform, at Purchaser's sole cost and
expense, subject only to Seller's indemnification obligations under
subsections 22 (c) below (i) all obligations and implied covenants of
Seller relating to the
-24-
Property (whether such obligations and covenants are to a lessor, a
governmental body or any other person or entity), including, but not
limited to, (1) any obligations arising in respect to operating,
plugging and abandoning of all existing wells (whether or not such
wells are active, inactive, idle, or have been previously abandoned as
of the Effective Date) on the Property including, but not limited to,
the wells described in Exhibit A which includes cooperative producing
and/or injecting wells; (2) any obligations to file or submit
compliance reports, notices and documents required by governmental
bodies; (3) the removal of related oil and gas equipment, including
without limitation, pipelines, sumps, foundations, and other
facilities, whether the existence of same is known or unknown to the
Parties at Closing; and (4) the lawful restoration and reclamation of
the lands used in connection with such wells and related equipment,
pipelines, sumps and other facilities in compliance with all federal,
state and local laws, rules and regulations, including without
limitation, all requirements of the Texas Railroad Commission with
respect to such plugging and abandonment, removal and restoration and
reclamation of associated lands, (ii) all obligations under license,
permits, franchises, easements, and rights-of-way included in the
Property, and (iii) any obligations with respect to the reabandonment
of previously abandoned wells on lands included in the Property.
Obligations and implied covenants of Seller with respect to the proper
payment of other proceeds of production and royalty are assumed by
Purchaser only to the extent such obligations are incurred or arise
after the Effective Date. AS SET FORTH IN SECTIONS 22(a) AND 22(b),
PURCHASER SHALL DEFEND, INDEMNIFY AND HOLD SELLER HARMLESS WITH
RESPECT TO THE PERFORMANCE OR FAILURE TO PERFORM OF PURCHASER'S
OBLIGATIONS UNDER THIS SECTION 21.
22. Indemnification. Capitalized terms used in this Section 22 which are not
defined elsewhere in this Agreement are defined in subsection 22(e) below.
a) GENERAL INDEMNITY BY PURCHASER. TO THE FULLEST EXTENT PERMITTED BY
LAW, BUT NO FURTHER, PURCHASER SHALL INDEMNIFY, DEFEND AND HOLD
-25-
HARMLESS EACH SELLER AND THEIR RESPECTIVE OFFICERS, DIRECTORS,
EMPLOYEES, AND AGENTS, FROM ANY AND ALL CLAIMS WHICH DIRECTLY OR
INDIRECTLY RELATE TO THE OPERATION, MAINTENANCE, OCCUPATION, OWNERSHIP
OR ABANDONMENT OF THE PROPERTY BEFORE OR AFTER THE EFFECTIVE DATE EVEN
THOUGH SUCH CLAIMS MAY HAVE BEEN CONTRIBUTED TO OR CAUSED BY THE
NEGLIGENCE OR FAULT OF SELLER OCCURRING PRIOR TO THE EFFECTIVE DATE
AND EVEN THOUGH SELLER MAY HAVE STRICT LIABILITY; PROVIDED THAT
PURCHASER SHALL NOT BE OBLIGATED TO INDEMNIFY SELLER FOR ANY CLAIM
WHICH AROSE OUT OF THE OPERATION, MAINTENANCE, OCCUPATION, OWNERSHIP
OR ABANDONMENT OF THE PROPERTY BY SELLER PRIOR TO THE EFFECTIVE DATE
TO THE EXTENT THAT SELLER RECEIVED A CLAIM NOTICE PRIOR TO THE
EFFECTIVE DATE ASSERTING SUCH CLAIM. PURCHASER further covenants and
agrees to defend any suits brought against Seller, or their respective
officers, directors, employees, and agents, on account of any such
Claims indemnified hereunder and to pay or discharge the full amount
or obligation of such Claims incurred by, accruing to or imposed on
Seller or their respective officers, directors, employees, or agents
resulting from any such suit or suits. In addition, Purchaser shall
pay to Seller or their respective officers, directors, employees, or
agents, as applicable, all attorney's fees incurred by Seller or their
respective officers, directors, employees, or agents, as applicable,
in enforcing Purchaser's indemnity in this subsection 22 (a).
b) ENVIRONMENTAL INDEMNITY BY PURCHASER. TO THE FULLEST EXTENT PERMITTED
BY LAW, BUT NO FURTHER, PURCHASER SHALL INDEMNIFY AND HOLD HARMLESS
EACH SELLER AND THEIR RESPECTIVE OFFICERS, EMPLOYEES, - AND AGENTS,
FROM AND AGAINST ANY AND ALL ENVIRONMENTAL CLAIMS OR ENVIRONMENTAL
CLEAN-UP LIABILITY WHICH ARISES DIRECTLY OR INDIRECTLY FROM THE USE,
OPERATION, MAINTENANCE, OCCUPATION, OWNERSHIP OR ABANDONMENT OF THE
PROPERTY BEFORE OR AFTER THE EFFECTIVE DATE EVEN THOUGH CAUSED, OR
-26-
CONTRIBUTED TO, BY THE NEGLIGENCE OR FAULT OF SELLER OCCURRING PRIOR
TO THE EFFECTIVE DATE AND EVEN THOUGH SELLER MAY HAVE STRICT
LIABILITY. PURCHASER further covenants and agrees to defend any suits
or administrative proceedings brought against Seller and their
respective officers, directors, employees and agents on account of any
such Environmental Claims or Environmental Clean-up Liability and to
pay or discharge the full amount or obligation of such Environmental
Claims or Environmental Clean-up Liability incurred by, accruing to or
imposed on Seller or their respective officers, directors, employees
or agents, as applicable, resulting from any such suit or suits or any
amounts resulting from the settlement or resolution of such suit or
suits or administrative proceedings. In addition, Purchaser shall pay
to Seller or their respective officers, directors, employees, or
agents, as applicable, all attorney's fees incurred by Seller or their
respective officers, directors, employees, or agents, as applicable,
by Seller in enforcing Purchaser' indemnity in this subsection 22 (b).
c) GENERAL INDEMNITY BY SELLER. TO THE FULLEST EXTENT PERMITTED BY LAW,
BUT NO FURTHER, AND SUBJECT TO THE LIMITATIONS SET FORTH IN SUBSECTION
22 (d) BELOW AND SUBJECT TO ANY INDEMNIFICATIONS GIVEN BY SELLER
PURSUANT TO SUBSECTIONS 9(c)2) and 14(b)2), FROM AND AFTER THE
CLOSING, SELLER SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS PURCHASER,
ITS OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS FROM ANY AND ALL CLAIMS
(EXCEPT FOR (i) ENVIRONMENTAL CLAIMS OR ENVIRONMENTAL CLEAN-UP
LIABILITY; AND (ii) ANY SUCH CLAIMS TO THE EXTENT CAUSED BY THE
WILLFUL MISCONDUCT OR GROSS NEGLIGENCE OF PURCHASER) FOR WHICH A CLAIM
NOTICE WAS DELIVERED TO SELLER BEFORE THE EFFECTIVE DATE HEREUNDER AND
(A) WHICH ARISE FROM OR ARE CAUSED BY THE USE, OPERATION, MAINTENANCE,
OCCUPATION AND OWNERSHIP OF THE PROPERTY BY SELLER PRIOR TO THE
EFFECTIVE DATE, AND (B) ARE BASED ON LAW (INCLUDING STATUTORY
REGULATORY AND CASE LAW) EXISTING AT THE EFFECTIVE DATE. SELLER
further
-27-
covenants and agrees to defend any suits brought against Purchaser on
account of any such Claims indemnified hereunder and to pay or
discharge the full amount or obligation of any such Claims incurred
by, accruing to or imposed on Purchaser resulting from any such suit
or suits. In addition, Seller shall pay to Purchaser all attorney's
fees incurred by Purchaser in enforcing Seller's indemnity in this
subsection 22 (c).
d) LIMITATIONS. THE INDEMNIFICATION OBLIGATIONS OF SELLER UNDER THIS
AGREEMENT, INCLUDING WITHOUT LIMITATION, THOSE CONTAINED IN SUBSECTION
22(c), SHALL BE SUBJECT TO THE FOLLOWING LIMITATIONS AND CONDITIONS:
1) SUCH INDEMNIFICATION OBLIGATIONS SHALL NOT LIMIT THE DISCLAIMERS
OF WARRANTIES AND ACKNOWLEDGMENTS OF PURCHASER WITH RESPECT TO
THE PROPERTY AS SPECIFIED IN SECTION 11 ABOVE, AND THE
INDEMNITIES CONTAINED HEREIN SHALL HAVE NO APPLICATION TO MATTERS
OF DESCRIPTION, TITLE (INCLUDING, WITHOUT LIMITATION, THE
EXISTENCE OR NON-EXISTENCE OF EASEMENTS, LICENSES, RIGHTS-OF-WAY,
PERMITS, FRANCHISES, LIENS, LEASES OR OTHER ENCUMBRANCES OR OTHER
AGREEMENTS OR THE FAILURE TO PROCURE GOVERNMENTAL OR NECESSARY
THIRD PARTY CONSENTS OR APPROVAL TO ASSIGNMENT OF THE PROPERTY),
QUALITY, VALUE, FITNESS FOR PURPOSE OR MERCHANTABILITY OF THE
PROPERTY;
2) SUCH INDEMNIFICATION OBLIGATIONS SHALL NOT LIMIT OR INCLUDE
PURCHASER'S OBLIGATIONS UNDER SUBSECTIONS 22(a) or (b).
3) SUCH INDEMNIFICATION OBLIGATIONS SHALL NOT LIMIT THE
INDEMNIFICATION AND REIMBURSEMENT OBLIGATIONS OF PURCHASER WITH
RESPECT TO PRE-ACQUISITION REVIEW ACTIVITIES AS SPECIFIED IN THE
CONFIDENTIALITY AGREEMENT AND THE INDEMNIFICATION AGREEMENT;
-28-
4) SELLER'S FINANCIAL OBLIGATIONS UNDER SUCH INDEMNITY OBLIGATIONS
SHALL NOT EXCEED, IN THE AGGREGATE, THE AMOUNT OF THE PURCHASE
PRICE PAID OR DEPOSITED IN EXCHANGE FOR THE PROPERTY; AND
5) SUCH INDEMNIFICATION OBLIGATIONS SHALL BE LIMITED TO THE EXTENT
ANY COSTS, LOSSES OR LIABILITIES INCURRED BY PURCHASER RESULT
FROM PURCHASER'S ACQUISITION OF THE PROPERTY FROM SELLER;
ACCORDINGLY, SELLER SHALL NOT INDEMNIFY PURCHASER FOR ANY COSTS,
LOSSES, OR LIABILITIES INCURRED BY PURCHASER ON ACCOUNT OF
PURCHASER'S OWNERSHIP OF AN INTEREST IN THE PROPERTY WHICH
PURCHASER PREVIOUSLY OWNED OR ACQUIRED FROM A THIRD PARTY.
e) Definitions. For purposes of this Agreement
1) "Arises". An Environmental Claim or Environmental Clean-up
Liability shall be deemed to arise upon (i) each discrete,
operationally-related Release of a Chemical Substance, as
measured on a daily basis, or (ii) each discrete,
operationally-related occurrence of pollution, contamination or
migration, as measured on a daily basis.
2) "Chemical Substances" shall mean any chemical substance,
including, but not limited to, any sort of pollutants,
contaminants, chemicals, raw materials, intermediates, products,
industrial, solid, toxic or hazardous substances, materials,
wastes, or petroleum products, including crude oil or any
component thereof.
3) "Claims" shall mean any and all claims, demands, losses,
liabilities, liens, judgements, settlements, suits, causes of
action, fines, penalties, compliances, costs, and any costs,
expenses and fees associated with the investigation, defense and
resolution of the foregoing, including without limitation,
reasonable attorney's fees. Claims may be based on any theory of
tort, contract, strict liability, statutory liability (including,
without
-29-
limitation, fines, penalties, obligations or requirements) or any
other basis for liability and shall include, without limitation,
any Claims arising, occurring or resulting from, related to or
based on the injury, disease, or death of any persons (including,
without limitation, the indemnifying party's employees, agents
and representatives) or damage to, loss or destruction of any
property, real or personal (including, without limitation, the
indemnifying party's property).
4) "Claim Notice" shall mean a notice delivered from a Third Party
to Seller, in writing, asserting Claims, Environmental Claims or
Environmental Clean-up Liability.
5) "Environmental Claim" shall mean any claim, demand, action, suit
or proceeding for the injury, disease or death of any person
(including, without limitation, the indemnifying party's
employees, agents and representatives) property damage, damage to
the environment, or damage to natural resources made, asserted or
prosecuted by or on behalf of any Third Party (whether based on
negligent acts or omissions, statutory liability, or strict
liability without fault or otherwise) arising or alleged to arise
under any Environmental Law. Environmental Claim includes any
damages, settlement amounts, fines and penalties assessed or
costs of complying with any orders or decrees of courts,
administrative tribunals or other governmental entities (other
than such compliance costs related to Environmental Clean-up
Liability) associated with resolving such claims, demands,
actions, suits or proceedings and any costs, expenses and fees,
including, without limitation, reasonable attorney's fees
incurred in the investigation, defense and resolution of such
claims, demands, actions, suits, and proceedings.
6) "Environmental Clean-up Liability" shall mean any cost or expense
of any nature whatsoever incurred (in order to comply with the
provisions of any Environmental Law or the provisions of any
order or decree of any court or administrative or regulatory
tribunal or agency enforcing
-30-
any Environment Law) to contain, remove, remedy, respond to,
clean up, or abate any Release of Chemical Substances or other
contamination or pollution of the air, surface water, ground
water, land surface or sub-surface strata, whether such Release,
contamination or pollution is located on, within, under or above
real property included in the Property("on site") or is located
off site, including, but not limited to, any Release of Chemical
Substances or other contamination or pollution arising out of or
resulting from the manufacture, generation, formulation,
processing, labeling, distribution, introduction into commerce,
or on site or off site use, treatment, handling, storage,
disposal, or transportation of any Chemical Substances.
Environmental Clean-up Liability includes, without limitation,
any judgements, damages, settlements, costs or expenses
(including, without limitation, attorney's, consultant's and
expert's fees and expenses) incurred with respect to (i) any
investigation, study, assessment, legal representation, cost
recovery by a governmental agency or Third Party, or monitoring
or testing in connection therewith, (ii) the Property as a result
of actions or measures necessary to implement or effectuate any
such containment, removal, remediation, response, clean-up or
abatement, and (iii) the resolution of such liabilities.
7) "Environmental Law" means any statutes or legal requirements
relating to or regulating the pollution, protection or clean-up
of the environment or damage to or remediation of damage to real
property and natural resources (including, but not limited to,
ambient air, surface water, ground water, and land surface or
subsurface strata) including, without limitation, legal
requirements contained in the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C ss.
9601 et seq., as amended (CERCLA); the Resources Conservation and
Recovery Act of 1986, 42 U.S.C.ss. 6901, et seq., as amended
(RCRA); the Superfund Amendments and Reauthorization Act of 1986,
Pub. L.99-499, as amended (SARA); the Clean Air Act, 42 U.S.C.
ss. 7401, et seq., as amended; Federal
-31-
Water Pollution Control Act, 33 U.S.C. ss. 2601 et seq., as
amended; National Environmental Policy Act, 42 U.S.C. ss. 4321,
et seq., as amended (NEPA); and the Safe Drinking Water Act, 42
U.S.C., ss. 300 j-1, et seq., as amended; and/or any other
federal, state or local laws, statutes, ordinances, rules,
regulations or orders (including decisions of any court or
administrative body) relating to the pollution, protection or
clean-up of the environment as specified above. Environmental Law
shall also mean the Toxic Substance Control Act, 25 U.S.C. ss.
1502, et seq., as amended (TOSCA) and/or any other federal, state
(including, without limitation, laws with respect to trespass,
nuisance and other torts or similar legal theories which may be
applied to establish liability or responsibility for
Environmental Clean-up or Environmental Claims) or local laws,
statues, ordinances, rules, regulations or orders (including
decisions of any court or administrative body) relating to (i)
release, containment, removal, remediation, response, clean-up or
abatement of any sort of Chemical Substance; (ii) the
manufacture, generation, formulation, processing, labeling,
distribution, introduction into commerce, use, treatment,
handling, storage, disposal or transportation of any Chemical
Substance; (iii) exposure of persons, including employees of
Seller or Purchaser, to any Chemical Substance and other
occupational Safety or health matters; or (iv) the environmental
hazards relating to the physical structure or condition of a
building, facility, fixture or other structure, including,
without limitation, those relating to the management, use,
storage, disposal, clean-up or removal of asbestos,
asbestos-containing materials, polychlorinated biphenyls or any
other Chemical Substance.
8) "Release" shall mean any spilling leaking, pumping, pouring,
emitting, emptying, discharging, escaping, leaching, dumping, or
disposing of any Chemical Substance into the environment
(including, but not limited to, the ambient air, surface water,
ground water and land surface or sub-surface strata) of any kind
whatsoever (including also the abandonment or discarding of
barrels, containers, tanks or other
-32-
receptacles containing or previously containing any Chemical
Substance).
9) "Third Party" shall mean any person (other than a Party or its
affiliates) including, without limitation, any such natural
person, business entity (corporation, partnership, trust, sole
proprietorship or other business entity), any federal, state or
local governmental entity, agency or administrative body,
employee of Purchaser or Seller, former employee of Purchaser or
Seller, or their respective legal representatives, heirs,
beneficiaries or estates.
f) Indemnified Party's Participation. Any indemnified Party shall have
the right at all times, if it so elects and without relieving the
indemnifying Party of its obligations to defend hereunder, to
participate in the preparation for and conducting of any hearing or
trial related to these indemnification provisions, as well as the
right to appear on its own behalf at any such hearing or trial. Any
such participation or appearance by an indemnified Party shall be at
its sole cost and expense.
An indemnified Party shall not execute a consent order nor accept any
settlement regarding an indemnified matter without the indemnifying
Party's prior written approval. The indemnified Party shall cooperate
fully with the indemnifying Party in the defense of any matter
hereunder by the indemnifying Party and shall take those actions
reasonably, within its power to take, which are reasonably necessary
to preserve any legal defenses to indemnified matters hereunder until
the indemnifying Party has assumed the defense of the matter.
23. Existing Contracts. The sale contemplated hereunder shall be made subject
to any and all existing operating agreements, cooperative
injection/development agreements, unit agreements, gas balancing
agreements, and gas processing agreements, as well as any and all other
agreements, permits, franchises, leases, licenses, casements and
rights-of-way including, without limitation, overage/shortage agreements
and exchange agreements to which the Property is subject. To the extent
such agreements may be assigned
-33-
and delegated, Purchaser hereby agrees to assume and be responsible for all
obligations of Seller accruing under such agreements. If such agreements
may not be assigned or delegated, Seller may, at its sole discretion,
perform such agreements on behalf of Purchaser and Purchaser shall promptly
upon notice, reimburse Seller for its respective costs, expenses and
obligations incurred in performing such agreements.
24. NASDAQ Listing. Parallel Petroleum Corporation will cause the Shares to be
listed for trading on a national securities exchange or designated as a
national market system security on an inter-dealer quotation system by the
NASD for so long as Seller owns any of the Shares.
25. Notices. All notices and communications required or permitted under this
Agreement shall be in writing, delivered to or sent by U.S. Mail or
nationally recognized commercial courier service, postage or delivery
charges prepaid, or by telecopy, addressed as follows (or such other
address as may be specified by ten(10) days prior written notice to the
other Party):
SELLER
JMC EXPLORATION, INC.
5950 Berkshire Lane
Suite 1400
Dallas, Texas 75225
Attention: Mike McCoy, President
Telephone: (214) 421-0621
Fax:
The wire instructions for JMC Exploration, Inc. are:
Bank: Bank of America, Dallas, Texas
ABA Transmit #: 111000025
Account Name: JMC Exploration, Inc.
Account Number: 004797963074
ARKOMA STAR L.L.C.
5950 Berkshire Lane
Suite 1400
Dallas, Texas 75225
Attention: Mike McCoy, President
Telephone (214) 421-0621 Fax:
-34-
The wire instructions for Arkoma Star, L.L.C. are:
Bank: Bank of America
ABA Transmit#: 111000025
Account Name: Arkoma Star, LLC
Account Number: 004797963061
PURCHASER
PARALLEL L.P.
1004 N. Big Spring, Suite 400
Midland, Texas 79701
Attn: John S. Rutherford, Vice President
Telephone No. (915) 687-3435
Fax No. (915) 684-3905
TEXLAND PETROLEUM, INC.
777 Main Street
Suite 3200
Fort Worth, Texas 78102
Attention: James H. Wilkes, President and COO
Telephone: 817) 336-2751
Fax No. (817) 900-1291
Notice shall be deemed to have been duly given when delivered to or sent to
the other Party in the manner prescribed herein and actually received by
the Party to whom the notice is given.
26. Parties In Interest. Subject to subsection 28(d) below, this Agreement
shall inure to the benefit of and be binding upon each Seller and Purchaser
and their respective successors and assigns. However, no assignment by any
Party shall relieve any Party of any duties or obligations under this
Agreement.
27. Complete Agreement. When executed by the authorized representatives of
Seller and Purchaser, this Agreement, together with the executed copies of
the exhibits and documents referred to herein, shall supersede all prior
written or oral and all contemporaneous oral agreements and understandings
between the Parties, including without limitation, all and any bid
-35-
solicitation, bid offer and bid acceptance letters, and shall constitute
the complete agreement between the Parties regarding the purchase and sale
or exchange of the Property.
28. Applicable Law. THIS AGREEMENT, OTHER DOCUMENTS EXECUTED AND DELIVERED
PURSUANT HERETO, AND THE LEGAL RELATIONS BETWEEN THE PARTIES WITH RESPECT
TO THIS AGREEMENT, SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TEXAS WITHOUT REGARD TO RULES CONCERNING CONFLICTS OF
LAWS.
29. Miscellaneous Provisions.
a) Captions. Captions have been inserted for reference purposes only and
shall not define or limit the terms of this Agreement.
b) Partial Invalidity. If any provision of this Agreement is held
invalid, such invalidity shall not affect the remaining provisions.
c) Modification. This Agreement cannot be modified or amended except by a
written instrument duly executed by Seller and Purchaser.
d) Assignment. Neither Seller nor Purchaser, without the prior written
consent of the other Party, shall assign any right or obligation under
this Agreement, or attempt to delegate any duty to be performed under
this Agreement except that Seller or Purchaser may make such as
assignment and/or delegation to a Qualified Intermediary, without the
consent of the other Party. Consent to assign shall not be
unreasonably withheld by either Party. Any attempted assignment or
delegation without such consent shall be void and of no effect.
e) Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original instrument,
but all of which together shall constitute but one and the same
instrument.
-36-
f) Expenses. Except as otherwise expressly provided herein, all expenses
incurred by each Party in connection with the transaction contemplated
herein, including, without limitation, attorney's fees, are for the
account of the Party incurring the same and the Party incurring such
expenses shall defend, indemnify and hold harmless the other Party
from and against such expenses.
g) Press Releases. No information in connection with this sale or
exchange shall be released to the public by either Party, including,
without limitation, through press releases, without the express
written permission of the other Party, unless required by applicable
federal, state or local laws.
h) No Recording. This Agreement shall not be recorded or filed by any
Party or their successors or assigns, in or with any public or
governmental office, officer, agency or records repository without the
prior written consent of the other Party.
i) Survival. All representations, indemnifications, covenants,
obligations and promises of the Parties set forth in this Agreement
shall survive Closing. All documents conveying, transferring or
assigning the Property shall incorporate by reference the terms and
conditions of this Agreement.
(j) Exhibits and Schedules. The Exhibits and Schedules listed below are
attached to this Agreement:
Exhibit A Property and Property Interests Subject to this
Agreement
Exhibit B Assignment and Conveyance
Exhibit C Personal Property Agreement and Bill of Sale
Exhibit D Allocated Values
Exhibit E Contracts
Exhibit F WI and NRI Information
k) Time of Essence. Time is of the essence in the performance of this
Agreement.
-37-
l) H-S-R. If either Seller or Purchaser determine that the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 is applicable to
this transaction, then the Parties which are required to file shall
file with the Federal trade Commission and the Department of Justice
the required notifications, reports, and supplemental information to
comply in all respects with the requirements of said Act.
m) No Partnership; Several Obligations . Nothing contained in this
Agreement shall be deemed to create a joint venture, partnership, tax
partnership or agency relationship between the Parties. The
obligations of JMC Exploration, Inc. and Arkoma Star L.L.C. are
several with respect to the portion of the Property owned by each and
not joint.
n) File Transfers. Within a reasonable time her Closing, Seller will
transfer to Purchaser, subject to Seller's continuing right of access
as hereinafter set forth, Seller's files, records, documents, and data
relating to the Property.
Seller retains the right of complete access to the above files and
records, which right of access may be exercised by Seller at
reasonable times, upon giving Purchaser reasonable notice and which
shall include, at Seller's sole cost and expense, the right to copy or
duplicate any and all contents therein_ Should Seller be required by a
governmental rule or order produce the original of any document
described in this subsection, Purchaser will, to the best of its
ability, make such document available to enable Seller to comply with
said rule or order upon receiving proper assurance that such document
will be promptly returned to Purchaser.
o) Remedies. Prior to the Closing, each Party hereto shall have all
remedies provided by law for a breach of the terms hereof by the other
Party. After the Closing, the sole and exclusive remedies of the
Parties in connection with this Agreement shall be the rights of the
Parties to indemnification as provided herein.
-38-
IN WITNESS WHEREOF this Purchase and Sale Agreement is executed by the Parties
hereto as indicated below by the signatures of their respective representatives;
however, for identification purposes, this Agreement shall be deemed dated as of
the date the last Party hereto sins this Agreement.
SELLER
JMC EXPLORATION, INC. ARKOMA STAR, L.L.C.
By:/s/ Mike McCoy By: /s/Mike McCoy
---------------------------------- ----------------------------
Mike McCoy, President Mike McCoy, President
Date: November 27, 2002 Date: November 27, 2002
------------------------------- ---------------------------
PURCHASERS
PARALLEL L.P.
By:/s/Larry C. Oldham
---------------------------------
Name: Larry C. Oldham
Title: President
TEXLAND PETROLEUM, INC.
By:/s/James H. Wilkes
----------------------------------
Name: James H. Wilkes
Title: President and COO
-39-
EXHIBIT 10.2
FIRST AMENDED AND RESTATED
CREDIT AGREEMENT
AMONG
PARALLEL PETROLEUM CORPORATION
AND PARALLEL, L.P.,
AS BORROWERS,
AND
PARALLEL, L.L.C.,
AS GUARANTOR,
AND
FIRST AMERICAN BANK, SSB
AND THE INSTITUTIONS NAMED HEREIN,
AS LENDERS,
AND
FIRST AMERICAN BANK, SSB
AS JOINT LEAD ARRANGER AND
ADMINISTRATIVE AGENT,
AND
BNP PARIBAS,
AS JOINT LEAD ARRANGER AND
SYNDICATION AGENT
DECEMBER 20, 2002
TABLE OF CONTENTS
Page No.
DEFINITIONS ............................................................ 1
COMMITMENTS OF THE LENDERS..............................................13
(a) Revolving Loans.......................................13
(b) Ratable Loans.........................................14
(c) Procedure for Borrowing...............................14
(d) Letters of Credit.....................................15
(e) Procedure for Obtaining Letters of Credit.............16
(f) Voluntary Reduction of Commitment.....................17
(g) Mandatory Commitment Reductions.......................17
(h) Several Obligations...................................18
(i) Type and Number of Advances...........................18
NOTES EVIDENCING LOANS..................................................18
(a) Form of Notes.........................................18
(b) Issuance of Additional Notes..........................18
(c) Interest Rates........................................19
(d) Payment of Interest...................................19
(e) Payment of Principal..................................19
(f) Payment to Lenders....................................19
(g) Sharing of Payments, Etc..............................20
(h) Non-Receipt of Funds by the Agent.....................20
INTEREST RATES..........................................................20
(a) Options...............................................20
(b) Interest Rate Determination...........................22
(c) Conversion Option.....................................22
(d) Recoupment............................................22
(e) Interest Rates Applicable After Default...............22
SPECIAL PROVISIONS RELATING TO LOANS....................................23
(a) Unavailability of Funds or Inadequacy of Pricing......23
(b) Change in Laws........................................23
(c) Increased Cost or Reduced Return......................24
-i-
(d) Discretion of Lender as to Manner of Funding...............26
(e) Breakage Fees..............................................27
COLLATERAL SECURITY.....................................................27
BORROWING BASE..........................................................29
(a) Initial Borrowing Base.....................................29
(b) Subsequent Determinations and Redeterminations
of Borrowing Base..........................................29
(c) Subsequent Unscheduled Redeterminations
of Borrowing Base..........................................30
(d) Other Determinations of the Borrowing Base.................30
(e) Evaluation Factors.........................................31
(f) Required Percentage of Lenders.............................32
(g) Automatic Reductions of Borrowing Base.....................32
FEES....................................................................33
(a) Letter of Credit Fee.......................................33
(b) Borrowing Base Determination Fee...........................33
(c) Agency and Arrangement Fee.................................33
PREPAYMENTS.............................................................34
(a) Voluntary Prepayments......................................34
(b) Mandatory Collateral or Prepayment
For Borrowing Base Deficiency..............................34
REPRESENTATIONS AND WARRANTIES..........................................35
(a) Creation and Existence.....................................35
(b) Power and Authority........................................35
(c) Binding Obligations........................................35
(d) No Legal Bar or Resultant Lien.............................36
(e) No Consent.................................................36
(f) Financial Condition........................................36
(g) Liabilities................................................36
(h) Litigation.................................................36
(i) Taxes; Governmental Charges................................37
(j) Titles, Etc................................................37
(k) Defaults...................................................37
(l) Casualties; Taking of Properties...........................37
(m) Use of Proceeds; Margin Stock..............................38
(n) Location of Business and Offices...........................38
(o) Compliance with the Law....................................38
(p) No Material Misstatements..................................39
-ii-
(q) Not A Utility..............................................39
(r) ERISA......................................................39
(s) Public Utility Holding Company Act.........................39
(t) Subsidiaries...............................................39
(u) Environmental Matters......................................39
(v) Liens......................................................40
(w) Investment Company Act.....................................40
(x) General....................................................40
CONDITIONS OF LENDING...................................................40
AFFIRMATIVE COVENANTS...................................................45
(a) Financial Statements and Reports...........................45
(b) Certificates of Compliance.................................47
(c) Accountants' Certificate...................................47
(d) Taxes and Other Liens......................................47
(e) Compliance with Laws.......................................48
(f) Further Assurances.........................................48
(g) Performance of Obligations.................................48
(h) Insurance..................................................48
(i) Accounts and Records.......................................49
(j) Right of Inspection........................................49
(k) Notice of Certain Events...................................50
(l) ERISA Information and Compliance...........................50
(m) Environmental Reports and Notices..........................51
(n) Compliance and Maintenance.................................51
(o) Operation of Properties....................................52
(p) Compliance with Leases and Other Instruments...............52
(q) Certain Additional Assurances Regarding Maintenance
and Operations of Properties...............................52
(r) Sale of Certain Assets/Prepayment of Proceeds..............53
(s) Title Matters..............................................53
(t) Curative Matters...........................................53
(u) Change of Principal Place of Business......................54
(v) Additional Collateral......................................54
NEGATIVE COVENANTS......................................................55
(a) Negative Pledge............................................55
(b) Current Ratio..............................................56
(c) Debt Service Coverage Ratio................................56
(d) Adjusted Consolidated Net Worth............................56
(e) Consolidations and Mergers.................................56
(f) Debts, Guaranties and Other Obligations....................56
-iii-
(g) Dividend and Distributions.................................57
(h) Loans and Advances.........................................58
(i) Receivables and Payables...................................58
(j) Nature of Business.........................................58
(k) Transactions with Affiliates...............................58
(l) Rate Management Transactions...............................59
(m) Investments................................................59
(n) Amendment to Organizational Documents......................60
(o) ERISA Compliance...........................................60
(p) Accounting Method and Fiscal Year..........................60
(q) Employee Agreements........................................60
(r) Issuance of Equity Interests...............................60
EVENTS OF DEFAULT.......................................................61
THE AGENT AND THE LENDERS...............................................64
(a) Appointment and Authorization..............................64
(b) Note Holders...............................................65
(c) Consultation with Counsel..................................65
(d) Documents..................................................65
(e) Resignation or Removal of Agent............................66
(f) Responsibility of Agent....................................66
(g) Independent Investigation..................................68
(h) Indemnification............................................69
(i) Benefit of Section 15......................................69
(j) Pro Rata Treatment.........................................69
(k) Assumption as to Payments..................................70
(l) Other Financings...........................................70
(m) Interests of Lenders.......................................71
(n) Investments................................................71
(o) Delegation to Affiliates...................................71
(p) Execution of Collateral Documents..........................72
(q) Collateral Releases........................................72
(r) Internal Revenue Service Forms.............................72
(s) Syndication Agent..........................................73
EXERCISE OF RIGHTS......................................................73
NOTICES.................................................................73
EXPENSES................................................................75
INDEMNITY...............................................................75
-iv-
NON-LIABILITY OF LENDERS................................................76
GOVERNING LAW...........................................................77
INVALID PROVISIONS......................................................77
MAXIMUM INTEREST RATE...................................................77
AMENDMENTS..............................................................78
MULTIPLE COUNTERPARTS...................................................78
CONFLICT................................................................78
SURVIVAL................................................................79
PARTIES BOUND...........................................................79
ASSIGNMENTS AND PARTICIPATIONS..........................................79
CHOICE OF FORUM: CONSENT TO SERVICE OF PROCESS AND
JURISDICTION...................................................81
WAIVER OF JURY TRIAL....................................................82
OTHER AGREEMENTS........................................................82
FINANCIAL TERMS.........................................................82
COMMUNICATIONS VIA INTERNET.............................................82
AMENDMENT AND RESTATEMENT...............................................82
-v-
Exhibits
Exhibit "A" - Notice of Borrowing
Exhibit "B" - Revolving Note
Exhibit "C" - Guaranty
Exhibit "D" - Certificate of Compliance
Exhibit "E" - Assignment and Acceptance Agreement
Schedules
Schedule "1" - Liens
Schedule "2" - Financial Condition
Schedule "3" - Liabilities
Schedule "4" - Litigation
Schedule "5" - Employee Agreements
Schedule "6" - Title Matters
Schedule "7" - Curative Matters
-vi-
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIRST AMENDED AND RESTATED CREDIT AGREEMENT (hereinafter referred to
as the "Agreement") executed as of the 20th day of December, 2002, is by and
among PARALLEL PETROLEUM CORPORATION, a Delaware corporation ("PPC") and
PARALLEL, L.P., a Texas limited partnership ("PLP") (hereinafter PPC and PLP are
collectively referred to as "Borrowers" and individually as a "Borrower"), and
PARALLEL, L.L.C., a Delaware limited liability company ("Guarantor"), and FIRST
AMERICAN BANK, SSB, a state savings bank ("First American"), and each of the
financial institutions which is a party hereto (as evidenced by the signature
pages to this Agreement) or which may from time to time become a party hereto
pursuant to the provisions of Section 29 hereof or any successor or assignee
thereof (hereinafter collectively referred to as "Lenders", and individually,
"Lender"), and First American, as Joint Lead Arranger and as Administrative
Agent ("Agent") and BNP Paribas, as Joint Lead Arranger and as Syndication Agent
("Syndication Agent").
W I T N E S S E T H:
WHEREAS, Borrowers have requested that the Lenders provide Borrowers with a
revolving credit facility and the Lenders are willing to make such facility
available to Borrowers, subject to the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereby agree as follows:
1. Definitions. When used herein the terms "Agent", "Agreement",
"Borrower", "Borrowers", "First American", "Guarantor", "Lender", "Lenders",
"PLP", "PPC" and "Syndication Agent" shall have the meanings indicated above.
When used herein the following terms shall have the following meanings:
Adjusted Consolidated Net Worth shall mean PPC's consolidated stockholders'
equity, as determined in accordance with GAAP, excluding the cumulative effect
of any change in accounting principles after April 1, 2002 and the after-tax net
effect of any non-recurring non-cash charges after April 1, 2002, including,
without limitation, any charges under Financial Accounting Standard Board
Statement No. 144, as amended, supplemented or modified from time to time.
Advance means a borrowing hereunder (i) made to Borrowers by some or all of
the Lenders on the same Borrowing Date, or (ii) converted or continued by the
Lenders on the same date of conversion or continuation, consisting, in either
case, of the aggregate amount of the several Loans of the same type and, in the
case of LIBOR Loans, for the same Interest Period.
Affiliate means any Person which, directly or indirectly, controls, is
controlled by or is under common control with the relevant Person. For the
purposes of this definition, "control" (including, with correlative meanings,
the terms "controlled by" and "under common control with"), as used with respect
to any Person, shall mean a member of the board of directors, a partner or an
officer of such Person, or any other Person with possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such Person, through the ownership (of record, as trustee, or by
proxy) of voting shares, partnership interests or voting rights, through a
management contract or otherwise. Any Person owning or controlling directly or
indirectly ten percent or more of the voting shares, partnership interests or
voting rights, or other equity interest of another Person shall be deemed to be
an Affiliate of such Person.
Acquisition means the acquisition contemplated by that certain Purchase and
Sale Agreement dated as of November 27, 2002, by and among JMC Exploration, Inc.
and Arkoma Star L.L.C., as Sellers, and Parallel, L.P., and Texland Petroleum,
Inc., as Purchasers, as amended by Letter Agreement dated December 11, 2002,
with Parallel, L.P. acquiring not less than ninety-five percent (95%) of the oil
and gas properties located in Andrews County, Texas, covered by said Purchase
and Sale Agreement.
Assignment and Acceptance means a document substantially in the form of
Exhibit "E" hereto.
Available Commitment means, at any time, the Commitment then in effect
minus the Total Outstandings.
Base Rate shall mean, as of any date, a rate of interest per annum equal to
the higher of (A) four and one-half percent (4.50%), (B) the fluctuating rate
published in the Money Rates section of The Wall Street Journal as the U.S.
"prime rate", or (C) the sum of the Federal Funds Effective Rate for such date
plus one-half of one percent (.50%) per annum. If the Money Rates section of The
Wall Street Journal contains
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more than one U.S. "prime rate", then the "prime rate" for purposes of this
definition shall be the higher of said rates. If the Money Rates section of The
Wall Street Journal does not have a rate designated by it as its "prime rate",
then the "prime rate" shall be deemed to be the fluctuating rate of interest per
annum which is the general reference rate designated by Agent as its "reference
rate", "base rate" or other similar rate and which is comparable to the "prime
rate" as described above. The Base Rate is used by Agent as a general reference
rate of interest, taking into account such factors as Agent may deem
appropriate, it being understood that it is not necessarily the lowest or best
rate actually charged to any customer and that Agent may make various commercial
or other loans at rates of interest having no relationship to such rate. Each
change in the Base Rate shall become effective without prior notice to Borrowers
automatically as of the opening of business on the date of such change in the
Base Rate.
Base Rate Loans shall mean any loan during any period which bears interest
based upon the Base Rate or which would bear interest based upon the Base Rate
if the Maximum Rate ceiling was not in effect at that particular time.
Borrowing Base shall mean the value assigned by the Lenders from time to
time to the Oil and Gas Properties or other Collateral pursuant to Section 7
hereof.
Borrowing Base Deficiency is used herein as defined in Section 9(b) hereof.
Borrowing Base Usage shall mean, as of any date, the Total Outstandings
divided by the Borrowing Base.
Borrowing Date means the date elected by Borrowers pursuant to Section 2(c)
hereof for an Advance on the Loan.
Business Day shall mean (i) with respect to any borrowing, payment or note
selection of LIBOR Loans, a day (other than Saturdays or Sundays) on which banks
are legally open for business in Midland, Texas and New York, New York and on
which dealings in United States dollars are carried on in the London interbank
market, and (ii) for all other purposes a day (other than Saturdays and Sundays)
on which banks are legally open for business in Midland, Texas.
Change of Management shall occur if a majority of the individuals
comprising the Board of Directors of PPC as of the Effective Date shall
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either resign, be declared incompetent or otherwise be removed (voluntarily or
involuntarily) or cease to serve as members of the Board of Directors of PPC.
Collateral is used herein as defined in Section 6 hereof.
Commitment means (A) for all Lenders, the lesser of (i) $100,000,000 or
(ii) the Borrowing Base, as reduced or increased from time to time pursuant to
Sections 2 and 7 hereof, and (B) as to any Lender, its obligation to make
Advances hereunder in amounts not exceeding, in the aggregate, an amount equal
to such Lender's Commitment Percentage times the total Commitment as of any
date. The Commitment of each Lender hereunder shall be adjusted from time to
time to reflect assignments made by such Lender pursuant to Section 29 hereof.
Each reduction in the Commitment shall result in a Pro Rata reduction in each
Lender's Commitment.
Commitment Percentage means for each Lender the percentage set forth
opposite the Lender's name on the signature page hereto. The Commitment
Percentage of each Lender hereunder shall be adjusted from time to time to
reflect assignments made by such Lender pursuant to Section 29 hereof.
Consolidated Cash Flow means PPC's Consolidated Net Income for each fiscal
quarter of PPC, less preferred dividends paid by PPC during each such fiscal
quarter, plus depreciation, depletion and other non-cash charges of PPC during
each such fiscal quarter determined in accordance with GAAP.
Consolidated Current Assets means the total of the consolidated current
assets determined in accordance with GAAP, including as of any date, the
Available Commitment.
Consolidated Current Liabilities means the total of consolidated current
obligations as determined in accordance with GAAP, excluding therefrom, as of
any date, current maturities due on the Loans.
Consolidated Net Income shall mean PPC's consolidated net income after
income taxes calculated in accordance with GAAP.
Control Agreement means that certain Control Agreement dated as of July 17,
2002, among PLP, Salomon Smith Barney Inc. and Agent with respect to the SSB
Account.
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Current Ratio means the ratio of Consolidated Current Assets for the date
or period being measured to the Consolidated Current Liabilities for such date
or period.
Debt Service Coverage Ratio means the ratio of PPC's Consolidated Cash Flow
during each fiscal quarter of PPC to the aggregate amount of (i) the Monthly
Commitment Reductions during each such fiscal quarter, and (ii) the required
interest payments under the Notes during each such fiscal quarter.
Default means all the events specified in Section 14 hereof, regardless of
whether there shall have occurred any passage of time or giving of notice, or
both, that would be necessary in order to constitute such event as an Event of
Default.
Default Rate shall mean a default rate of interest determined in accordance
with Section 4(e) hereof.
Defaulting Lender is used herein as defined in Section 3(f) hereof.
Effective Date means the date of this Agreement.
Eligible Assignee means any of (i) a Lender or any Affiliate of a Lender;
(ii) a commercial bank organized under the laws of the United States, or any
state thereof, and having a combined capital and surplus of at least
$100,000,000; (iii) a commercial bank organized under the laws of any other
country which is a member of the Organization for Economic Cooperation and
Development, or a political subdivision of any such country, and having a
combined capital and surplus of at least $100,000,000, provided that such bank
is acting through a branch or agency located in the United States; (iv) a Person
that is primarily engaged in the business of commercial lending and that (A) is
a subsidiary of a Lender, (B) a subsidiary of a Person of which a Lender is a
subsidiary, or (C) a Person of which a Lender is a subsidiary; (v) any other
entity (other than a natural person) which is an "accredited investor" (as
defined in Regulation D under the Securities Act) which extends credit or buys
loans as one of its businesses, including, but not limited to, insurance
companies, mutual funds, investments funds and lease financing companies; and
(vi) with respect to any Lender that is a fund that invests in loans, any other
fund that invests in loans and is managed by the same investment advisor of such
Lender or by an Affiliate of such investment advisor (and treating all such
funds so managed as a single Eligible Assignee); provided, however, that no
Affiliate of either Borrower or of Guarantor shall be an Eligible Assignee.
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Energen Stock means shares of common stock of Energen Corporation, an
Alabama corporation, owned by either Borrower or any Subsidiary from time to
time.
Engineered Value is used herein as defined in Section 6 hereof.
Environmental Laws means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended by the Superfund Amendments
and Reauthorization Act of 1986, 42 U.S.C.A. ss.9601, et seq., the Resource
Conservation and Recovery Act, as amended by the Hazardous Solid Waste Amendment
of 1984, 42 U.S.C.A. ss.6901, et seq., the Clean Water Act, 33 U.S.C.A. ss.1251,
et seq., the Clean Air Act, 42 U.S.C.A. ss.1251, et seq., the Toxic Substances
Control Act, 15 U.S.C.A. ss.2601, et seq., The Oil Pollution Act of 1990, 33
U.S.G. ss.2701, et seq., and all other laws, statutes, codes, acts, ordinances,
orders, judgments, decrees, injunctions, rules, regulations, orders, permits and
restrictions of any federal, state, county, municipal and other governments,
departments, commissions, boards, agencies, courts, authorities, officials and
officers, domestic or foreign, relating to oil pollution, air pollution, water
pollution, noise control and/or the handling, discharge, disposal or recovery of
on-site or off-site asbestos, radioactive materials, spilled or leaked petroleum
products, distillates or fractions and industrial solid waste or "hazardous
substances" as defined by 42 U.S.C. ss. 9601, et seq., as amended, as each of
the foregoing may be amended from time to time.
Environmental Liability means any claim, demand, obligation, cause of
action, order, violation, damage, injury, judgment, penalty or fine, cost of
enforcement, cost of remedial action or any other costs or expense whatsoever,
including reasonable attorneys' fees and disbursements, resulting from the
violation or alleged violation of any Environmental Law or the release of any
substance into the environment which is required to be remediated by a
regulatory agency or governmental authority or the imposition of any
Environmental Lien (as hereinafter defined), which could reasonably be expected
to individually or in the aggregate have a Material Adverse Effect.
Environmental Lien means a Lien in favor of any court, governmental agency
or instrumentality or any other Person (i) for any Environmental Liability or
(ii) for damages arising from or cost incurred by such court or governmental
agency or instrumentality or other person in response to a release or threatened
release of asbestos or "hazardous substance" into the environment, the
imposition of which Lien could reasonably be expected to have a Material Adverse
Effect.
-6-
ERISA means the Employee Retirement Income Security Act of 1974, as
amended.
Event of Default is used herein as defined in Section 14 hereof.
Federal Funds Effective Rate shall mean, for any day, an interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers on such day, as published for such day (or, if such day is not a
Business Day, for the immediately preceding Business Day) by the Federal Reserve
Bank of Dallas, Texas, or, if such rate is not so published for any day which is
a Business Day, the average of the quotations at approximately 10:00 a.m.
(Dallas, Texas time) on such day on such transactions received by the Agent from
three (3) Federal funds brokers of recognized standing selected by the Agent in
its sole discretion.
Financial Statements means balance sheets, income statements, statements of
cash flow and appropriate footnotes and schedules, prepared in accordance with
GAAP.
GAAP means generally accepted accounting principles, consistently applied.
Guaranty means the unlimited Guaranty of Guarantor in the form of Exhibit
"C" attached hereto.
Interest Payment Date shall mean the last day of each calendar month in the
case of Base Rate Loans and, in the case of LIBOR Loans, the last day of the
applicable Interest Period, and if such Interest Period is longer than three (3)
months, at three (3) month intervals following the first day of such Interest
Periods.
Interest Period shall mean with respect to any LIBOR Loan (i) initially,
the period commencing on the date such LIBOR Loan is made and ending one (1),
two (2), three (3) or six (6) months (if, at the date of any such election, a
six (6) month placement is available to the Agent) thereafter as selected by the
Borrowers pursuant to Section 4(a)(ii), and (ii) thereafter, each period
commencing on the day following the last day of the next preceding Interest
Period applicable to such LIBOR Loan and ending one (1), two (2), three (3) or
six (6) months (if, at the date of any such election, a six (6) month placement
is available to the Agent) thereafter, as selected by the Borrowers pursuant to
Section 4(a)(ii); provided, however, that (i) if any Interest Period would
otherwise expire
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on a day which is not a Business Day, such Interest Period shall expire on the
next succeeding Business Day unless the result of such extension would be to
extend such Interest Period into the next calendar month, in which case such
Interest Period shall end on the immediately preceding Business Day, (ii) if any
Interest Period begins on the last Business Day of a calendar month (or on a day
for which there is no numerically corresponding day in the calendar month at the
end of such Interest Period) such Interest Period shall end on the last Business
Day of a calendar month, and (iii) any Interest Period which would otherwise
expire after the Maturity Date shall end on such Maturity Date.
Letters of Credit is used herein as defined in Section 2(d) hereof.
LIBOR Base Rate shall mean the offered rate for the period equal to or
greater than the Interest Period for U.S. dollar deposits of not less than
$1,000,000 as of 11:00 a.m. City of London, England time two (2) Business Days
prior to the first day of the Interest Period as shown on the display designated
as "British Bankers Association Interest Settlement Rates" on Reuter's for the
purpose of displaying such rate. In the event such rate is not available on
Reuter's, then such offered rate shall be otherwise independently determined by
the Agent from an alternate, substantially independent source available to Agent
or shall be calculated by Agent by substantially similar methodology as that
theretofore used to determine such offered rate.
LIBOR Loans means any loans during any period which bear interest at the
LIBOR Rate, or which would bear interest at such rate if the Maximum Rate
ceiling was not in effect at a particular time.
LIBOR Margin means:
(a) two and three-quarters percent (2.75%) per annum whenever the
Borrowing Base Usage is equal to or greater than 75%; or
(b) two and one-half percent (2.50%) per annum whenever the Borrowing
Base Usage is equal to or greater than 50%, but less than 75%; or
(c) two and one-quarter percent (2.25%) per annum whenever the
Borrowing Base Usage is less than 50%.
LIBOR Rate means, with respect to a LIBOR Loan for the relevant Interest
Period, the higher of (A) four and one-half percent (4.50%), or (B)
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the sum of (i) the quotient of the LIBOR Base Rate applicable to such Interest
Period, divided by one minus the Reserve Requirement (expressed as a decimal)
applicable to such Interest Period, plus (ii) the LIBOR Margin. The LIBOR Rate
shall be rounded to the next higher multiple of 1/100th of one percent if the
rate is not such a multiple.
Lien means any mortgage, deed of trust, pledge, security interest,
assignment, encumbrance or lien (statutory or otherwise) of every kind and
character.
Loan Documents means this Agreement, the Notes, the Guaranty in the form of
Exhibit "C" hereto, the Security Instruments and all other documents executed by
Borrowers, Guarantor or any of their Subsidiaries and delivered to the Agent or
the Lenders in connection with the transactions described in this Agreement.
Loans means the Revolving Loans.
Majority Lenders means Lenders holding 66-2/3% or more of the Commitments
or if one or more of the Commitments have been terminated, Lenders holding
66-2/3% of the outstanding Loans.
Material Adverse Effect shall mean a material adverse effect on (i) the
assets or properties, liabilities, financial condition, business, operations,
affairs or circumstances of either Borrower or Guarantor, (ii) the ability of
either Borrower or Guarantor to carry out its businesses as of the date of this
Agreement or as proposed at the date of this Agreement to be conducted, (iii)
the ability of either Borrower or Guarantor to perform fully and on a timely
basis its obligations under any of the Loan Documents, or (iv) the validity or
enforceability of any of the Loan Documents or the rights and remedies of the
Agent or the Lenders thereunder.
Maturity Date shall mean December 20, 2006.
Maximum Rate means at any particular time in question, the maximum
non-usurious rate of interest which under applicable law may then be charged on
the Notes. If such Maximum Rate changes after the date hereof, the Maximum Rate
shall be automatically increased or deceased, as the case may be, without notice
to Borrowers from time to time as of the effective date of each change in such
Maximum Rate.
Monthly Commitment Reduction is used herein as defined in Section 2(g).
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Notes means the Revolving Notes, substantially in the form of Exhibit "B"
hereto issued or to be issued hereunder to each Lender, respectively, to
evidence the indebtedness to such Lender arising by reason of the Advances on
the Commitment, together with all modifications, renewals and extensions thereof
or any part thereof.
Notice of Borrowing is used herein as defined in Section 2(c) hereof.
Oil and Gas Properties means all oil, gas and mineral properties and
interests and related personal properties, in which either Borrower or any
Subsidiary owns an interest.
Other Financing is used herein as defined in Section 15(l) hereof.
Payor is used herein as defined in Section 3(h) hereof.
Permitted Liens shall mean (i) royalties, overriding royalties,
reversionary interests, production payments and similar burdens to the extent
the same do not reduce either Borrower's or Guarantor's net revenue interest in
the Oil and Gas Properties to an interest below that represented to Agent and
Lenders; (ii) sales contracts or other arrangements for the sale of production
of oil, gas or associated liquid or gaseous hydrocarbons which would not (when
considered cumulatively with the matters discussed in clause (i) above) deprive
either Borrower or Guarantor of any material right in respect of its assets or
properties (except for rights customarily granted with respect to such contracts
and arrangements); (iii) statutory Liens for taxes or other assessments that are
not yet delinquent (or that, if delinquent, are being contested in good faith by
appropriate proceedings, levy and execution thereon having been stayed and
continue to be stayed and for which either Borrower has set aside on its books
adequate reserves in accordance with GAAP); (iv) easements, rights of way,
servitudes, permits, surface leases and other rights in respect to surface
operations, pipelines, grazing, logging, canals, ditches, reservoirs or the
like, conditions, covenants and other restrictions, 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 either Borrower's or
Guarantor's assets or properties and that do not individually or in the
aggregate cause a Material Adverse Effect; (v) materialmen's, mechanic's,
repairman's, employee's, vendor's, laborer's warehousemen's, landlord's,
carrier's, pipeline's, contractor's, sub-contractor's, operator's,
non-operator's (arising under operating or joint operating agreements), and
other Liens (including any financing statements filed in respect thereof)
incidental to
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obligations incurred by either Borrower or Guarantor in connection with the
construction, maintenance, development, transportation, processing, storage or
operation of either Borrower's or Guarantor's assets or properties to the extent
not delinquent (or which, if delinquent, are being contested in good faith by
appropriate proceedings and for which either Borrower or Guarantor, as
applicable, has set aside on its books adequate reserves in accordance with
GAAP); (vi) all contracts, agreements and instruments, and all defects and
irregularities and other matters affecting either Borrower's or Guarantor's
assets and properties which were in existence at the time either Borrower's or
Guarantor's assets and properties were originally acquired by it and all routine
operational agreements entered into in the ordinary course of business, which
contracts, agreements, instruments, defects, irregularities and other matters
and routine operational agreements are not such as to, individually or in the
aggregate, interfere materially with the operation, value or use of either
Borrower's or Guarantor's assets and properties, considered in the aggregate;
(vii) liens in connection with workmen's compensation, unemployment insurance or
other social security, old age pension or public liability obligations; (viii)
legal or equitable encumbrances deemed to exist by reason of the existence of
any litigation or other legal proceeding or arising out of a judgment or award
with respect to which an appeal is being prosecuted in good faith and levy and
execution thereon have been stayed and continue to be stayed; (ix) rights
reserved to or vested in any municipality, governmental, statutory or other
public authority to control or regulate either Borrower's or Guarantor's assets
and properties in any manner, and all applicable laws, rules and orders from any
governmental authority; (x) landlord's liens; (xi) Liens incurred pursuant to
the Security Instruments; (xii) to the extent permitted by the Control
Agreement, Liens in favor of Salomon Smith Barney Inc., provided such Liens are
junior and subordinate to the Liens under the Security Instruments; and (xiii)
Liens existing at the date of this Agreement which are identified in Schedule
"1" hereto.
Person means an individual, a corporation, a partnership, an association, a
trust or any other entity or organization, including a government or political
subdivision or an agency or instrumentality thereof.
Plan means any plan subject to Title IV of ERISA and maintained by either
Borrower, Guarantor or any Subsidiary, or any such plan to which either Borrower
is required to contribute on behalf of its employees.
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Pro Rata or Pro Rata Part means for each Lender, (i) for all purposes where
no Loan is outstanding, such Lender's Commitment Percentage and (ii) otherwise,
the proportion which the portion of the outstanding Loans owed to such Lender
bears to the aggregate outstanding Loans owed to all Lenders at the time in
question.
Rate Management Transaction means any transaction (including an agreement
with respect thereto) now existing or hereafter entered into by either Borrower
or any of their respective Subsidiaries which is a rate swap, basis swap,
forward rate transaction, commodity swap, commodity option, equity or equity
index swap, equity or equity index option, bond option, interest rate option,
forward exchange transaction, cap transaction, floor transaction, collar
transaction, forward transaction, currency swap transaction, cross-currency rate
swap transaction, currency option or any other similar transaction (including
any option with respect to any of these transactions) or any combination
thereof, whether linked to one or more interest rates, foreign currencies,
commodity prices, equity prices or other financial measures.
Regulation D shall mean Regulation D of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor thereto
and other regulation or official interpretation of said Board of Governors
relating to reserve requirements applicable to member banks of the Federal
Reserve System.
Reimbursement Obligations shall mean at any time, the obligations of either
or both Borrowers in respect of all Letters of Credit then outstanding to
reimburse amounts paid by any Lender in respect of any drawing or drawings under
a Letter of Credit.
Required Payment is used herein as defined in Section 3(h) hereof.
Reserve Requirement means, with respect to any Interest Period, the maximum
aggregate reserve requirement (including all basic, supplemental, marginal and
other reserves) which is imposed under Regulation D on Eurocurrency liabilities.
Revolving Loan or Loans means an Advance or Advances made pursuant to
Section 2(a) hereof.
SSB Account means the securities account described in the Control
Agreement.
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Security Instruments is used collectively herein to mean this Agreement,
all Deeds of Trust, Mortgages, Security Agreements, Assignments of Production
and Financing Statements and other collateral documents covering certain of the
Oil and Gas Properties and related personal property, equipment, oil and gas
inventory and proceeds of the foregoing, all guaranties, all pledge agreements,
all security agreements and all collateral assignments of notes and liens
executed as security for the Loans, all such documents to be in form and
substance reasonably satisfactory to Agent.
Subsidiary means any corporation or other entity of which securities or
other ownership interests having ordinary voting power to elect a majority of
the board of directors or other persons performing similar functions are at the
time directly or indirectly owned by either Borrower or another Subsidiary.
Total Outstandings means, at any time, the sum of (i) the total principal
balance outstanding on the Revolving Loans, plus (ii) the total face amount of
all outstanding Letters of Credit, plus (iii) the amount of all unpaid
Reimbursement Obligations.
Tranche means a set of LIBOR Loans made by the Lenders at the same time and
for the same Interest Period.
Unscheduled Redeterminations means a redetermination of the Borrowing Base
made at any time other than on the dates set for the regular redetermination of
the Borrowing Base which are made (A) at the request of Borrowers (but only once
each six (6) month period), or (B) at the reasonable request of Majority
Lenders, or (C) at any time that Agent or Majority Lenders determine, in their
sole discretion that either (i) there has been a material decrease in the value
of the Collateral, or (ii) an event has occurred which could cause a Material
Adverse Effect.
2. Commitments of the Lenders.
(a) Revolving Loans. On the terms and conditions hereinafter set
forth, each Lender agrees severally to make Advances to Borrowers from time
to time during the period beginning on the Effective Date and ending on the
Maturity Date in such amounts as Borrowers may request up to an amount not
to exceed, in the aggregate principal amount advanced at any time, its Pro
Rata Part of the Available Commitment. Subject to the terms of this
Agreement, Borrowers may borrow, repay and reborrow at any time prior to
the Maturity Date. The obligation of Borrowers hereunder
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shall be evidenced by this Agreement and the Notes issued in connection
herewith, said Notes to be as described in Section 3 hereof.
Notwithstanding any other provision of this Agreement, no Advance shall be
required to be made hereunder if any Default or Event of Default has
occurred and is continuing. Each Advance under the Commitment shall be an
aggregate amount of at least $500,000 or any whole multiples of $100,000 in
excess thereof. Irrespective of the face amount of the Note or Notes, the
Lenders shall never have the obligation to Advance any amount or amounts in
excess of the Commitment or to increase the Commitment.
(b) Ratable Loans. Each Advance hereunder shall consist of Revolving
Loans made from the several Lenders ratably in proportion to the ratio that
their respective Commitments bear to the total of all Commitments.
(c) Procedure for Borrowing. Whenever Borrowers desire an Advance
under the Commitment, it shall give Agent telegraphic, telex, facsimile or
telephonic notice ("Notice of Borrowing") of such requested Advance, which
in the case of telephonic notice, shall be promptly confirmed in writing.
Each Notice of Borrowing shall be in the form of Exhibit "A" attached
hereto and shall be received by Agent not later than 11:00 a.m. Midland,
Texas time, (i) one Business Day prior to the Borrowing Date in the case of
the Base Rate Loan, or (ii) three Business Days prior to any proposed
Borrowing Date in the case of LIBOR Loans. Each Notice of Borrowing shall
specify (i) the Borrowing Date (which shall be a Business Day), (ii) the
principal amount to be borrowed, (iii) the portion of the Advance
constituting Base Rate Loans and/or LIBOR Loans and (iv) if any portion of
the proposed Advance is to constitute LIBOR Loans, the initial Interest
Period selected by Borrowers pursuant to Section 4 hereof to be applicable
thereto. Upon receipt of such Notice, Agent shall advise each Lender
thereof; provided, that if the Lenders have received at least one (1) day's
notice of such Advance prior to funding of a Base Rate Loan, or at least
three (3) days' notice of each Advance prior to funding in the case of a
LIBOR Loan, each Lender shall provide Agent at its office at 1004 N. Big
Spring, Suite 121, Midland, Texas 79701, not later than 1:00 p.m., Midland,
Texas time, on the Borrowing Date, in immediately available funds, its Pro
Rata Part of the requested Advance, but the aggregate of all such fundings
by each Lender shall never exceed such Lender's Commitment. Not later than
2:00 p.m., Midland, Texas time, on the Borrowing Date, Agent shall make
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available to the Borrowers at the same office, in like funds, the aggregate
amount of such requested Advance. Neither Agent nor any Lender shall incur
any liability to the Borrowers in acting upon any Notice of Borrowing
referred to above which Agent or such Lender believes in good faith to have
been given by a duly authorized officer or other person authorized to
borrow on behalf of Borrowers or for otherwise acting in good faith under
this Section 2(c). Upon funding of Advances by Lenders and such funds being
made available to Borrowers in accordance with this Agreement, pursuant to
any such Notice, the Borrowers shall have effected Advances hereunder.
(d) Letters of Credit. On the terms and conditions hereinafter set
forth, the Agent shall from time to time during the period beginning on the
Effective Date and ending on the Maturity Date upon request of either
Borrower issue standby Letters of Credit for the account of either Borrower
(the "Letters of Credit") in such face amounts as either Borrower may
request, but not to exceed in the aggregate face amount at any time
outstanding the sum of One Million and No/100 Dollars ($1,000,000.00). The
face amount of all Letters of Credit issued and outstanding hereunder shall
be considered as Advances on the Commitment for Borrowing Base purposes and
all payments made by the Agent on such Letters of Credit shall be
considered as Advances under the Notes. Each Letter of Credit used for the
account of either Borrower hereunder shall (i) be in favor of such
beneficiaries as are specifically requested by such Borrower for purposes
of securing such Borrower's obligations associated with its oil and gas
operations and activities, or securing such Borrower's obligations in
connection with Rate Management Transactions permitted under this
Agreement, (ii) have an expiration date not exceeding the earlier of (a)
one year or (b) the Maturity Date, and (iii) contain such other terms and
provisions as may be required by Agent. Each Lender (other than Agent)
agrees that, upon issuance of any Letter of Credit hereunder, it shall
automatically acquire a participation in the Agent's liability under such
Letter of Credit in an amount equal to such Lender's Commitment Percentage
of such liability, and each Lender (other than Agent) thereby shall
absolutely, unconditionally and irrevocably assume, as primary obligor and
not as surety, and shall be unconditionally obligated to Agent to pay and
discharge when due, its Commitment Percentage of Agent's liability under
such Letter of Credit. The Borrowers hereby, jointly and severally,
unconditionally agree to pay and reimburse the Agent for the
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amount of each demand for payment under any Letter of Credit that is in
compliance with the provisions of any such Letter of Credit at or prior to
the date on which payment is to be made by the Agent to the beneficiary
thereunder, without presentment, demand, protest or other formalities of
any kind. Upon receipt from any beneficiary of any Letter of Credit of any
demand for payment under such Letter of Credit, the Agent shall promptly
notify the Borrowers of the demand and the date upon which such payment is
to be made by the Agent to such beneficiary in respect of such demand.
Forthwith upon receipt of such notice from the Agent, Borrowers shall
advise the Agent whether or not Borrowers intend to borrow hereunder to
finance their obligations to reimburse the Agent, and if so, submit a
Notice of Borrowing as provided in Section 2(c) hereof. If Borrowers fail
to so advise Agent and thereafter fail to reimburse Agent, the Agent shall
notify each Lender of the demand and the failure of the Borrowers to
reimburse the Agent, and each Lender shall reimburse the Agent for its
Commitment Percentage of each such draw paid by the Agent and unreimbursed
by the Borrowers. All such amounts paid by Agent and/or reimbursed by the
Lenders shall be treated as an Advance or Advances under the Commitment,
which Advances shall be immediately due and payable and shall bear interest
at the Maximum Rate.
(e) Procedure for Obtaining Letters of Credit. The amount and date of
issuance, renewal, extension or reissuance of a Letter of Credit pursuant
to the Lenders' commitments above in Section 2(d) shall be designated by
either Borrower's written request delivered to Agent at least three (3)
Business Days prior to the date of such issuance, renewal, extension or
reissuance. Concurrently with or promptly following the delivery of the
request for a Letter of Credit, the Borrower making such request shall
execute and deliver to the Agent an application and agreement with respect
to the Letter of Credit, said application and agreement to be in the form
used by the Agent. The Agent shall not be obligated to issue, renew, extend
or reissue such Letter of Credit if (A) the amount thereon when added to
the face amount of the outstanding Letters of Credit plus any Reimbursement
Obligations exceeds One Million and No/100 Dollars ($1,000,000.00) or (B)
the amount thereof when added to the Total Outstandings would exceed the
Commitment. Borrowers, jointly and severally, agree to pay the Agent for
the benefit of the Lenders commissions for issuing the Letters of Credit
(calculated separately for each Letter of Credit) in an amount equal to the
greater of (i) the LIBOR Margin then in effect per annum times the
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maximum face amount of the Letter of Credit (calculated on the basis of
actual days elapsed or a year consisting of 360 days) or (ii) $500.00. In
addition, Borrowers, jointly and severally, agree to pay to the Agent for
its own account an additional commission of one-quarter of one percent
(.25%) times the maximum face amount of such Letter of Credit for issuing
each such Letter of Credit. Such commissions shall be payable prior to the
issuance of each Letter of Credit and thereafter on each anniversary date
of such issuance while such Letter of Credit is outstanding.
(f) Voluntary Reduction of Commitment. Subject to the provisions of
Section 5(e) hereof, Borrowers may at any time, or from time to time, upon
not less than three (3) Business Days' prior written notice to Agent,
reduce or terminate the Commitment; provided, however, that (i) each
reduction in the Commitment must be in the amount of $1,000,000 or more, in
increments of $100,000 and (ii) each reduction must be accompanied by a
prepayment of the Notes in the amount by which the outstanding principal
balance of the Notes exceeds the Commitment as reduced pursuant to this
Section 2(f).
(g) Mandatory Commitment Reductions.
(i) Sale of Assets. The Borrowing Base shall be reduced from time
to time by the amount of any prepayment required by Section 12(r)
hereof upon the sale of assets. If, as a result of any such reduction
in the Borrowing Base, the Total Outstandings ever exceed the
Borrowing Base then in effect, Borrowers shall make the mandatory
prepayment of principal required pursuant to Section 9(b) hereof.
(ii) Monthly Commitment Reductions. The Commitment shall be
reduced as of the last day of each month commencing August 31, 2003,
by an amount determined by the Lenders pursuant to Section 7 hereof
(the "Monthly Commitment Reduction"). Subject to Lenders' right to
redetermine the Monthly Commitment Reduction pursuant to Section 7
hereof, the Monthly Commitment Reduction on August 31, 2003 and on the
last day of each month thereafter, shall be in an amount equal to the
amount of the Borrowing Base on the day immediately preceding the date
of each such Monthly Commitment Reduction divided by the number of
months then remaining prior to July 31, 2008. If as a result of any
such Monthly Commitment Reduction, the Total Outstandings
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ever exceed the Commitment then in effect, Borrowers shall make the
mandatory prepayment of principal required pursuant to Section 9(b)
hereof.
(h) Several Obligations. The obligations of the Lenders under the
Commitment are several and not joint. The failure of any Lender to make an
Advance required to be made by it shall not relieve any other Lender of its
obligation to make its Advance, and no Lender shall be responsible for the
failure of any other Lender to make the Advance to be made by such other
Lender. No Lender shall be required to lend hereunder any amount in excess
of its legal lending limit.
(i) Type and Number of Advances. Any Advance on the Commitment may be
a Base Rate Loan or a LIBOR Loan, or a combination thereof, as selected by
the Borrower pursuant to Section 4 hereof. The total number of Tranches
which may be outstanding at any time shall never exceed three (3).
3. Notes Evidencing Loans. The loans described above in Section 2 shall be
evidenced by promissory notes of Borrower as follows:
(a) Form of Notes. The Revolving Loan shall be evidenced by a Note or
Notes in the aggregate face amount of $100,000,000, and the Note or Notes
shall be in the form of Exhibit "B" hereto with appropriate insertions.
Notwithstanding the face amount of the Notes, the actual principal amount
due from the Borrowers to Lenders on account of the Notes, as of any date
of computation, shall be the sum of Advances then and theretofore made on
account thereof, less all principal payments actually received by Lenders
in collected funds with respect thereto. Although the Notes may be dated as
of the Effective Date, interest in respect thereof shall be payable only
for the period during which the loans evidenced thereby are outstanding
and, although the stated amount of the Notes may be higher, the Notes shall
be enforceable, with respect to Borrowers' obligation to pay the principal
amount thereof, only to the extent of the unpaid principal amount of the
Revolving Loans. Irrespective of the face amount of the Notes, no Lender
shall ever be obligated to advance on the Commitment any amount in excess
of its Commitment then in effect.
(b) Issuance of Additional Notes. At the Effective Date there shall be
outstanding Note or Notes in the aggregate face amount of
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$100,000,000 payable to the order of Lenders. From time to time new Notes
may be issued to other Lenders as such Lenders become parties to this
Agreement. Upon request from Agent, Borrowers shall execute and deliver to
Agent any such new or additional Notes. From time to time as new Notes are
issued the Agent shall require that each Lender exchange its Note(s) for
newly issued Note(s) to better reflect the extent of each Lender's
Commitments hereunder.
(c) Interest Rates. The unpaid principal balance of the Notes shall
bear interest from time to time as set forth in Section 4 hereof.
(d) Payment of Interest. Interest on the Notes shall be payable on
each Interest Payment Date.
(e) Payment of Principal. Principal of the Revolving Loans shall be
due and payable to the Agent for the ratable benefit of the Lenders on the
Maturity Date unless earlier due in whole or in part as a result of an
acceleration of the amount due or pursuant to the mandatory prepayment
provisions of Section 9(b) hereof.
(f) Payment to Lenders. Each Lender's Pro Rata Part of payment or
prepayment of the Loans shall be directed by wire transfer to such Lender
by the Agent at the address provided to the Agent for such Lender for
payments no later than 2:00 p.m., Midland, Texas, time on the Business Day
such payments or prepayments are deemed hereunder to have been received by
Agent; provided, however, in the event that any Lender shall have failed to
make an Advance as contemplated under Section 2 hereof (a "Defaulting
Lender") and the Agent or another Lender or Lenders shall have made such
Advance, payment received by Agent for the account of such Defaulting
Lender or Lenders shall not be distributed to such Defaulting Lender or
Lenders until such Advance or Advances shall have been repaid in full to
the Lender or Lenders who funded such Advance or Advances. Any payment or
prepayment received by Agent at any time after 12:00 noon, Midland, Texas,
time on a Business Day shall be deemed to have been received on the next
Business Day. Interest shall cease to accrue on any principal as of the end
of the day preceding the Business Day on which any such payment or
prepayment is deemed hereunder to have been received by Agent. If Agent
fails to transfer any principal amount to any Lender as provided above,
then Agent shall promptly direct such principal amount by wire transfer to
such Lender.
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(g) Sharing of Payments, Etc. If any Lender shall obtain any payment
(whether voluntary, involuntary, or otherwise) on account of the Loans,
(including, without limitation, any set-off) which is in excess of its Pro
Rata Part of payments on the Loans, as the case may be, obtained by all
Lenders, such Lender shall purchase from the other Lenders such
participation as shall be necessary to cause such purchasing Lender to
share the excess payment pro rata with each of them; provided that, if all
or any portion of such excess payment is thereafter recovered from such
purchasing Lender, the purchase shall be rescinded and the purchase price
restored to the extent of the recovery. Borrowers agree that any Lender so
purchasing a participation from another Lender pursuant to this Section
may, to the fullest extent permitted by law, exercise all of its rights of
payment (including the right of offset) with respect to such participation
as fully as if such Lender were the direct creditor of Borrowers in the
amount of such participation.
(h) Non-Receipt of Funds by the Agent. Unless the Agent shall have
been notified by a Lender or the Borrowers (the "Payor") prior to the date
on which such Lender is to make payment to the Agent of the proceeds of a
Loan to be made by it hereunder or Borrowers are to make a payment to the
Agent for the account of one or more of the Lenders, as the case may be
(such payment being herein called the "Required Payment"), which notice
shall be effective upon receipt, that the Payor does not intend to make the
Required Payment to the Agent, the Agent may assume that the Required
Payment has been made and may, in reliance upon such assumption (but shall
not be required to), make the amount thereof available to the intended
recipient on such date and, if the Payor has not in fact made the Required
Payment to the Agent, the recipient of such payment shall, on demand, pay
to the Agent the amount made available to it together with interest thereon
in respect of the period commencing on the date such amount was made
available by the Agent until the date the Agent recovers such amount at the
rate applicable to such portion of the applicable Loan.
4. Interest Rates.
(a) Options.
(i) Base Rate Loans. On all Base Rate Loans Borrowers agree to
pay interest on the Notes calculated
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on the basis of the actual days elapsed in a year consisting of 365
days, or if appropriate, 366 days with respect to the unpaid principal
amount of each Base Rate Loan from the date the proceeds thereof are
made available to Borrowers until maturity (whether by acceleration or
otherwise), at a varying rate per annum equal to the lesser of (i) the
Maximum Rate (defined herein), or (ii) the Base Rate. Subject to the
provisions of this Agreement as to prepayment, the principal of the
Notes representing Base Rate Loans shall be payable as specified in
Section 3(e) hereof and the interest in respect of each Base Rate Loan
shall be payable on each Interest Payment Date applicable thereto.
Past due principal and, to the extent permitted by law, past due
interest in respect to each Base Rate Loan, shall bear interest,
payable on demand, at a rate per annum equal to the Default Rate.
(ii) LIBOR Loans. On all LIBOR Loans Borrowers agree to pay
interest calculated on the basis of a year consisting of 360 days with
respect to the unpaid principal amount of each LIBOR Loan from the
date the proceeds thereof are made available to Borrowers until
maturity (whether by acceleration or otherwise), at a varying rate per
annum equal to the lesser of (i) the Maximum Rate, or (ii) the LIBOR
Rate. Subject to the provisions of this Agreement with respect to
prepayment, the principal of the Notes shall be payable as specified
in Section 3(e) hereof and the interest with respect to each LIBOR
Loan shall be payable on each Interest Payment Date applicable
thereto. Past due principal and, to the extent permitted by law, past
due interest shall bear interest, payable on demand, at a rate per
annum equal to the Default Rate. Upon three (3) Business Days' written
notice prior to the making by the Lenders of any LIBOR Loan (in the
case of the initial Interest Period therefor) or the expiration date
of each succeeding Interest Period (in the case of subsequent Interest
Periods therefor), Borrowers shall have the option, subject to
compliance by Borrowers with all of the provisions of this Agreement,
as long as no Event of Default exists, to specify whether the Interest
Period commencing on any such date shall be a one (1), two (2),
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three (3) or six (6) month period. If Agent shall not have received
timely notice of a designation of such Interest Period as herein
provided, Borrowers shall be deemed to have elected to convert all
maturing LIBOR Loans to Base Rate Loans.
(b) Interest Rate Determination. The Agent shall determine each
interest rate applicable to the Loans hereunder. The Agent shall give
prompt notice to Borrowers and the Lenders of each rate of interest so
determined and its determination thereof shall be conclusive absent error.
(c) Conversion Option. Borrowers may elect from time to time (i) to
convert all or any part of its LIBOR Loans to Base Rate Loans by giving
Agent irrevocable notice of such election in writing prior to 10:00 a.m.
(Midland, Texas time) on the conversion date and such conversion shall be
made on the requested conversion date, provided that any such conversion of
a LIBOR Loan shall only be made on the last day of the Interest Period with
respect thereof, (ii) to convert all or any part of its Base Rate Loans to
LIBOR Loans by giving the Agent irrevocable written notice of such election
three (3) Business Days prior to the proposed conversion and such
conversion shall be made on the requested conversion date or, if such
requested conversion date is not a Business Day, on the next succeeding
Business Day. Any such conversion shall not be deemed to be a prepayment of
any of the loans for purposes of this Agreement or the Notes.
(d) Recoupment. If at any time the applicable rate of interest
selected pursuant to Sections 4(a)(i) or 4(a)(ii) above shall exceed the
Maximum Rate, thereby causing the interest on the Notes to be limited to
the Maximum Rate, then any subsequent reduction in the interest rate so
selected or subsequently selected shall not reduce the rate of interest on
the Notes below the Maximum Rate until the total amount of interest accrued
on the Notes equals the amount of interest which would have accrued on the
Notes if the rate or rates selected pursuant to Sections 4(a)(i) or (ii),
as the case may be, had at all times been in effect.
(e) Interest Rates Applicable After Default. Notwithstanding anything
to the contrary contained in this Section 4, during the continuance of a
Default or an Event of Default the Majority Lenders may, at their option,
by notice from Agent to Borrowers (which
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notice may be revoked at the option of the Majority Lenders notwithstanding
the provisions of Section 15 hereof, which requires all Lenders to consent
to changes in interest rates) declare that no Advance may be made as,
converted into, or continued as a LIBOR Loan. During the continuance of an
Event of Default, the Majority Lenders, may, at their option, by notice
from Agent to Borrowers (which notice may be revoked at the option of
Majority Lenders notwithstanding the provisions of Section 15 hereof, which
requires all Lenders to consent to changes in interest rates) declare that
(i) each LIBOR Loan shall bear interest for the remainder of the applicable
Interest Period at the rate otherwise applicable to such Interest Period
plus four percent (4%) per annum and (ii) each Base Rate Loan shall bear
interest at the rate otherwise applicable to such Interest Period plus four
percent (4%), provided that, during the continuance of an Event of Default
under Section 14(f) or 14(g), the interest rate set forth in clauses (i)
and (ii) above shall be applicable to all outstanding Loans without any
election or action on the part of the Agent or any Lender.
5. Special Provisions Relating to Loans.
(a) Unavailability of Funds or Inadequacy of Pricing. In the event
that, in connection with any proposed LIBOR Loan, the Agent reasonably
determines, which determination shall, absent manifest error, be final,
conclusive and binding upon all parties, due to changes in circumstances
since the date hereof, adequate and fair means do not exist for determining
the LIBOR Rate or such rate will not accurately reflect the costs to the
Lenders of funding a LIBOR Loan for such Interest Period, the Agent shall
give notice of such determination to Borrowers and the Lenders, whereupon,
until the Agent notifies Borrowers and the Lenders that the circumstances
giving rise to such suspension no longer exist, the obligations of the
Lenders to make, continue or convert Loans into a LIBOR Loan shall be
suspended, and all Loans to Borrowers shall be Base Rate Loans during the
period of suspension.
(b) Change in Laws. If at any time any new law or any change in
existing laws or in the interpretation of any new or existing laws shall
make it unlawful for any Lender to make or continue to maintain or fund
LIBOR Loans hereunder, then such Lender shall promptly notify Borrowers in
writing and such Lender's obligation to make, continue or convert Loans
into LIBOR Loans under this Agreement shall be suspended until it is no
longer
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unlawful for such Lender to make or maintain LIBOR Loans. Upon receipt of
such notice, Borrowers shall either repay the outstanding LIBOR Loans owed
to such Lender, without penalty, on the last day of the current Interest
Periods (or, if any Lender may not lawfully continue to maintain and fund
such LIBOR Loans, immediately), or Borrowers may convert such LIBOR Loans
at such appropriate time to Base Rate Loans.
(c) Increased Cost or Reduced Return.
(i) If, after the date hereof, the adoption of any applicable
law, rule, or regulation, or any change in any applicable law, rule,
or regulation, or any change in the interpretation or administration
thereof by any governmental authority, central bank, or comparable
agency charged with the interpretation or administration thereof, or
compliance by any Lender with any request or directive (whether or not
having the force of law) of any such governmental authority, central
bank, or comparable agency:
(A) shall subject such Lender to any tax, duty, or other
charge with respect to any LIBOR Loans, its Notes, or its
obligation to make LIBOR Loans, or change the basis of taxation
of any amounts payable to such Lender under this Agreement or its
Notes in respect of any LIBOR Loan (other than franchise taxes
and taxes imposed on or measured by the overall net income of
such Lender);
(B) shall impose, modify, or deem applicable any reserve,
special deposit, assessment, or similar requirement (other than
reserve requirements, if any, taken into account in the
determination of the LIBOR Rate) relating to any extensions of
credit or other assets of, or any deposits with or other
liabilities or commitments of, such Lender, including the
Commitment of such Lender hereunder; or
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(C) shall impose on such Lender or on the London interbank
market any other condition affecting this Agreement or its Notes
or any of such extensions of credit or liabilities or
commitments;
and the result of any of the foregoing is to increase the cost to such
Lender of making, converting into, continuing, or maintaining any
LIBOR Loan or to reduce any sum received or receivable by such Lender
under this Agreement or its Notes with respect to any LIBOR Loan, then
Borrowers shall pay to such Lender on demand such amount or amounts as
will reasonably compensate such Lender for such increased cost or
reduction. If any Lender requests compensation by Borrowers under this
Section 5(c), Borrowers may, by notice to such Lender (with a copy to
Agent), suspend the obligation of such Lender to make or continue
LIBOR Loans, or to convert all or part of the Base Rate Loans owing to
such Lender to LIBOR Loans, until the event or condition giving rise
to such request ceases to be in effect (in which case the provisions
of Section 5(c) shall be applicable); provided that such suspension
shall not affect the right of such Lender to receive the compensation
so requested.
(ii) If, after the date hereof, any Lender shall have reasonably
determined that the adoption of any applicable law, rule, or
regulation regarding capital adequacy or any change therein or in the
interpretation or administration thereof by any governmental
authority, central bank, or comparable agency charged with the
interpretation or administration thereof, or any request or directive
regarding capital adequacy (whether or not having the force of law) of
any such governmental authority, central bank, or comparable agency,
has or would have the effect of reducing the rate of return on the
capital of such Lender or any corporation controlling such Lender as a
consequence of such Lender's obligations hereunder to a level below
that which such Lender or such corporation could have achieved but for
such adoption, change, request, or directive (taking into
consideration its policies with respect to capital
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adequacy), then from time to time upon demand Borrowers shall pay to
such Lender such additional amount or amounts as will reasonably
compensate such Lender for such reduction.
(iii) Each Lender shall promptly notify Borrowers and Agent of
any event of which it has knowledge, occurring after the date hereof,
which will entitle such Lender to compensation pursuant to this
Section 5(c) and will designate a separate lending office, if
applicable, if such designation will avoid the need for, or reduce the
amount of, such compensation and will not, in the judgment of such
Lender, be otherwise disadvantageous to it. Any Lender claiming
compensation under this Section 5(c) shall furnish to Borrowers and
Agent a statement setting forth the additional amount or amounts to be
paid to it hereunder which shall be conclusive in the absence of
manifest error. In determining such amount, such Lender may use any
reasonable averaging and attribution methods.
(iv) Any Lender giving notice to Borrowers through the Agent
pursuant to Section 5(c) shall give to Borrowers a statement signed by
an officer of such Lender setting forth in reasonable detail the basis
for, and the calculation of such additional cost, reduced payments or
capital requirements, as the case may be, and the additional amounts
required to compensate such Lender therefor.
(v) Within five (5) Business Days after receipt by Borrowers of
any notice referred to in Section 5(c), Borrowers shall pay to the
Agent for the account of the Lender issuing such notice such
additional amounts as are required to compensate such Lender for the
increased cost, reduced payments or increased capital requirements
identified therein, as the case may be.
(d) Discretion of Lender as to Manner of Funding. Notwithstanding any
provisions of this Agreement to the contrary, each Lender shall be entitled
to fund and maintain its funding of all or any part of its Loan in any
manner it sees fit, it being understood, however, that for the purposes of
this Agreement all
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determinations hereunder shall be made as if each Lender had actually
funded and maintained each LIBOR Loan through the purchase of deposits
having a maturity corresponding to the last day of the Interest Period
applicable to such LIBOR Loan and bearing an interest rate at the
applicable interest rate for such Interest Period.
(e) Breakage Fees. Without duplication under any other provision
hereof, if any Lender incurs any loss, cost or expense including, without
limitation, any loss of profit and loss, cost, expense or premium
reasonably incurred by reason of the liquidation or re-employment of
deposits or other funds acquired by such Lender to fund or maintain any
LIBOR Loan or the relending or reinvesting of such deposits or amounts paid
or prepaid to the Lenders as a result of any of the following events other
than any such occurrence as a result in the change of circumstances
described in Sections 5(a) and (b):
(i) any payment, prepayment or conversion of a LIBOR Loan on a
date other than the last day of its Interest Period (whether by
acceleration, prepayment or otherwise);
(ii) any failure to make a principal payment of a LIBOR Loan on
the due date thereof; or
(iii) any failure by Borrowers to borrow, continue, prepay or
convert to a LIBOR Loan on the dates specified in a notice given
pursuant to Section 2(c) or 4(c) hereof; then Borrowers shall pay to
such Lender such amount as will reimburse such Lender for such loss,
cost or expense. If any Lender makes such a claim for compensation, it
shall furnish to Borrowers and Agent a statement setting forth the
amount of such loss, cost or expense in reasonable detail (including
an explanation of the basis for and the computation of such loss, cost
or expense) and the amounts shown on such statement shall be
conclusive and binding absent manifest error.
6. Collateral Security. To secure the performance by Borrowers of their
obligations hereunder, and under the Notes, Security Instruments and Rate
Management Transactions, whether now or hereafter incurred, matured or
unmatured, direct or contingent, joint or several, or joint
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and several, including extensions, modifications, renewals and increases
thereof, and substitutions therefor, Borrowers shall herewith grant and assign
to Agent for the ratable benefit of the Lenders a first and prior Lien on
certain of their Oil and Gas Properties, certain related equipment, oil and gas
inventory, as-extracted collateral and proceeds of the foregoing. The Oil and
Gas Properties herewith mortgaged to the Agent by Borrowers shall represent not
less than 80% of the Engineered Value (as hereinafter defined) of Borrowers' Oil
and Gas Properties as of the Effective Date. In addition to the mortgaging of
the Oil and Gas Properties, PLP shall grant and assign to Agent for the ratable
benefit of Lenders a first and prior Lien on the SSB Account and all assets
therein and on all shares of Energen Stock owned by PLP, PPC and Guarantor shall
grant and assign to Agent for the ratable benefit of Lenders a first and prior
Lien on all equity interests in PLP, PPC shall grant and assign to Agent for the
ratable benefit of Lenders a first and prior Lien on all equity interests in
Guarantor, and Guarantor shall provide Lenders with the Guaranty. Obligations
arising from Rate Management Transactions between Borrowers and one or more of
the Lenders or an Affiliate of any of the Lenders shall be secured by the
Collateral on a pari passu basis with the indebtedness and obligations of
Borrowers under the Loan Documents. All Oil and Gas Properties and other
collateral in which Borrowers and Guarantor herewith grant or hereafter grant to
Agent for the ratable benefit of the Lenders a first and prior Lien (to the
satisfaction of the Agent) in accordance with this Section 6, as such properties
and interests are from time to time constituted, are hereinafter collectively
called the "Collateral".
The granting and assigning of such security interests and Liens by
Borrowers and Guarantor shall be pursuant to Security Instruments in form and
substance reasonably satisfactory to the Agent. Concurrently with the delivery
of each of the Security Instruments or within a reasonable time thereafter,
Borrowers shall have furnished to the Agent mortgage and title opinions and
other title information reasonably satisfactory to Agent with respect to the
title and Lien status of Borrowers' interests in not less than 80% of the
Engineered Value of Borrowers' mortgaged Oil and Gas Properties. "Engineered
Value" for this purpose shall mean future net revenues discounted at the
discount rate being used by the Agent as of the date of any such determination
utilizing the pricing parameters used in the engineering report furnished to the
Agent pursuant to Sections 7 and 12 hereof. Borrowers will cause to be executed
and delivered to the Agent, in the future, additional Security Instruments if
the Agent reasonably deems such are necessary to insure perfection or
maintenance of Lenders' security interests and Liens in not
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less than 80% of the Engineered Value of the Oil and Gas Properties or in any of
the other Collateral.
7. Borrowing Base.
(a) Initial Borrowing Base. At the Effective Date, the Borrowing Base
shall be $50,000,000, with the initial Borrowing Base attributable to the
Oil and Gas Properties being $43,000,000 and the initial Borrowing Base
attributable to the Energen Stock and cash proceeds from the sale thereof
being $7,000,000.
(b) Subsequent Determinations and Redeterminations of Borrowing Base.
(i) Semi-Annual Determinations and Unscheduled Redeterminations.
Subsequent determinations of the Borrowing Base shall be made by the
Lenders semi-annually on or about April 30 and October 31 of each year
beginning April 30, 2003, or as Unscheduled Redeterminations. In
connection with and as of, each such semi-annual determination or
Unscheduled Redetermination of the Borrowing Base, Lenders shall also
redetermine the Monthly Commitment Reduction. Agent shall by notice to
Borrower no later than 45 days after its receipt of the engineering
report required by Section 7(e) and all other information requested by
Lenders (herein, together with the date of any similar notice by Agent
pursuant to Section 7(b)(ii) below, called a "Determination Date"),
notify Borrower of the designation by Lenders of the new Borrowing
Base and Monthly Commitment Reduction for the period beginning on such
Determination Date and continuing until, but not including, the next
Determination Date.
(ii) Monthly Determinations. In addition to the semi-annual
determinations and Unscheduled Redeterminations of the Borrowing Base
made in accordance with Section 7(b)(i) above or 7(c) below, so long
as the value of any Energen Stock is included in the Borrowing Base,
subsequent determinations of the Borrowing Base shall also be made by
Agent monthly on or about the last day of each month beginning
December 31, 2002. Such monthly determinations shall be made by Agent
utilizing the Borrowing Base value attributable to the Oil and Gas
Properties as of the then most recent Determination Date and adding to
it the Borrowing Base value of the Energen Stock as determined by
Agent pursuant to Section 7(e)(ii). Agent shall by notice to Borrowers
within fifteen
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(15) days following the end of the month for which a monthly
determination is made by the Agent under this Section 7(b)(ii) notify
Borrowers of the designation by Agent of the new Borrowing Base for
the period beginning on such Determination Date and continuing until,
but not including, the next Determination Date. The Monthly Commitment
Reductions will not be redetermined by the Agent as part of its
monthly determinations of the Borrowing Base under this Section
7(b)(ii). Notwithstanding anything contained in this Agreement, the
Borrowing Base shall not include any value attributable to the Energen
Stock or any proceeds from the sale thereof from and after January 31,
2003.
(c) Subsequent Unscheduled Redeterminations of Borrowing Base.
Within thirty (30) days after either (i) receipt of notice from Agent
that Lenders require an Unscheduled Redetermination, or (ii) Borrowers
give notice to Agent of their desire to have an Unscheduled
Redetermination performed, Borrowers shall furnish to Lenders an
engineering report in form and substance satisfactory to Agent
prepared by independent petroleum engineers acceptable to Agent
valuing the Oil and Gas Properties utilizing economic and pricing
parameters used by the Agent as established from time to time,
together with such other information, reports and data concerning the
value of the Oil and Gas Properties as Agent shall deem reasonably
necessary to determine the value of such Oil and Gas Properties. If an
Unscheduled Redetermination is made by Lenders, the Agent shall notify
Borrowers within a reasonable time after receipt of all requested
information of the new Borrowing Base and Monthly Commitment
Reduction, and such new Borrowing Base and Monthly Commitment
Reduction shall continue until the next Determination Date.
(d) Other Determinations of the Borrowing Base. If Borrowers do
not furnish all such information, reports and data by any date
specified in Section 7(c) or 7(e), unless such failure is of no fault
of Borrowers, Lenders may nonetheless designate the Borrowing Base and
Monthly Commitment Reduction at any amounts which Lenders in their
discretion determine and may redesignate the Borrowing Base and
Monthly Commitment Reduction from time to time thereafter until
Lenders receive all such information, reports and data, whereupon
Lenders shall designate a new Borrowing Base and Monthly Commitment
Reduction as described above.
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(e) Evaluation Factors.
(i) Oil and Gas Properties. By April 1 of each year,
beginning April 1, 2003, Borrowers shall, at their own expense,
furnish to Lenders an engineering report covering the Oil and Gas
Properties in form and substance satisfactory to Agent and
prepared by an independent petroleum engineering firm acceptable
to Agent, said engineering report to utilize economic and pricing
parameters used by the Agent as established from time to time,
together with such other information, reports and data concerning
the value of the Oil and Gas Properties as Agent shall deem
reasonably necessary to determine the value of such Oil and Gas
Properties. By October 1 of each year beginning October 1, 2003,
Borrowers shall, at their own expense, furnish to Lenders an
engineering report covering the Oil and Gas Properties, in form
and substance satisfactory to Agent and prepared by Borrowers'
in-house engineering staff, said engineering report to consist of
an updated reserve report that takes into account major reserve
and/or value changes that have occurred since the most recent
engineering report prepared by the independent petroleum
engineering firm as required above; provided, however, that to
the extent material Oil and Gas Properties are acquired after the
date of the most recent independent engineering report as
required above, Borrowers shall also, at their own expense,
furnish to Lenders on or before October 1 an independent
engineering report meeting the requirements set forth above
covering said newly acquired Oil and Gas Properties. Each Lender
shall determine the amount of the Borrowing Base attributable to
the Oil and Gas Properties and the Monthly Commitment Reduction
based upon the loan collateral value which such Lender in its
discretion (using such methodology, assumptions and discount
rates as such Lender customarily uses in assigning collateral
value to oil and gas properties, oil and gas gathering systems,
gas processing and plant operations) assigns to such Oil and Gas
Properties at the time in question and based upon such other
credit factors consistently applied (including, without
limitation, the assets, liabilities, cash flow, business,
properties, prospects, management and ownership of Borrowers and
their Affiliates) as such Lender customarily considers in
evaluating similar oil and gas credits.
(ii) Energen Stock. Agent shall determine the amount of the
Borrowing Base attributable to the Energen Stock by taking the
sum of (A) the cash included in the SSB Account from sales of
Energen Stock at the time of determination, plus (B) an amount
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calculated by multiplying (x) fifty percent (50%) (or such other
percentage as may be determined by Majority Lenders) of the
average of the daily closing sales prices per share for the
Energen Stock for the fifteen (15) consecutive trading days
immediately preceding the last day of each month, by (y) the
number of shares of Energen Stock pledged to Agent at the time of
determination; provided however, the Borrowing Base value
attributable to such cash proceeds and the Energen Stock by Agent
shall never exceed $7,000,000, without the approval of all
Lenders. The closing price for each day shall be the last
reported sale price, regular way, or in case no such reported
sale takes place on such day, the average of the closing bid and
asked prices, regular way, for such day, in either case on the
New York Stock Exchange or other principal exchange or quotation
system on which the Energen Stock is traded if the Energen Stock
is not listed or admitted to trading on the New York Stock
Exchange.
(f) Required Percentage of Lenders. Except as specifically
provided in Section 7(b)(ii), the Borrowing Base determinations
pursuant to Section 7(b)(ii) will be made by Agent without the
approval of the other Lenders. All other determinations or
Unscheduled Redeterminations of the Borrowing Base and the
Monthly Commitment Reduction require the approval of all Lenders.
If the Lenders cannot otherwise agree on the Borrowing Base
attributable to the Oil and Gas Properties or the Monthly
Commitment Reduction, each Lender shall submit in writing to the
Agent its proposed Borrowing Base attributable to the Oil and Gas
Properties and Monthly Commitment Reduction and the Borrowing
Base attributable to the Oil and Gas Properties and the Monthly
Commitment Reduction shall be set on the basis of the lowest
Borrowing Base attributable to the Oil and Gas Properties and the
highest Monthly Commitment Reduction proposed by any Lender.
(g) Automatic Reductions of Borrowing Base. If at any time
any of the Oil and Gas Properties are sold, the Borrowing Base
then in effect shall automatically be reduced by an amount equal
to the amount of prepayment required to be made pursuant to
Section 12(r) hereof. If at any time any of the Energen Stock is
sold and the proceeds from such sale are received by or on behalf
of a Borrower or the Guarantor or become available for withdrawal
from the SSB Account, the Borrowing Base then in effect shall
automatically be reduced by an amount equal to the Borrowing Base
value attributed to such proceeds or to such Energen Stock sold
as of the then most
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recent Determination Date. The Borrowing Base shall be
additionally reduced from time to time pursuant to the provisions
of Section 12(t) hereof and as elsewhere provided herein. It is
expressly understood that Agent and Lenders have no obligation to
designate the Borrowing Base or the Monthly Commitment Reduction
at any particular amounts, except in the exercise of their
discretion, whether in relation to the Commitment of otherwise.
8. Fees.
(a) Letter of Credit Fee. Borrowers shall pay to Agent the Letter of
Credit fees required above in Section 2(e).
(b) Borrowing Base Determination Fee. Borrowers shall pay to Agent for
the ratable benefit of Lenders at the time Agent provides any notice
required by Section 7(b)(i) and 7(c), an amount equal to three-eighths of
one percent (.375%) of the amount of any increase in the Borrowing Base
upon a scheduled semi-annual determination of the Borrowing Base or an
Unscheduled Redetermination. The parties acknowledge and agree that such
fee is intended as reasonable compensation to Lenders for their time,
effort and expense in determining the Borrowing Base.
(c) Unused Commitment Fee. Borrowers shall pay to Agent for the
ratable benefit of the Lenders an unused commitment fee (the "Unused
Commitment Fee") in an amount equal to one-quarter of one percent (.25%)
times the daily average of the unadvanced amount of the Commitment (i.e.,
the Commitment minus the Total Outstandings). Such Unused Commitment Fee
shall be calculated on the basis of a year consisting of 360 days. The
Unused Commitment Fee shall be payable quarterly in arrears on the last day
of each calendar quarter beginning March 31, 2003, with the first payment
being for the period from the Effective Date through March 31, 2003, and
with the final fee payment due on the Maturity Date for any period then
ending for which the Unused Commitment Fee shall not have been theretofore
paid. In the event the Commitment terminates on any date prior to the end
of any such quarterly period, Borrowers shall pay to the Agent for the
ratable benefit of the Lenders, on the date of such termination, the total
Unused Commitment Fee due for the period in which such termination occurs.
If a date for payment of the Unused Commitment Fee shall be other than a
Business Day such payment shall be made on the next succeeding Business
Day.
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(d) Agency and Arrangement Fee. Borrowers shall pay to Agent for its
own account the fees described in the fee letter dated as of the Effective
Date between Borrowers and Agent, at the times provided therein.
9. Prepayments.
(a) Voluntary Prepayments. Subject to the provisions of Section 5(e)
hereof, Borrowers may at any time and from time to time, without penalty or
premium, prepay the Notes, in whole or in part. Each such prepayment shall
be made on at least three (3) Business Days' notice to Agent in the case of
LIBOR Loan Tranches and without notice in the case of Base Rate Loans and
shall be in a minimum amount of (i) $500,000 or any whole multiple of
$100,000 in excess thereof (or the unpaid balance of the Notes, whichever
is less), for Base Rate Loans, plus accrued interest thereon, to the date
of prepayment, and (ii) $1,000,000 or any whole multiple of $100,000 in
excess thereof (or the unpaid balance of the Notes, whichever is less) for
LIBOR Loans, plus accrued interest thereon to the date of prepayment.
(b) Mandatory Collateral or Prepayment For Borrowing Base Deficiency.
In the event the Total Outstandings ever exceed the Borrowing Base as
determined by Lenders pursuant to Section 7 hereof (a "Borrowing Base
Deficiency"), Borrowers shall, within thirty (30) days after written
notification from the Agent, or within ten (10) days after written
notification from Agent so long as Energen Stock is held by Agent as
Collateral, as applicable, either (A) by instruments reasonably
satisfactory in form and substance to the Lenders, provide the Agent with
collateral with value and quality in amounts satisfactory to all of the
Lenders in their discretion in order to increase the Borrowing Base by an
amount at least equal to such excess, (B) prepay, without premium or
penalty, the principal amount of the Notes in an amount at least equal to
such excess plus accrued interest thereon to the date of prepayment, or (C)
eliminate the Borrowing Base Deficiency through a combination of (A) and
(B) above. If the Total Outstandings ever exceed the Commitment as a result
of a Monthly Commitment Reduction or any other required reduction in the
Commitment pursuant to Section 2(g) hereof, then in such event, Borrowers
shall immediately prepay the principal amount of the Notes in an amount at
least equal to such excess plus accrued interest to the date of prepayment.
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10. Representations and Warranties. In order to induce the Lenders to enter
into this Agreement, Borrowers and Guarantor, jointly and severally, represent
and warrant to the Lenders (which representations and warranties will survive
the delivery of the Notes) that:
(a) Creation and Existence. PPC is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware and is duly qualified and in good standing in the State of Texas
and in all other jurisdictions wherein failure to qualify may result in a
Material Adverse Effect. PLP is a limited partnership duly organized and
validly existing under the laws of the State of Texas and is duly qualified
in the State of Texas and in all other jurisdictions wherein failure to
qualify may result in a Material Adverse Effect. Guarantor is a limited
liability company duly organized, validly existing and in good standing
under the laws of the State of Delaware and is duly qualified and in good
standing in the State of Nevada and in all other jurisdictions wherein
failure to qualify may result in a Material Adverse Effect. Borrowers and
Guarantor have all power and authority (corporate or otherwise) to own
their respective properties and assets and to transact the business in
which they are engaged.
(b) Power and Authority. Each Borrower is duly authorized and
empowered to create and issue the Notes; and each Borrower and Guarantor is
duly authorized and empowered to execute, deliver and perform its
respective Loan Documents, including this Agreement; and all action
(corporate or otherwise) on each Borrower's and Guarantor's part requisite
for the due creation and issuance of the Notes and for the due execution,
delivery and performance of the Loan Documents, including this Agreement,
has been duly and effectively taken.
(c) Binding Obligations. This Agreement does, and the Notes and other
Loan Documents upon their creation, issuance, execution and delivery will,
constitute valid and binding obligations of each Borrower and Guarantor,
respectively, enforceable in accordance with its respective terms (except
that enforcement may be subject to general principles of equity and any
applicable bankruptcy, insolvency, or similar debtor relief laws now or
hereafter in effect and relating to or affecting the enforcement of
creditors' rights generally).
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(d) No Legal Bar or Resultant Lien. The Notes and the Loan Documents,
including this Agreement, do not and will not, to the best of either
Borrower's or Guarantor's knowledge, violate any provisions of any
contract, agreement, law, regulation, order, injunction, judgment, decree
or writ to which Borrower or Guarantor is subject, or result in the
creation or imposition of any Lien or other encumbrance upon any assets or
properties of either Borrower or of Guarantor, other than those
contemplated or permitted by this Agreement.
(e) No Consent. The execution, delivery and performance by Borrowers
of the Notes and the execution, delivery and performance by Borrowers and
Guarantor of the other Loan Documents to which each is a party, including
this Agreement, does not require the consent or approval of any other
person or entity, including without limitation any regulatory authority or
governmental body of the United States or any state or any political
subdivision of the United States or any state thereof, which consent has
not been obtained.
(f) Financial Condition. The Financial Statements of PPC dated as of
September 30, 2002, which have been delivered to Lenders by PPC are
complete and correct in all material respects and fully and accurately
reflect in all material respects the financial condition and results of
operations of PPC as of such date and for the periods stated and no change
in the condition, financial or otherwise, of PPC which is reasonably
expected to have a Material Adverse Effect has occurred since September 30,
2002, except as disclosed to Lenders in Schedule "2" attached hereto.
(g) Liabilities. Neither either Borrower nor Guarantor has any
material liability, direct or contingent on the Effective Date, except as
disclosed to the Lenders in the Financial Statements or on Schedule "3"
attached hereto. No unusual or unduly burdensome restrictions, restraint,
or hazard exists by contract, law or governmental regulation or otherwise
relative to the business, assets or properties of either Borrower or
Guarantor which is reasonably expected to have a Material Adverse Effect.
(h) Litigation. Except as described in the Financial Statements, or as
otherwise disclosed to the Lenders in Schedule "4" attached hereto, on the
Effective Date there is no litigation, legal or administrative proceeding,
investigation or other action of any
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nature pending or, to the knowledge of the officers of either Borrower or
Guarantor, threatened against or affecting either Borrower, Guarantor or
any Subsidiary which involves the possibility of any judgment or liability
not fully covered by insurance, and which is reasonably expected to have a
Material Adverse Effect.
(i) Taxes; Governmental Charges. Each Borrower and Guarantor has filed
all tax returns and reports required to be filed and has paid all taxes,
assessments, fees and other governmental charges levied upon it or its
assets, properties or income which are due and payable, including interest
and penalties, the failure of which to pay could reasonably be expected to
have a Material Adverse Effect, except such as are being contested in good
faith by appropriate proceedings and for which adequate reserves for the
payment thereof as required by GAAP has been provided and levy and
execution thereon have been stayed and continue to be stayed.
(j) Titles, Etc. Each Borrower and Guarantor has good and defensible
title to all of its respective material assets, including without
limitation, the Oil and Gas Properties and other Collateral, free and clear
of all Liens or other encumbrances except Permitted Liens.
(k) Defaults. Neither either Borrower nor Guarantor is in default and
no event or circumstance has occurred which, but for the passage of time or
the giving of notice, or both, would constitute a default under any loan or
credit agreement, indenture, mortgage, deed of trust, security agreement or
other agreement or instrument to which either Borrower or Guarantor is a
party in any respect that would be reasonably expected to have a Material
Adverse Effect. No Default or Event of Default hereunder has occurred and
is continuing.
(l) Casualties; Taking of Properties. Since the dates of the latest
Financial Statements of Borrowers and Guarantor delivered to Lenders,
neither the business nor the assets or properties of Borrowers or Guarantor
has been affected (to the extent it is reasonably expected to cause a
Material Adverse Effect), as a result of any fire, explosion, earthquake,
flood, drought, windstorm, accident, strike or other labor disturbance,
embargo, requisition or taking of property or cancellation of contracts,
permits or concessions by any domestic or foreign government or any agency
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thereof, riot, activities of armed forces or acts of God or of any public
enemy.
(m) Use of Proceeds; Margin Stock. The proceeds of the Commitment may
be used by Borrowers for the purposes of (i) refinancing either Borrower's
existing indebtedness with Lenders, (ii) the acquisition, exploration and
development of oil and gas properties, and (iii) working capital in
Borrower's oil and gas business. Neither either Borrower nor Guarantor is
engaged principally or as one of its important activities in the business
of extending credit for the purpose of purchasing or carrying any "margin
stock " as defined in Regulation U of the Board of Governors of the Federal
Reserve System (12 C.F.R. Part 221), or for the purpose of reducing or
retiring any indebtedness which was originally incurred to purchase or
carry a margin stock or for any other purpose which might constitute this
transaction a "purpose credit" within the meaning of Regulation G or U of
the Board of Governors of the Federal Reserve System.
Neither either Borrower nor Guarantor, nor any person or entity acting
on behalf of either Borrower or Guarantor, has taken or will take any
action which might cause the loans hereunder or any of the Loan Documents,
including this Agreement, to violate Regulation G or U or any other
regulation of the Board of Governors of the Federal Reserve System or to
violate the Securities Exchange Act of 1934 or any rule or regulation
thereunder, in each case as now in effect or as the same may hereafter be
in effect.
(n) Location of Business and Offices. The principal place of business
and chief executive offices of each Borrower and Guarantor are located at
the addresses as stated in Section 17 hereof.
(o) Compliance with the Law. To the best of each Borrower's and
Guarantor's knowledge, neither either Borrower, Guarantor nor any
Subsidiary:
(i) is in violation of any law, judgment, decree, order,
ordinance, or governmental rule or regulation to which either
Borrower, Guarantor, or any Subsidiary, or any of its respective
assets or properties are subject; or
(ii) has failed to obtain any license, permit, franchise or other
governmental authorization necessary
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to the ownership of any of its respective assets or properties or the
conduct of its respective business.
(p) No Material Misstatements. No information, exhibit or report
furnished by either Borrower or Guarantor to the Lenders in connection
with the negotiation of this Agreement contained any material
misstatement of fact or omitted to state a material fact or any fact
necessary to make the statements contained therein not materially
misleading.
(q) Not A Utility. Neither either Borrower nor Guarantor is a
utility as a result of being engaged in the (i) generation,
transmission, or distribution and sale of electric power; (ii)
transportation, distribution and sale through a local distribution
system of natural or other gas for domestic, commercial, industrial,
or other use; (iii) provision of telephone or telegraph service to
others; (iv) production, transmission, or distribution and sale of
steam or water; (v) operation of a railroad; or (vii) provision of
sewer service to others.
(r) ERISA. Each Borrower, Guarantor and each Subsidiary is in
compliance in all material respects with the applicable provisions of
ERISA, and no "reportable event", as such term is defined in Section
403 of ERISA, has occurred with respect to any Plan of either
Borrower, Guarantor or any Subsidiary.
(s) Public Utility Holding Company Act. Neither either Borrower
nor Guarantor is a "holding company", or "subsidiary company" of a
"holding company", or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company", or a "public utility"
within the meaning of the Public Utility Holding Company Act of 1935,
as amended.
(t) Subsidiaries. PPC has no Subsidiaries other than Guarantor
and PLP. PLP has no Subsidiaries. PPC and Guarantor collectively own
100% of the partnership interests of PLP and PPC owns 100% of the
membership interests of Guarantor.
(u) Environmental Matters. As of the Effective Date neither
either Borrower nor Guarantor (i) has received notice or otherwise
learned of any Environmental Liability which would be reasonably
expected to individually or in the aggregate have a Material Adverse
Effect arising in connection with (A) any non-compliance with or
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violation of the requirements of any Environmental Law or (B) the
release or threatened release of any toxic or hazardous waste into the
environment, (ii) has received notice of any threatened or actual
liability in connection with the release or notice of any threatened
release of any toxic or hazardous waste into the environment which
would be reasonably expected to individually or in the aggregate have
a Material Adverse Effect or (iii) has received notice or otherwise
learned of any federal or state investigation evaluating whether any
remedial action is needed to respond to a release or threatened
release of any toxic or hazardous waste into the environment for which
either Borrower or Guarantor is or may be liable which would
reasonably be expected to result in a Material Adverse Effect.
(v) Liens. Except (i) as disclosed on Schedule "1" hereto and
(ii) for Permitted Liens, the assets and properties of each Borrower
and Guarantor are free and clear of all Liens and encumbrances.
(w) Investment Company Act. Neither either Borrower nor Guarantor
is an "investment company," or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act
of 1940, as amended.
(x) General. As of the Effective Date, there are no significant
material facts or conditions relating to the Loans, the Loan
Documents, any of the Collateral, or the financial condition or
business of either Borrower or Guarantor that could, collectively or
individually, have a Material Adverse Effect and that have not been
related, in writing, to Lenders as an attachment to this Agreement;
and all writings heretofore or hereafter exhibited or delivered to
Lenders by or on behalf of either Borrower or Guarantor are and will
be genuine and in all material respects what they purport and appear
to be.
11. Conditions of Lending.
(a) The effectiveness of this Agreement, and the obligation to make
the initial Advance or issue any initial Letter of Credit under the
Commitment shall be subject to satisfaction of the following conditions
precedent:
(i) Borrowers' Execution and Delivery. Borrowers shall have
executed and delivered this Agreement, the Notes and all
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other required Loan Documents, all in form and substance satisfactory
to the Agent;
(ii) Guarantor's Execution and Delivery. Guarantor shall have
executed and delivered this Agreement, its Guaranty in the form of
Exhibit "C" and all other required Loan Documents, all in form and
substance satisfactory to the Agent;
(iii) Legal Opinions. The Agent shall have received from
Borrowers' and Guarantor's legal counsel one or more favorable legal
opinions in form and substance satisfactory to the Agent as to (1) the
matters set forth in subsections 10(a), (b), (c), (d), (e) and (h)
hereof, and (2) as to such other matters as Agent or its counsel may
reasonably request;
(iv) Resolutions. The Agent shall have received (1) a copy of the
resolutions, in form and substance satisfactory to Agent, of the Board
of Directors of PPC authorizing the execution, delivery and
performance of this Agreement and the other Loan Documents to which it
is a party, the borrowings contemplated hereunder and, to the extent
applicable, the pledge of Collateral, certified by the secretary or an
assistant secretary of Borrower as of the Effective Date, which
certificate shall be in form and substance satisfactory to Agent and
Agent's counsel and shall state that the resolutions thereby certified
have not been amended, modified, revoked or rescinded, (2) a copy of
the resolutions, in form and substance satisfactory to Agent duly
adopted by the respective partners of PLP authorizing the execution,
delivery and performance of this Agreement and the other Loan
Documents to which it is a party, the borrowings contemplated
hereunder and, to the extent applicable, the pledge of Collateral,
certified by its general partner, which certificate shall be in form
and substance satisfactory to Agent and Agent's counsel and shall
state that the resolutions thereby certified have not been amended,
modified, revoked or rescinded, and (3) resolutions, in form and
substance satisfactory to Agent, of the members of Guarantor
authorizing the execution, delivery and performance of this Agreement,
its Guaranty and the other Loan Documents to which it is a party and,
to the extent applicable, the pledge of Collateral, certified by its
secretary or assistant secretary as of the Effective Date, which
certificate
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shall be in form and substance satisfactory to Agent and Agent's
counsel and shall state that the resolutions thereby certified have
not been amended, modified, revoked or rescinded;
(v) Good Standing. The Agent shall have received evidence of
existence and good standing for PPC and Guarantor and evidence of
existence for PLP;
(vi) Incumbency. The Agent shall have received a signed
certificate of each Borrower and Guarantor, certifying the names of
the officers of each Borrower and Guarantor authorized to sign loan
documents on behalf of each Borrower and Guarantor, together with the
true signatures of each such officer. The Agent may conclusively rely
on such certificate until the Agent receives a further certificate of
either Borrower or Guarantor canceling or amending the prior
certificate and submitting signatures of the officers named in such
further certificate;
(vii) Environmental Review. The Agent shall have received
satisfactory evidence that Borrowers have completed an environmental
review of their respective material Oil and Gas Properties or other
environmental assurances satisfactory to Agent;
(viii) Organizational Documents. The Agent shall have received
copies of Certificates of Incorporation, Organization, Formation or
Limited Partnership, as applicable, for each Borrower and Guarantor
together with all amendments thereto, appropriately certified by
governmental authority in the jurisdiction of organization of each
Borrower and Guarantor, as applicable, and a copy of the Bylaws,
Limited Liability Company Agreement or Agreement of Limited
Partnership, as applicable, of each Borrower and Guarantor, and all
amendments thereto, certified by one or more officers or owners of
each Borrower or Guarantor, as the case may be, as being true, correct
and complete;
(ix) Payment of Fees. Agent shall have received any fees and
expenses required to be received by it on the Effective Date pursuant
to the Loan Documents and the fee letter dated as of the Effective
Date, between Borrowers and Agent;
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(x) Representation and Warranties. The representations and
warranties of Borrowers and Guarantor under this Agreement shall be
true and correct in all material respects as of such date, as if then
made (except to the extent that such representations and warranties
related solely to an earlier date);
(xi) Security Instruments. Agent shall have received Security
Instruments in form and substance satisfactory to Agent covering the
Collateral as required by Section 6 hereof;
(xii) Title Opinions or Information. Agent shall have received
from Borrower title opinions or title information covering such part
of the Oil and Gas Properties as may be selected by Agent, such
opinions or other title information to be in content, form and
substance satisfactory to Agent;
(xiii) Engineering Review. Agent shall have received a copy of an
engineering report prepared by an independent engineering firm
acceptable to Agent in its sole discretion covering such part of the
Oil and Gas Properties as may be selected by Agent, said report to be
in form and substance satisfactory to Agent;
(xiv) Absence of Certain Proceedings. No suit, action or other
proceeding by a third party or a governmental authority shall be
pending or threatened which relates to this Agreement or the
transactions contemplated hereby;
(xv) Certificates of Insurance. Borrowers shall deliver
certificates of insurance acceptable to Agent evidencing the existence
and extent of their insurance coverage;
(xvi) Closing of Acquisition. The Agent shall have received
satisfactory evidence that the Acquisition has closed or is closing
simultaneously with the closing of this Agreement on terms
satisfactory to Agent, including, without limitation, free and clear
of all Liens, other than Permitted Liens;
(xvii) Commodity Hedges. The Borrowers shall have placed with
counterparties acceptable to the Agent non-speculative crude oil price
hedges for the periods described below which have the economic effect
of assuring the receipt
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by Borrowers of a price of not less than $21.00 per barrel (NYMEX),
net to the Borrowers, and with other terms approved by Agent, covering
(x) at least seventy-five percent (75%) of Borrowers' estimated
monthly crude oil production from Borrowers' proved producing Oil and
Gas Properties for the nine months ending December 31, 2003, (y) at
least sixty percent (60%) of Borrowers' estimated monthly crude oil
production from Borrowers' proved producing Oil and Gas Properties
during the 2004 calendar year, and (z) at least fifty percent (50%) of
Borrowers' estimated monthly crude oil production from Borrowers'
proved producing Oil and Gas Properties during the 2005 calendar year;
(xviii) No Event of Default. No Default or Event of Default shall
have occurred and be continuing;
(xix) Other Documents. Agent shall have received such other
instruments and documents incidental and appropriate to the
transactions provided for herein as Agent or its counsel may
reasonably request, and all such documents shall be in form and
substance reasonably satisfactory to the Agent; and
(xx) Legal Matters Satisfactory. All legal matters incident to
the consummation of the transactions contemplated hereby shall be
reasonably satisfactory to special counsel for Agent retained at the
expense of Borrowers and Guarantor.
(b) The obligation of the Lenders to make any Advance or issue any
Letter of Credit under the Commitment (other than the initial Advance)
shall be subject to the following additional conditions precedent that, at
the date of making each such Advance and after giving effect thereto:
(i) Representation and Warranties. The representations and
warranties of Borrowers and Guarantor under this Agreement are true
and correct in all material respects as of such date, as if then made
(except to the extent that such representations and warranties relate
solely to an earlier date);
(ii) No Event of Default. No Default or Event of Default shall
have occurred and be continuing; and
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(iii) Legal Matters Satisfactory. All legal matters incident to
the consummation of the transactions contemplated hereby shall be
satisfactory to special counsel for Agent retained at the expense of
Borrowers and Guarantor.
Each Notice of Borrowing shall constitute a representation and warranty by
Borrowers that the conditions contained in Sections 11(b)(i) and (ii) have been
satisfied.
12. Affirmative Covenants. A deviation from the provisions of this Section
12 shall not constitute a Default or an Event of Default under this Agreement if
such deviation is consented to in writing by Majority Lenders prior to the date
of deviation. Borrowers and Guarantor will at all times comply with the
covenants contained in this Section 12 from the date hereof and for so long as
the Commitments are in existence or any amount is owed to the Agent or the
Lenders under this Agreement or the other Loan Documents.
(a) Financial Statements and Reports. Borrowers and Guarantor shall
promptly furnish to the Agent from time to time upon request such
information regarding the business and affairs and financial condition of
Borrowers and Guarantor, as the Agent may reasonably request, and will
furnish to the Agent:
(i) Annual Audited Financial Statements. As soon as available,
and in any event within ninety (90) days after the end of each fiscal
year of PPC, the annual audited consolidated Financial Statements of
PPC, prepared in accordance with GAAP accompanied by an unqualified
opinion on such consolidated statements rendered by KPMG LLP or
another independent accounting firm reasonably acceptable to the
Agent;
(ii) Quarterly Financial Statements. As soon as available, and in
any event within forty-five (45) days after the end of each fiscal
quarter of PPC, the quarterly unaudited consolidated Financial
Statements of PPC prepared in accordance with GAAP;
(iii) Report on Properties. As soon as available and in any event
on or before April 1, 2003, and thereafter on or before April 1 and
October 1 of each calendar year, and at such other times as any
Lender, in
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accordance with Section 7 hereof, may request, the engineering reports
required to be furnished to the Agent under such Section 7 on the Oil
and Gas Properties;
(iv) Quarterly Production Reports. As soon as available and in
any event within forty-five (45) days after the end of each fiscal
quarter of Borrowers, a quarterly production report, in form and
substance satisfactory to the Agent, indicating the sales volumes,
sales revenues, production taxes, operating expenses and net operating
income from the Oil and Gas Properties, with detailed, calculations
and worksheets, all in form and substance reasonably satisfactory to
the Agent;
(v) SEC Reports. As soon as available, and in any event within
five (5) days of filing, copies of all filings by PPC with the
Securities and Exchange Commission;
(vi) Energen Stock Sales. Immediately upon receipt of all
confirmation statements evidencing the sale by either Borrower or any
Subsidiary of any Energen Stock, a copy of all confirmation statements
evidencing such sale.
(vii) Employee Agreements. As soon as available, and in any event
within five (5) days after amending or modifying any of the Employee
Agreements described on Schedule 5 attached hereto, amending or
modifying any agreements of a similar nature to said Employee
Agreements or executing any additional agreements similar to said
Employee Agreements, copies of all such amendments, modifications or
additional agreements.
(viii) Additional Information. Promptly upon request of the Agent
from time to time any additional financial or other information that
the Agent may reasonably request.
All such reports, information, balance sheets and Financial Statements referred
to in Subsection 12(a) above shall be in such detail as the Agent may reasonably
request and shall be prepared in a manner consistent with the Financial
Statements.
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(b) Certificates of Compliance. Concurrently with the furnishing of
the annual audited Financial Statements pursuant to Subsection 12(a)(i)
hereof and the quarterly unaudited Financial Statements pursuant to
Subsection 12(a)(ii) hereof, Borrowers will furnish or cause to be
furnished to the Agent a certificate in the form of Exhibit "D" attached
hereto, signed by the President, Chief Financial Officer or other
authorized representative of Borrowers, (i) stating that Borrowers and
Guarantor have fulfilled in all material respects their respective
obligations under the Notes and the Loan Documents, including this
Agreement, and that all representations and warranties made herein and
therein continue (except to the extent they relate solely to an earlier
date) to be true and correct in all material respects (or specifying the
nature of any change), or if a Default has occurred, specifying the Default
and the nature and status thereof; (ii) to the extent requested from time
to time by the Agent, specifically affirming compliance of each Borrower
and Guarantor in all material respects with any of its representations
(except to the extent they relate solely to an earlier date) or obligations
under said instruments; (iii) setting forth the computation, in reasonable
detail as of the end of each period covered by such certificate, of
compliance with Sections 13(b), (c) and (d); and (iv) containing or
accompanied by such financial or other details, information and material as
the Agent may reasonably request to evidence such compliance.
(c) Accountants' Certificate. Concurrently with the furnishing of the
annual audited Financial Statements pursuant to Section 12(a)(i) hereof,
Borrowers will furnish a statement from the firm of independent public
accountants which prepared such Financial Statements to the effect that
nothing has come to their attention to cause them to believe that there
existed on the date of such statements any Event of Default and
specifically calculating PPC's compliance with Sections 13(b), (c) and (d)
of this Agreement.
(d) Taxes and Other Liens. Each Borrower and Guarantor will pay and
discharge promptly all taxes, assessments and governmental charges or
levies imposed upon it, or upon its income or any of its assets or
property, as well as all claims of any kind (including claims for labor,
materials, supplies and rent) which, if unpaid, might become a Lien or
other encumbrance upon any or all of its assets or property and which could
reasonably be expected to result in a Material Adverse Effect; provided,
however, that neither either Borrower nor Guarantor shall be required to
pay any such
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tax, assessment, charge, levy or claim if the amount, applicability or
validity thereof shall currently be contested in good faith by appropriate
proceedings diligently conducted, levy and execution thereon have been
stayed and continue to be stayed and if it shall have set up adequate
reserves therefor, if required, under GAAP.
(e) Compliance with Laws. Each Borrower and each Guarantor will
observe and comply, in all material respects, with all applicable laws,
statutes, codes, acts, ordinances, orders, judgments, decrees, injunctions,
rules, regulations, orders and restrictions relating to environmental
standards or controls or to energy regulations of all federal, state,
county, municipal and other governments, departments, commissions, boards,
agencies, courts, authorities, officials and officers, domestic or foreign.
(f) Further Assurances. Borrowers will cure promptly any defects in
the creation and issuance of the Notes and the execution and delivery of
the Notes and each Borrower and Guarantor will cure promptly any defects in
the execution and delivery of the other Loan Documents, including this
Agreement, to which it is a party. Each Borrower and Guarantor at its sole
expense will promptly execute and deliver to Agent upon its reasonable
request all such other and further documents, agreements and instruments in
compliance with or accomplishment of the covenants and agreements in this
Agreement, or to correct any omissions in the Notes or the other Loan
Documents or more fully to state the obligations set out herein.
(g) Performance of Obligations. Borrowers will pay the Notes and other
obligations incurred by it hereunder according to the reading, tenor and
effect thereof and hereof; and each Borrower and Guarantor will do and
perform every act and discharge all of the obligations provided to be
performed and discharged by it under the Loan Documents, including this
Agreement, at the time or times and in the manner specified.
(h) Insurance. Each Borrower now maintains and will continue to
maintain insurance with financially sound and reputable insurers with
respect to its assets and the assets of its Subsidiaries against such
liabilities, fires, casualties, risks and contingencies and in such types
and amounts as is customary in the case of persons engaged in the same or
similar businesses and similarly situated. Upon request of the Agent, each
Borrower will furnish or
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cause to be furnished to the Agent from time to time a summary of its
insurance coverage in form and substance reasonably satisfactory to the
Agent, and, if requested, will furnish the Agent copies of the applicable
policies. Upon demand by Agent any insurance policies covering any such
property shall be endorsed (i) to provide that such policies may not be
canceled, reduced or affected in any manner for any reason without fifteen
(15) days prior notice to Agent, (ii) to provide for insurance against
fire, casualty and other hazards normally insured against, in the amount of
the full value (less a reasonable deductible not to exceed amounts
customary in the industry for similarly situated business and properties)
of the property insured, and (iii) to provide for such other matters as the
Agent may reasonably require. PPC will at all times maintain adequate
insurance with respect to all of its assets and the assets of its
Subsidiaries, including but not limited to, the Oil and Gas Properties or
any Collateral against their liability for injury to persons or property,
which insurance shall be by financially sound and reputable insurers and
shall without limitation provide the following coverages: comprehensive
general liability (including coverage for damage to underground resources
and equipment, damages caused by blowouts or cratering, damage caused by
explosion, damage to underground minerals or resources caused by saline
substances, broad form property damage coverage, broad form coverage for
contractually assumed liabilities and broad form coverage for acts of
independent contractors), workers compensation, automobile liability and
environmental liability. PPC shall at all times maintain adequate insurance
with respect to all of its and its Subsidiaries other assets and wells in
accordance with prudent business practices.
(i) Accounts and Records. Each Borrower and Guarantor will keep books,
records and accounts in which full, true and correct entries will be made
of all dealings or transactions in relation to its business and activities,
prepared in a manner consistent with prior years, subject to changes
suggested by Borrowers' auditors or with which Borrowers' auditors concur.
(j) Right of Inspection. Each Borrower and Guarantor will permit any
officer, employee or agent of the Lenders to examine each Borrower's and
Guarantor's books, records and accounts, and take copies and extracts
therefrom, all at such reasonable times during normal business hours and as
often as the Lenders may reasonably request. The Lenders will use best
efforts to keep all Confidential
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Information (as herein defined) confidential and will not disclose or
reveal the Confidential Information or any part thereof other than (i) as
required by law, and (ii) to the Lenders', and the Lenders' subsidiaries',
Affiliates, officers, employees, legal counsel and regulatory authorities
or advisors to whom it is necessary to reveal such information for the
purpose of effectuating the agreements and undertakings specified herein or
as otherwise required in connection with the enforcement of the Lenders'
and the Agent's rights and remedies under the Notes, this Agreement and the
other Loan Documents. As used herein, "Confidential Information" means
information about Borrowers or Guarantor furnished by either Borrower or
Guarantor to the Lenders, but does not include information (i) which was
publicly known, or otherwise known to the Lenders, at the time of the
disclosure, (ii) which subsequently becomes publicly known through no act
or omission by the Lenders, or (iii) which otherwise becomes known to the
Lenders, other than through disclosure by either Borrower or Guarantor.
(k) Notice of Certain Events. Each Borrower and Guarantor shall
promptly notify the Agent if it learns of the occurrence of (i) any event
which constitutes an Event of Default together with a detailed statement of
the steps being taken to cure such Event of Default; (ii) any legal,
judicial or regulatory proceedings affecting either Borrower or Guarantor
or any of the assets or properties of either Borrower or Guarantor which,
if adversely determined, would reasonably be expected to have a Material
Adverse Effect; (iii) any dispute between either Borrower or Guarantor and
any governmental or regulatory body or any other Person or entity which, if
adversely determined, would reasonably be expected to cause a Material
Adverse Effect; (iv) any other matter which in either Borrower's or
Guarantor's reasonable opinion could have a Material Adverse Effect.
(l) ERISA Information and Compliance. Each Borrower and Guarantor will
promptly furnish to the Agent upon becoming aware of the occurrence of any
"reportable event", as such term is defined in Section 4043 of ERISA, or of
any "prohibited transaction", as such term is defined in Section 4975 of
the Internal Revenue Code of 1986, as amended, in connection with any Plan
or any trust created thereunder, a written notice signed by the President
or chief financial officer of each Borrower specifying the nature thereof,
what action such party is taking or proposes to take with respect thereto,
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and, when known, any action taken by the Internal Revenue Service with
respect thereto.
(m) Environmental Reports and Notices. Borrowers will deliver to the
Agent (i) promptly upon its becoming available, one copy of each report
(other than routine informational filings) sent by either Borrower or
Guarantor to any court, governmental agency or instrumentality pursuant to
any Environmental Law, (ii) notice, in writing, promptly upon either
Borrower's or Guarantor's receipt of notice or otherwise learning of any
claim, demand, action, event, condition, report or investigation indicating
any potential or actual liability arising in connection with (x) the
non-compliance with or violation of the requirements of any Environmental
Law which reasonably could be expected to have a Material Adverse Effect;
(y) the release or threatened release of any toxic or hazardous waste into
the environment which reasonably would be expected to have a Material
Adverse Effect or which release either Borrower or Guarantor would have a
duty to report to any court or government agency or instrumentality, or
(iii) the existence of any Environmental Lien on any properties or assets
of either Borrower or Guarantor, and Borrowers shall promptly deliver a
copy of any such notice to Agent.
(n) Compliance and Maintenance. Each Borrower and Guarantor will (i)
observe and comply in all material respects with all Environmental Laws;
(ii) except as provided in Subsections 12(p) and 12(q) below, maintain the
Oil and Gas Properties and other assets and properties in good and workable
condition at all times and make all repairs, replacements, additions,
betterments and improvements to the Oil and Gas Properties and other assets
and properties as are needed and proper so that the business carried on in
connection therewith may be conducted properly and efficiently at all
times; (iii) take or cause to be taken whatever actions are necessary or
desirable to prevent an event or condition of default by either Borrower or
Guarantor under the provisions of any gas purchase or sales contract or any
other contract, agreement or lease comprising a part of the Oil and Gas
Properties or other collateral security hereunder which default could
reasonably be expected to result in a Material Adverse Effect; and (iv)
furnish Agent upon request evidence reasonably satisfactory to Agent that
there are no Liens, claims or encumbrances on the Oil and Gas Properties,
except Permitted Liens.
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(o) Operation of Properties. Except as provided in Subsections 12(p)
and (q) below, Borrowers will operate, or use reasonable efforts to cause
to be operated, all Oil and Gas Properties in a careful and efficient
manner in accordance with the practice of the industry and in compliance in
all material respects with all applicable laws, rules, and regulations, and
in compliance in all material respects with all applicable proration and
conservation laws of the jurisdiction in which the properties are situated,
and all applicable laws, rules, and regulations, of every other agency and
authority from time to time constituted to regulate the development and
operation of the properties and the production and sale of hydrocarbons and
other minerals therefrom; provided, however, that Borrowers shall have the
right to contest in good faith by appropriate proceedings, the
applicability or lawfulness of any such law, rule or regulation and pending
such contest may defer compliance therewith, as long as such deferment
shall not subject the properties or any part thereof to foreclosure or
loss.
(p) Compliance with Leases and Other Instruments. Borrowers will pay
or cause to be paid and discharge all rentals, delay rentals, royalties,
production payment, and indebtedness required to be paid by either Borrower
(or required to keep unimpaired in all material respects the rights of
either Borrower in the Oil and Gas Properties) accruing under, and perform
or cause to be performed in all material respects each and every act,
matter, or thing required of Borrowers by each and all of the assignments,
deeds, leases, subleases, contracts, and agreements in any way relating to
Borrowers or any of the Oil and Gas Properties and do all other things
necessary of Borrowers to keep unimpaired in all material respects the
rights of Borrowers thereunder and to prevent the forfeiture thereof or
default thereunder; provided, however, that nothing in this Agreement shall
be deemed to require either Borrower to perpetuate or renew any oil and gas
lease or other lease by payment of rental or delay rental or by
commencement or continuation of operations nor to prevent either Borrower
from abandoning or releasing any oil and gas lease or other lease or well
thereon when, in any of such events, in the opinion of Borrowers exercised
in good faith, it is not in the best interest of Borrowers to perpetuate
the same.
(q) Certain Additional Assurances Regarding Maintenance and Operations
of Properties. With respect to those Oil and Gas
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Properties which are being operated by operators other than the Borrowers,
Borrowers shall not be obligated to perform any undertakings contemplated
by the covenants and agreement contained in Subsections 12(n) or 12(o)
hereof which are performable only by such operators and are beyond the
control of Borrowers; however, Borrowers agree to promptly take all
reasonable actions available under any operating agreements or otherwise to
bring about the performance of any such material undertakings required to
be performed thereunder.
(r) Sale of Certain Assets/Prepayment of Proceeds. Borrowers will
immediately pay over to the Agent for the ratable benefit of the Lenders as
a prepayment of principal on the Notes and a reduction of the Commitments,
an amount equal to 100% of the net proceeds received by either Borrower
from the sale of the Oil and Gas Properties, which sale has been approved
in advance by the Lenders. Borrowers and/or Guarantor will immediately pay
over to the Agent for the ratable benefit of the Lenders as a prepayment of
principal on the Notes and a reduction of the Commitments, an amount equal
to 100% of the net proceeds received by any of them from the sale of any
Energen Stock. Any such prepayment of principal on the Notes required by
this Section 12(r), shall not be in lieu of, but shall be in addition to,
any Monthly Commitment Reduction or mandatory prepayment of principal
required to be paid pursuant to Section 9(b) hereof.
(s) Title Matters. Within sixty (60) days after the Effective Date
with respect to the Oil and Gas Properties listed on Schedule "6" hereto,
Borrowers shall furnish Agent with title opinions and/or title information
reasonably satisfactory to Agent showing good and defensible title of
Borrowers to such Oil and Gas Properties subject only to the Permitted
Liens. As to any Oil and Gas Properties hereafter mortgaged to Agent,
Borrowers will promptly (but in no event more than sixty (60) days
following such mortgaging), furnish, if requested, Agent with title
opinions and/or title information reasonably satisfactory to Agent showing
good and defensible title of Borrowers to such Oil and Gas Properties
subject only to Permitted Liens.
(t) Curative Matters. Within sixty (60) days after the Effective Date
with respect to matters listed on Schedule "7" and, thereafter, within
sixty (60) days after receipt by Borrowers from Agent or its counsel of
written notice of title defects the Agent
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reasonably requires to be cured, Borrowers shall either (i) provide such
curative information, in form and substance satisfactory to Agent, or (ii)
substitute Oil and Gas Properties of value and quality satisfactory to the
Agent for all of Oil and Gas Properties for which such title curative was
requested but upon which Borrowers elected not to provide such title
curative information, and, within sixty (60) days of such substitution,
provide title opinions or title information satisfactory to the Agent
covering the Oil and Gas Properties so substituted. If the Borrowers fail
to satisfy (i) or (ii) above within the time specified, the loan collateral
value assigned by the Lenders to the Oil and Gas Properties for which such
curative information was requested shall be deducted from the Borrowing
Base resulting in a reduction thereof.
(u) Change of Principal Place of Business. Each Borrower and Guarantor
shall give Agent at least thirty (30) days prior written notice of its
intention to move its principal place of business from the address set
forth in Section 17 hereof.
(v) Additional Collateral. Borrowers agree to regularly monitor
engineering data covering all producing oil and gas properties and
interests owned or acquired by either Borrower on or after the date hereof
and to mortgage or cause to be mortgaged such of the same to Agent for the
ratable benefit of the Lenders in substantially the form of the Security
Instruments, as applicable, to the extent that the Lenders shall at all
times during the existence of the Commitment be secured by perfected Liens
and security interests covering not less than eighty percent (80%) of the
Engineered Value of all producing Oil and Gas Properties of Borrowers. In
addition, the Borrowers agree that in connection with the mortgaging of
such additional oil and gas properties, they shall within a reasonable time
thereafter, deliver or cause to be delivered to the Agent such mortgage and
title opinions and other title information with respect to the title and
Lien status of such oil and gas properties as may be necessary to maintain
at all times a level of such title opinions and title information of not
less than eighty percent (80%) of the Engineered Value of all Oil and Gas
Properties mortgaged to the Agent for the ratable benefit of the Lenders.
(w) Crude Oil Hedging. Commencing on April 1, 2003, Borrowers shall
maintain with counterparties acceptable to the Agent non-speculative crude
oil price hedges for rolling twenty-four (24) month periods, but not to
extend beyond the Maturity Date
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unless Borrowers otherwise elect, and with prices and other terms as shall
be approved in advance by Agent covering (i) at least seventy-five percent
(75%) of Borrowers' estimated monthly crude oil production from Borrowers'
proved producing Oil and Gas Properties for the nine months ending December
31, 2003, (ii) at least sixty percent (60%) of Borrowers' estimated monthly
crude oil production from Borrowers' proved producing Oil and Gas
Properties during the 2004 calendar year, and (iii) at least fifty percent
(50%) of Borrowers' estimated monthly crude oil production from Borrowers'
proved producing Oil and Gas Properties during the 2005 calendar year and
thereafter until the Maturity Date.
13. Negative Covenants. A deviation from the provisions of this Section 13
shall not constitute an Event of Default under this Agreement if such deviation
is consented to in writing by Majority Lenders prior to the date of deviation.
Each Borrower and Guarantor, as applicable, will at all times comply with the
covenants contained in this Section 13 from the date hereof and for so long as
the Commitment is in existence or any amount is owed to the Agent or the Lenders
under this Agreement or the other Loan Documents.
(a) Negative Pledge. Neither either Borrower nor Guarantor will, and
will not permit any Subsidiary to:
(i) create, incur, assume or permit to exist any Lien, security
interest or other encumbrance on any of its respective assets or
properties except Permitted Liens; or
(ii) sell, lease, transfer or otherwise dispose of, in any fiscal
year, any of its respective assets except for (A) sales of extracted
petroleum hydrocarbons made in the ordinary course of either
Borrower's oil and gas business, (B) to the extent not otherwise
forbidden under the Security Instruments, equipment that is worthless
or obsolete or which is replaced by equipment of equal suitability in
value, and interests in oil and gas leases, or portions thereof, so
long as no well situated on any such lease or located on any unit
containing all or any part thereof, is capable (or is subject to being
made capable through commercially feasible operations) of production
oil, gas or other hydrocarbons or minerals in commercial quantities,
and (C) sales of the Energen Stock, provided that such stock is sold
at its fair market value and in compliance with any restrictions
thereon, and that the net proceeds
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received from any such sale are immediately paid to Agent as required
by Section 12(r) hereof.
(b) Current Ratio. PPC shall not allow its Current Ratio to be less
than 1.0 to 1.0 as of the end of any fiscal quarter beginning with the
fiscal quarter ending December 31, 2002.
(c) Debt Service Coverage Ratio. PPC will not allow its Debt Service
Coverage Ratio to be less than 1.1 to 1.0 as of the end of any fiscal
quarter beginning with the fiscal quarter ending December 31, 2002.
(d) Adjusted Consolidated Net Worth. At all times during the term
hereof, PPC's Adjusted Consolidated Net Worth shall not be less than (a)
$40,000,000, plus (b) seventy-five percent (75%) of the net proceeds from
any equity securities issued by the PPC on or after the date of this
Agreement, plus (c) fifty percent (50%) of PPC's Consolidated Net Income
for each fiscal quarter, if positive, and zero percent (0%) if negative,
determined on a cumulative basis, for the period beginning July 1, 2002,
and ending on the last day of the most recent fiscal quarter as of the time
in question. For purposes of calculating PPC's Adjusted Consolidated Net
Worth in connection with this Section 13(d), there shall be excluded from
Consolidated Net Income (to the extent otherwise included therein as may be
required by GAAP) the cumulative effect of a change in accounting
principles and the after-tax net effect of any non-recurring non-cash
charges, including, without limitation, any charges under Financial
Accounting Standard Board Statement No. 144, as amended, supplemented or
modified from time to time.
(e) Consolidations and Mergers. Neither either Borrower, Guarantor nor
any Subsidiary will form any new Subsidiary or consolidate or merge with or
into any other Person, except that any Subsidiary may consolidate or merge
with or into either Borrower if such Borrower is the surviving entity in
such consolidation or merger and if, after giving effect thereto, no
Default or Event of Default shall have occurred and be continuing.
(f) Debts, Guaranties and Other Obligations. Neither either Borrower
nor Guarantor will, and will not permit any Subsidiary to, incur, create,
assume or in any manner become or be liable in respect of any indebtedness,
or guarantee or otherwise in any manner become or be liable in respect of
any indebtedness,
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liabilities or other obligations of any other Person, whether by agreement
to purchase the indebtedness of any other Person or agreement for the
furnishing of funds to any other Person through the purchase or lease of
goods, supplies or services (or by way of stock purchase, capital
contribution, advance or loan) for the purpose of paying or discharging the
indebtedness of any other Person, or otherwise, except that the foregoing
restrictions shall not apply to:
(i) the Notes and any renewal or increase thereof, or other
indebtedness heretofore disclosed to Lenders in the Borrowers' or
Guarantor's Financial Statements or on Schedule "4" hereto; or
(ii) taxes, assessments or other government charges which are not
yet due or are being contested in good faith by appropriate action
promptly initiated and diligently conducted, if such reserve as shall
be required by GAAP shall have been made therefor and levy and
execution thereon have been stayed and continue to be stayed; or
(iii) indebtedness (other than in connection with a loan or
lending transaction) incurred in the ordinary course of business which
is not more than 60 days past due, including, but not limited to
indebtedness for drilling, completing, leasing and reworking oil and
gas wells; or
(iv) obligations under Rate Management Transactions permitted
pursuant to Section 13(l) hereof; or
(v) other indebtedness not exceeding $250,000 in the aggregate
for Borrowers, Guarantor and Subsidiaries outstanding at any time; or
(vi) any renewals or extensions of (but, other than in the case
of the Notes, not increases in) any of the foregoing.
(g) Dividend and Distributions. Neither either Borrower nor Guarantor
will, and will not permit any Subsidiary to, declare, pay or make any
loans, advances, dividends or distributions of any kind to its stockholders
or other equity owners, or make any other distribution on account of, or
purchase, acquire or redeem or retire any stock or other security issued by
it except that (i) PPC may pay
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cash dividends on its outstanding shares of 6% Convertible Preferred Stock
in accordance with the provisions of PPC's Certificate of Designations,
Preferences and Rights of Serial Preferred Stock - 6% Convertible Preferred
Stock dated October 19, 1998, provided that no Default or Event of Default
exists at the time of declaration or payment of such dividends and the
payment of such dividends would not cause a Default or Event of Default,
(ii) either Borrower's Subsidiaries may declare, pay or make dividends or
distributions to such Borrower, and (iii) PLP may make distributions to
Guarantor, provided that Guarantor immediately redistributes such
distributions to PPC.
(h) Loans and Advances. Neither either Borrower nor Guarantor will,
and will not permit any Subsidiary to, make or permit to remain outstanding
any loans or advances to or in any Person, except that the foregoing
restriction shall not apply to:
(i) loans or advances to any Person, the material details of
which have been set forth in the Financial Statements of the Borrowers
and the Guarantor heretofore furnished to Lenders; or
(ii) advances made in the ordinary course of either Borrower's or
Guarantor's oil and gas business; or
(iii) other loans or advances to any third party or Affiliate
(other than a Borrower) not in excess of $100,000 in the aggregate
outstanding; or
(iv) loans or advances to either Borrower.
(i) Receivables and Payables. Neither either Borrower nor Guarantor
will, and will not permit any Subsidiary to, discount or sell with
recourse, or sell for less than the market value thereof, any of its notes
receivable or accounts receivable.
(j) Nature of Business. Neither either Borrower nor Guarantor will,
and will not permit any Subsidiary to, permit any material change to be
made in the character of its businesses as carried on at the date hereof.
(k) Transactions with Affiliates. Neither either Borrower nor
Guarantor will, and will not permit any Subsidiary to, enter into any
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transaction with any Affiliate, except transactions upon terms that are no
less favorable to it than could be obtained in a transaction negotiated at
arm's length with an unrelated third party.
(l) Rate Management Transactions. Neither either Borrower nor
Guarantor will, and will not permit any Subsidiary to, enter into any Rate
Management Transactions, except the foregoing prohibitions shall not apply
to (x) transactions required by this Agreement or consented to in writing
by the Majority Lenders, in each case which are on terms acceptable to the
Majority Lenders, or (y) transactions designed to hedge, provide a floor
price for, or swap crude oil or natural gas, provided that (i) the same do
not cover more than seventy-five percent (75%) of Borrowers' estimated
production from proved producing reserves existing as of the date of the
execution thereof based upon the then most current reserve evaluation
required pursuant to Section 12(a)(iii) above, (ii) the same do not contain
terms or provisions which could require margin calls, (iii) the
counterparty to any such transaction has a minimum rating of "A-1" by
Standard & Poors' Corporation or "A-3" by Moody's Investors Service, Inc.,
(iv) the same are for a term of twenty-four (24) months or less, and (v)
the same include provisions for payment to Borrowers upon the occurrence of
specified price indexes of a price per unit of measurement equal to or
greater than that under the Agent's then current pricing policies.
(m) Investments. Neither either Borrower nor Guarantor will, and will
not permit any Subsidiary to, make any investments in any Person or entity,
except such restriction shall not apply to:
(i) investments with maturities of not more than 180 days in
direct obligations of the United States of America or any agency
thereof; or
(ii) investments in certificates of deposit issued by a Lender;
or
(iii) PLP's existing investments in the Energen Stock, in First
Permian GP, L.L.C. and in First Permian, L.P.; or
(iv) other investments not to exceed $500,000 in the aggregate
for Borrowers, Guarantor and Subsidiaries during any fiscal year, when
aggregated with loans and advances allowed pursuant to Section
13(h)(iii); or
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(v) investments in Subsidiaries to the extent of such investments
as of the Effective Date.
(n) Amendment to Organizational Documents. Neither either Borrower nor
Guarantor will, and will not permit any Subsidiary to, permit any material
amendment to, or any material alteration of, its Articles or Certificate of
Incorporation, Articles or Certificate of Organization, Agreement or
Certificate of Limited Partnership, Certificate of Formation, Bylaws,
Limited Liability Company Agreement or other governing documents, as
applicable.
(o) ERISA Compliance. Neither either Borrower nor Guarantor will, and
will not permit any Subsidiary to, permit any plan subject to ERISA
maintained by it to (i) engage in any "prohibited transaction" as such term
is defined in Section 4975 of the Internal Revenue Code of 1986, as
amended; (ii) incur any "accumulated funding deficiency" as such term is
defined in Section 302 of ERISA; or (iii) terminate in a manner which could
result in the imposition of a lien on its property pursuant to Section 4068
of ERISA.
(p) Accounting Method and Fiscal Year. Neither either Borrower nor
Guarantor will, and will not permit any Subsidiary to, make any change in
its present accounting method unless such changes are required for
conformity with GAAP.
(q) Employee Agreements. PPC will not make any payments pursuant to
the terms of the Employee Agreements described on Schedule 5 attached
hereto or pursuant to the terms of any additional agreements of a similar
nature hereafter executed by PPC, if a Default or Event of Default exists
at the time of any such payment or such payment would cause or result in a
Default or Event of Default under this Agreement.
(r) Issuance of Equity Interests. Neither PLP nor Guarantor will issue
or sell to any Person (other than PPC) any equity interest in it, or any
option, warrant or other right to acquire any such equity interest.
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14. Events of Default. Any one or more of the following events shall be
considered an "Event of Default" as that term is used herein:
(a) Borrowers shall fail to pay when due or declared due the principal
of, and the interest on, the Notes or any fee or any other indebtedness of
Borrowers incurred pursuant to this Agreement or any of the other Loan
Documents; or
(b) Any representation or warranty made by either Borrower or
Guarantor under this Agreement, or in any certificate or statement
furnished or made to the Lenders pursuant hereto, or in connection
herewith, or in connection with any document furnished hereunder, shall
prove to be untrue in any material respect as of the date on which such
representation or warranty is made (or deemed made), or any representation,
statement (including Financial Statements), certificate, report or other
data furnished or to be furnished or made by either Borrower or Guarantor
under any Loan Document, including this Agreement, proves to have been
untrue in any material respect, as of the date as of which the facts
therein set forth were stated or certified; or
(c) Default shall be made in the due observance or performance of any
of the covenants or agreements of either Borrower or Guarantor contained in
the Loan Documents, including this Agreement (excluding covenants contained
in Section 13 of the Agreement for which there is no cure period), and such
default shall continue for more than thirty (30) days after written notice
from Agent is received by Borrowers; or
(d) Default shall be made in the due observance or performance of the
covenants of either Borrower or Guarantor contained in Section 13 of this
Agreement; or
(e) Default shall be made in respect of any obligation for borrowed
money other than the Notes, for which either Borrower, Guarantor or any
Subsidiary is liable (directly, by assumption, as guarantor or otherwise),
or any obligations secured by any mortgage, pledge or other consensual
security interest with respect thereto, on any asset or property of either
Borrower, Guarantor or any Subsidiary or in respect of any agreement
relating to any such obligations, unless the aggregate amount of such
obligations in respect of which such default shall have occurred is less
than $250,000; or
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(f) Either Borrower, Guarantor or any Subsidiary shall commence a
voluntary case or other proceeding seeking liquidation, reorganization or
other relief with respect to itself or its debts under any bankruptcy,
insolvency or other similar law now or hereafter in effect or seeking an
appointment of a trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its property, or shall consent to
any such relief or to the appointment of or taking possession by any such
official in an involuntary case or other proceeding commenced against it,
or shall make a general assignment for the benefit of creditors, or shall
fail generally to pay its debts as they become due, or shall take any
corporate action authorizing the foregoing; or
(g) An involuntary case or other proceeding, shall be commenced
against either Borrower, Guarantor or any Subsidiary seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or similar law now or hereafter in effect or seeking
the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, and such
involuntary case or other proceeding shall remain undismissed and unstayed
for a period of thirty (30) days; or an order for relief shall be entered
against either Borrower, Guarantor or any Subsidiary under the federal
bankruptcy laws as now or hereinafter in effect; or
(h) A final judgment or order for the payment of money in excess of
$250,000 (or judgments or orders aggregating in excess of $250,000) shall
be rendered against either Borrower, Guarantor or any Subsidiary and such
judgments or orders shall continue unsatisfied and unstayed for a period of
thirty (30) days; or
(i) In the event the Total Outstandings shall at any time exceed the
Borrowing Base established for the Notes, and Borrowers shall fail to
comply with the provisions of Section 9(b) hereof; or
(j) An event of default (as defined therein) shall occur under any
agreement entered into in connection with any Rate Management Transaction;
or
(k) A Change of Management shall occur; or
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(l) Any Lien for failure to pay income, payroll, FICA or similar taxes
shall be filed by the U. S. Government or any agent or instrumentality
thereof against either Borrower, Guarantor or any Subsidiary, or any of
their respective assets; or
(m) Any of the Loan Documents shall cease, for any reason, to be in
full force and effect, or either Borrower or Guarantor shall so assert.
Upon occurrence of any Event of Default specified in Subsections 14(f) and
(g) hereof, the entire principal amount due under the Notes and all interest
then accrued thereon, and any other liabilities of Borrowers hereunder, shall
become automatically and immediately due and payable all without notice and
without presentment, demand, protest, notice of protest or dishonor or any other
notice of default of any kind, all of which are hereby expressly waived by the
Borrowers and Guarantor. Upon the occurrence of any other Event of Default, the
Agent, upon request of Majority Lenders, shall by written notice to the
Borrowers declare the principal of, and all interest then accrued on, the Notes
and any other liabilities hereunder to be forthwith due and payable, whereupon
the same shall forthwith become due and payable without presentment, demand,
protest, notice of intent to accelerate, notice of acceleration or other notice
of any kind, all of which the Borrowers and Guarantor hereby expressly waive,
anything contained herein or in the Notes to the contrary notwithstanding.
Upon the occurrence and during the continuance of any Event of Default, the
Lenders are hereby authorized at any time and from time to time, without notice
to the Borrowers or the Guarantor (any such notice being expressly waived by the
Borrowers and the Guarantor), to set-off and apply any and all deposits (general
or special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by any of the Lenders to or for the credit or the
account of either Borrower or Guarantor against any and all of the indebtedness
of the Borrowers under the Notes and the Loan Documents, including this
Agreement, irrespective of whether or not the Lenders shall have made any demand
under the Loan Documents, including this Agreement or the Notes and although
such indebtedness may be unmatured. Any amount set-off by any of the Lenders
shall be applied against the indebtedness owed the Lenders by the Borrowers
pursuant to this Agreement and the Notes. The Lenders agree promptly to notify
the Borrowers after any such setoff and application, provided that the failure
to give such notice shall not affect the validity of such
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set-off and application. The rights of the Lender under this Section are in
addition to other rights and remedies (including, without limitation, other
rights of set-off) which the Lenders may have.
15. The Agent and the Lenders.
(a) Appointment and Authorization. Each Lender hereby appoints Agent
as its nominee and agent, in its name and on its behalf: (i) to act as
nominee for and on behalf of such Lender in and under all Loan Documents;
(ii) to arrange the means whereby the funds of Lenders are to be made
available to the Borrowers under the Loan Documents; (iii) to take such
action as may be requested by any Lender under the Loan Documents (when
such Lender is entitled to make such request under the Loan Documents);
(iv) to receive all documents and items to be furnished to Lenders under
the Loan Documents; (v) to be the secured party, mortgagee, beneficiary,
and similar party in respect of, and to receive, as the case may be, any
collateral for the benefit of Lenders; (vi) to promptly distribute to each
Lender all material information, requests, documents and items received
from the Borrowers or Guarantor under the Loan Documents; (vii) to promptly
distribute to each Lender such Lender's Pro Rata Part of each payment or
prepayment (whether voluntary, as proceeds of insurance thereon, or
otherwise) in accordance with the terms of the Loan Documents and (viii) to
deliver to the appropriate Persons requests, demands, approvals and
consents received from Lenders. Each Lender hereby authorizes Agent to take
all actions and to exercise such powers under the Loan Documents as are
specifically delegated to Agent by the terms hereof or thereof, together
with all other powers reasonably incidental thereto. With respect to its
Commitment hereunder and the Notes issued to it, Agent and any successor
Agent shall have the same rights under the Loan Documents as any other
Lender and may exercise the same as though it were not the Agent; and the
term "Lender" or "Lenders" shall, unless otherwise expressly indicated,
include Agent and any successor Agent in its capacity as a Lender. Agent
and any successor Agent and its Affiliates may accept deposits from, lend
money to, act as trustee under indentures of and generally engage in any
kind of business with the Borrowers or Guarantor, and any Person which may
do business with the Borrowers or Guarantor, all as if Agent and any
successor Agent was not Agent hereunder and without any duty to account
therefor to the Lenders; provided that, if any payments in respect of any
property (or the proceeds thereof) now or hereafter in
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the possession or control of Agent which may be or become security for the
obligations of the Borrowers or Guarantor arising under the Loan Documents
by reason of the general description of indebtedness secured or of property
contained in any other agreements, documents or instruments related to any
such other business shall be applied to reduction of the obligations of the
Borrowers and Guarantor arising under the Loan Documents, then each Lender
shall be entitled to share in such application according to its Pro Rata
Part thereof. Each Lender, upon request of any other Lender, shall disclose
to all other Lenders all indebtedness and liabilities, direct and
contingent, of the Borrowers and Guarantor to such Lender as of the time of
such request.
(b) Note Holders. From time to time as other Lenders become a party to
this Agreement, Agent shall obtain execution by Borrowers of additional
Notes in amounts representing the Commitments of each such new Lender, up
to an aggregate face amount of all Notes not exceeding $100,000,000. The
obligation of such Lender shall be governed by the provisions of this
Agreement, including but not limited to, the obligations specified in
Section 2 hereof. From time to time, Agent may require that the Lenders
exchange their Notes for newly issued Notes to better reflect the
Commitments of the Lenders. Agent may treat the payee of any Note as the
holder thereof until written notice of transfer has been filed with it,
signed by such payee and in form satisfactory to Agent.
(c) Consultation with Counsel. Lenders agree that Agent may consult
with legal counsel selected by Agent and shall not be liable for any action
taken or suffered in good faith by it in accordance with the advice of such
counsel. LENDERS ACKNOWLEDGE THAT COTTON, BLEDSOE, TIGHE & DAWSON IS
COUNSEL FOR FIRST AMERICAN, BOTH AS AGENT AND AS A LENDER, AND THAT SUCH
FIRM DOES NOT REPRESENT ANY OF THE OTHER LENDERS IN CONNECTION WITH THIS
TRANSACTION.
(d) Documents. Agent shall not be under a duty to examine or pass upon
the validity, effectiveness, enforceability, genuineness or value of any of
the Loan Documents or any other instrument or document furnished pursuant
thereto or in connection therewith, and Agent shall be entitled to assume
that the same are valid, effective, enforceable and genuine and what they
purport to be.
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(e) Resignation or Removal of Agent. Subject to the appointment and
acceptance of a successor Agent as provided below, Agent may resign at any
time by giving written notice thereof to Lenders and Borrowers, and Agent
may be removed at any time with or without cause by all Lenders (excluding
the Agent). If no successor Agent has been so appointed by Majority Lenders
(and approved by the Borrowers) and has accepted such appointment within
thirty (30) days after the retiring Agent's giving of notice of resignation
or removal of the retiring Agent, then the retiring Agent may, on behalf of
Lenders, appoint a successor Agent. Any successor Agent must be approved by
Borrowers, which approval will not be unreasonably withheld. Upon the
acceptance of any appointment as Agent hereunder by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights and duties of the retiring Agent, and the retiring Agent, as the
case may be, shall be discharged from its duties and obligations hereunder.
After any retiring Agent's resignation or removal hereunder as Agent, the
provisions of this Section 15 shall continue in effect for its benefit in
respect to any actions taken or omitted to be taken by it while it was
acting as Agent. To be eligible to be an Agent hereunder the party serving,
or to serve, in such capacity must own a Pro Rata Part of the Commitments
equal to the level of Commitment required to be held by any Lender pursuant
to Section 29 hereof.
(f) Responsibility of Agent. It is expressly understood and agreed
that the obligations of Agent under the Loan Documents are only those
expressly set forth in the Loan Documents and that Agent shall be entitled
to assume that no Default or Event of Default has occurred and is
continuing, unless Agent has actual knowledge of such fact or has received
notice from a Lender or the Borrowers that such Lender or the Borrowers
consider that a Default or an Event of Default has occurred and is
continuing and specifying the nature thereof. Neither Agent nor any of its
directors, officers, attorneys or employees shall be liable for any action
taken or omitted to be taken by them under or in connection with the Loan
Documents, except for its or their own gross negligence or willful
misconduct. Agent shall not incur liability under or in respect of any of
the Loan Documents by acting upon any notice, consent, certificate,
warranty or other paper or instrument believed by it to be genuine or
authentic or to be signed by the proper party or parties, or with respect
to anything which it may do or refrain from doing in the reasonable
exercise of its judgment, or which may seem to it to be
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necessary or desirable. The Syndication Agent shall have no
responsibilities as an agent hereunder.
Agent shall not be responsible to Lenders for any of the Borrowers' or
Guarantor's recitals, statements, representations or warranties contained
in any of the Loan Documents, or in any certificate or other document
referred to or provided for in, or received by any Lender under, the Loan
Documents, or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of any of the Loan Documents or for any
failure by the Borrowers or Guarantor to perform any of their obligations
hereunder or thereunder. Agent may employ agents and attorneys-in-fact and
shall not be answerable, except as to money or securities received by it or
its authorized agents, for the negligence or misconduct of any such agents
or attorneys-in-fact selected by it with reasonable care.
The relationship between Agent and each Lender is only that of agent
and principal and has no fiduciary aspects. Nothing in the Loan Documents
or elsewhere shall be construed to impose on Agent any duties or
responsibilities other than those for which express provision is therein
made. In performing its duties and functions hereunder, Agent does not
assume and shall not be deemed to have assumed, and hereby expressly
disclaims, any obligation or responsibility toward or any relationship of
agency or trust with or for the Borrowers or any of their beneficiaries or
other creditors. As to any matters not expressly provided for by the Loan
Documents, Agent shall not be required to exercise any discretion or take
any action, but shall be required to act or to refrain from acting (and
shall be fully protected in so acting or refraining from acting) upon the
instructions of all Lenders and such instructions shall be binding upon all
Lenders and all holders of the Notes; provided, however, that Agent shall
not be required to take any action which is contrary to the Loan Documents
or applicable law.
Agent shall have the right to exercise or refrain from exercising,
without notice or liability to the Lenders, any and all rights afforded to
Agent by the Loan Documents or which Agent may have as a matter of law;
provided, however, Agent shall not (i) except as provided herein and in
Section 7(b)(ii) hereof, without the consent of all Lenders designate the
amount of the Borrowing Base or the Monthly Commitment Reduction or (ii)
without the consent of Majority Lenders, take any other action with regard
to amending the
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Loan Documents, waiving any default under the Loan Documents, releasing or
substituting any Collateral (except as permitted in Section 15(q) hereof)
or taking any other action with respect to the Loan Documents. Provided
further, however, that no amendment, waiver, or other action shall be
effected pursuant to the preceding clause (ii) without the consent of all
Lenders which: (a) would increase the Borrowing Base or decrease the
Monthly Commitment Reduction, (b) would reduce any fees hereunder, or the
principal of, or the interest on, any Lender's Note or Notes, (c) would
postpone any date fixed for any payment of any fees hereunder, or any
principal or interest of any Lender's Note or Notes, (d) would increase the
aggregate Commitments or any Lender's individual Commitment hereunder or
would materially alter Agent's obligations to any Lender hereunder, (e)
would release Borrowers from their obligation to pay any Lender's Note or
Notes, (f) would change the definition of Majority Lenders, (g) would
extend the Maturity Date or (h) would amend this sentence or the previous
sentence. Agent shall not have liability to Lenders for failure or delay in
exercising any right or power possessed by Agent pursuant to the Loan
Documents or otherwise unless such failure or delay is caused by the gross
negligence of the Agent, in which case only the Agent responsible for such
gross negligence shall have liability therefor to the Lenders.
(g) Independent Investigation. Each Lender expressly acknowledges that
neither the Agent nor any of its officers, directors, employees, agents,
attorneys in fact or Affiliates has made any representations or warranties
to it and that no act by the Agent hereinafter taken, including any review
of the affairs of the Borrowers and Guarantor, shall be deemed to
constitute any representation or warranty by the Agent to any Lender. Each
Lender severally represents and warrants to Agent that it has made its own
independent investigation and assessment of the financial condition and
affairs of the Borrowers and Guarantor in connection with the making and
continuation of its participation hereunder and has not relied exclusively
on any information provided to such Lender by Agent in connection herewith,
and each Lender represents, warrants and undertakes to Agent that it shall
continue to make its own independent appraisal of the credit worthiness of
the Borrowers and Guarantor while the Notes are outstanding or its
Commitments hereunder are in force. Agent shall not be required to keep
itself informed as to the performance or observance by the Borrowers and
Guarantor of this Agreement or any other document
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referred to or provided for herein or to inspect the properties or books of
the Borrowers and Guarantor. Other than as provided in this Agreement,
Agent shall not have any duty, responsibility or liability to provide any
Lender with any credit or other information concerning the affairs,
financial condition or business of the Borrowers and Guarantor which may
come into the possession of Agent.
(h) Indemnification. Lenders agree to indemnify Agent and the
Syndication Agent ("Indemnified Agents") ratably according to their
respective Commitments on a Pro Rata basis, from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any proper and reasonable kind
or nature whatsoever which may be imposed on, incurred by or asserted
against any Indemnified Agent in any way relating to or arising out of the
Loan Documents or any action taken or omitted by any Indemnified Agent
under the Loan Documents, provided that no Lender shall be liable for any
portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting from
any Indemnified Agent's gross negligence or willful misconduct. Each Lender
shall be entitled to be reimbursed by any such Indemnified Agent for any
amount such Lender paid to any such Indemnified Agent under this Section
15(h) to the extent such Indemnified Agent has been reimbursed for such
payments by Borrowers or any other Person. THE PARTIES INTEND FOR THE
PROVISIONS OF THIS SECTION TO APPLY TO AND PROTECT THE INDEMNIFIED AGENTS
FROM THE CONSEQUENCES OF ANY LIABILITY, INCLUDING STRICT LIABILITY, IMPOSED
OR THREATENED TO BE IMPOSED ON ANY INDEMNFIED AGENT AS WELL AS FROM THE
CONSEQUENCES OF ITS OWN NEGLIGENCE, WHETHER OR NOT THAT NEGLIGENCE IS THE
SOLE, CONTRIBUTING OR CONCURRING CAUSE OF ANY SUCH LIABILITY.
(i) Benefit of Section 15. The agreements contained in this Section 15
are solely for the benefit of Agent, Syndication Agent and the Lenders and
are not for the benefit of, or to be relied upon by, the Borrower, any
Affiliate of the Borrowers or any other Person.
(j) Pro Rata Treatment. Subject to the provisions of this Agreement,
each payment (including each prepayment) by the Borrowers and each
collection by Lenders (including offsets) on
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account of the principal of and interest on the Notes and fees provided for
in this Agreement, that are payable by the Borrowers, shall be made Pro
Rata; provided, however, in the event that any Defaulting Lender shall have
failed to make an Advance as contemplated under Section 3 hereof and Agent
or another Lender or Lenders shall have made such Advance, payment received
by Agent for the account of such Defaulting Lender or Lenders shall not be
distributed to such Defaulting Lender or Lenders until such Advance or
Advances shall have been repaid in full to the Lender or Lenders who funded
such Advance or Advances.
(k) Assumption as to Payments. Except as specifically provided herein,
unless Agent shall have received notice from the Borrowers prior to the
date on which any payment is due to Lenders hereunder that the Borrowers
will not make such payment in full, Agent may, but shall not be required
to, assume that the Borrowers have made such payment in full to Agent on
such date and Agent may, in reliance upon such assumption, cause to be
distributed to each Lender on such due date an amount equal to the amount
then due such Lender. If and to the extent the Borrowers shall not have
made such payment in full to Agent, each Lender shall repay to Agent
forthwith on demand such amount distributed to such Lender together with
interest thereon, for each day from the date such amount is distributed to
such Lender until the date such Lender repays such amount to Agent, at the
interest rate applicable to such portion of the Loan.
(l) Other Financings. Without limiting the rights to which any Lender
otherwise is or may become entitled, such Lender shall have no interest, by
virtue of this Agreement or the Loan Documents, in (a) any present or
future loans from, letters of credit issued by, or leasing or other
financial transactions by, any other Lender to, on behalf of, or with
either Borrowers or Guarantor (collectively referred to herein as "Other
Financings") other than the obligations hereunder; (b) any present or
future guarantees by or for the account of either Borrower or Guarantor
which are not contemplated by the Loan Documents; (c) any present or future
property taken as security for any such Other Financings; or (d) any
property now or hereafter in the possession or control of any other Lender
which may be or become security for the obligations of either Borrower or
Guarantor arising under any loan document by reason
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of the general description of indebtedness secured or property contained in
any other agreements, documents or instruments relating to any such Other
Financings.
(m) Interests of Lenders. Nothing in this Agreement shall be construed
to create a partnership or joint venture between Lenders for any purpose.
Agent, Lenders, Borrowers and Guarantor recognize that the respective
obligations of Lenders under the Commitments shall be several and not joint
and that neither Agent nor any of Lenders shall be responsible or liable to
perform any of the obligations of the other under this Agreement. Each
Lender is deemed to be the owner of an undivided interest in and to all
rights, titles, benefits and interests belonging and accruing to Agent
under the Security Instruments, including, without limitation, liens and
security interests in any collateral, fees and payments of principal and
interest by the Borrowers under the Commitments on a Pro Rata basis. Each
Lender shall perform all duties and obligations of Lenders under this
Agreement in the same proportion as its ownership interest in the Loans
outstanding at the date of determination thereof.
(n) Investments. Whenever Agent in good faith determines that it is
uncertain about how to distribute to Lenders any funds which it has
received, or whenever Agent in good faith determines that there is any
dispute among the Lenders about how such funds should be distributed, Agent
may choose to defer distribution of the funds which are the subject of such
uncertainty or dispute. If Agent in good faith believes that the
uncertainty or dispute will not be promptly resolved, or if Agent is
otherwise required to invest funds pending distribution to the Lenders,
Agent may invest such funds pending distribution (at the risk of the
Borrowers). All interest on any such investment shall be distributed upon
the distribution of such investment and in the same proportions and to the
same Persons as such investment. All monies received by Agent for
distribution to the Lenders (other than to the Person who is Agent in its
separate capacity as a Lender) shall be held by the Agent pending such
distribution solely as Agent for such Lenders, and Agent shall have no
equitable title to any portion thereof.
(o) Delegation to Affiliates. The Borrowers, Guarantor and the Lenders
agree that the Agent may delegate any of its duties
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under this Agreement to any of its Affiliates. Any such Affiliate (and such
Affiliate's directors, officers, agents and employees) which perform duties
in connection with this Agreement shall be entitled to the same benefits of
the indemnification, waiver and other protective provisions to which the
Agent is entitled under this Section 15 and Section 19.
(p) Execution of Collateral Documents. The Lenders hereby empower and
authorize the Agent to execute and deliver the Security Instruments and all
related financing statements and other financing statements, agreements,
documents or instruments that shall be necessary or appropriate to effect
the purposes of the Security Instruments.
(q) Collateral Releases. The Lenders hereby empower and authorize the
Agent to execute and deliver to the Borrowers and Guarantor on their behalf
any agreements, documents, or instruments as shall be necessary or
appropriate to reflect any releases of Collateral which shall be permitted
by the terms hereof (including, without limitation, the release of
Collateral that Borrowers or Guarantor are permitted to sell pursuant to
Section 13(a)(ii) hereof) or of any other Loan Document or which shall
otherwise have been approved by the requisite Lenders pursuant to this
Section 15.
(r) Internal Revenue Service Forms. At least five (5) Business Days
prior to the first date on which interest or fees are payable hereunder for
the account of any Lender, each Lender that is not incorporated under the
laws of the United States of America, or a state thereof, agrees that it
will deliver to the Agent two duly completed copies of United States
Internal Revenue Service Form W-8 BEN or W-8 ECI or W-8 IMY or W-8 EXP or
such other form as may be applicable and allowable under the Internal
Revenue Code and the regulations thereunder (collectively, a "Withholding
Form"), certifying in either case that such Lender is entitled to receive
payments under this Agreement and the Notes without deduction or
withholding of any United States federal income taxes. Each Lender which so
delivers a Withholding Form further undertakes to deliver to the Agent two
additional copies of such form (or a successor form) on or before the date
that such form expires or becomes obsolete or after the occurrence of any
event requiring a change in the most
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recent Withholding Form so delivered by it, and such amendments thereto or
extensions or renewals thereof as may be reasonably requested by the Agent,
in each case certifying that such Lender is entitled to receive payments
under this Agreement and the Notes without deduction or withholding of any
United States federal income taxes, unless an event (including without
limitation any change in treaty, law or regulation) has occurred prior to
the date on which any such delivery would otherwise be required which
renders all such Withholding Forms inapplicable or which would prevent such
Lender from duly completing and delivering any such Withholding Form with
respect to it and such Lender advises the Agent that it is not capable of
receiving payments without any deduction or withholding of United States
federal income tax.
(s) Syndication Agent. The Lender identified in this Agreement as the
Syndication Agent shall not have any right, power, obligation, liability,
responsibility or duty under this Agreement other than those applicable to
all Lenders as such. Without limiting the foregoing, the Syndication Agent
shall not have or be deemed to have a fiduciary relationship with any
Lender. Each Lender hereby makes the same acknowledgments with respect to
the Syndication Agent as it makes with respect to the Agent in Section
15(f).
16. Exercise of Rights. No failure to exercise, and no delay in exercising,
on the part of the Agent or the Lenders, any right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right. The rights
of the Agent and the Lenders hereunder shall be in addition to all other rights
provided by law.
17. Notices. Any notices or other communications required or permitted to
be given by this Agreement or any other documents or instruments referred to
herein must be given in writing (which may be by bank wire, telecopy or similar
writing) and shall be given to the party to whom such notice or communication is
directed at the address or telecopy number of such party as follows:
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(a) BORROWERS:
1004 North Big Spring, Suite 400
Midland, Texas 79701
Facsimile (915) 684-3905
Attention: Larry C. Oldham, President
(b) GUARANTOR:
2325-B Renaissance Drive, Suite 10
Las Vegas, Nevada 89119
Attention: David R. Hancock, President
Facsimile (702) 966-4247
With copy to:
Larry C. Oldham
1004 North Big Spring, Suite 400
Midland, Texas 79701
Facsimile (915) 684-3905
(c) AGENT and LENDERS:
c/o FIRST AMERICAN
1004 N. Big Spring, Suite 121
Midland, Texas 79701
Facsimile: (915) 687-1231
Attention: Frank K. Stowers, Senior Vice President
Any such notice or other communication shall be effective (a) if given by
telecopy, when such telecopy is transmitted to the telecopy number specified in
this Section 17 and the appropriate answerback is received or receipt is
otherwise confirmed, (b) if given by mail, three (3) days after deposit in the
mails with first-class postage, prepaid, as addressed as aforesaid or (c) if
given by any other method, when delivered at the address specified in this
Section 17; provided, however, that notices to the Agent under Sections 2, 3, 4
or 5 hereof shall not be effective until received. Any notice required to be
given to the Lenders shall be given to the Agent and distributed to all Lenders
by the Agent.
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18. Expenses. The Borrowers shall pay (i) all reasonable and necessary
out-of-pocket expenses of the Agent, including reasonable fees and disbursements
of special counsel for the Agent, in connection with the preparation of this
Agreement, any waiver or consent hereunder or any amendment hereof or any
Default or Event of Default or alleged Default or Event of Default hereunder,
(ii) all reasonable and necessary out-of-pocket expenses of the Agent, including
reasonable fees and disbursements of special counsel for the Agent in connection
with the preparation of any participation agreement for a participant or
participants or any amendment thereof and (iii) if a Default or an Event of
Default occurs, all reasonable and necessary out-of-pocket expenses incurred by
the Lenders, including reasonable fees and disbursements of counsel, in
connection with such Default and Event of Default and collection and other
enforcement proceedings resulting therefrom. THE BORROWERS AND GUARANTOR HEREBY
ACKNOWLEDGE THAT COTTON, BLEDSOE, TIGHE & DAWSON IS SPECIAL COUNSEL TO FIRST
AMERICAN, AS AGENT AND AS A LENDER, UNDER THIS AGREEMENT AND THAT IT IS NOT
COUNSEL TO, NOR DOES IT REPRESENT THE BORROWERS OR GUARANTOR IN CONNECTION WITH
THE TRANSACTIONS DESCRIBED IN THIS AGREEMENT. The Borrowers and Guarantor are
relying on separate counsel in the transaction described herein. The Borrowers
and Guarantor shall indemnify the Lenders against any transfer taxes, document
taxes, assessments or charges made by any governmental authority by reason of
the execution, delivery and filing of the Loan Documents. The obligations of
this Section 18 shall survive any termination of this Agreement, the expiration
of the Loans and the payment of all indebtedness of the Borrowers to the Lenders
hereunder and under the Notes.
19. Indemnity. The Borrowers and Guarantor hereby, jointly and severally,
agree to indemnify the Agent, each Lender, their respective Affiliates, and each
of their directors, officers, and employees (the "Indemnified Parties") against
all losses, claims, damages, penalties, judgments, liabilities and expenses
(including, without limitation, all attorney's fees and expenses of litigation
or preparation therefor of any Indemnified Party) which any of them may pay or
incur arising out of or relating to this Agreement, the other Loan Documents,
the transactions contemplated hereby or the direct or indirect application or
proposed application of the proceeds of any Loan hereunder even if any of the
foregoing arises out of the ordinary negligence of the party seeking
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indemnification except to the extent that they are determined in a final
non-appealable judgment by a court of competent jurisdiction to have resulted
from the gross negligence or willful misconduct of the party seeking
indemnification. The indemnity set forth herein shall be in addition to any
other obligations or liabilities of the Borrowers or Guarantor to any
Indemnified Party hereunder or at common law or otherwise, and shall survive any
termination of this Agreement, the expiration of the Loans and the payment of
all indebtedness of the Borrowers to the Lenders hereunder and under the Notes.
THE PARTIES INTEND FOR THE PROVISIONS OF THIS SECTION TO APPLY TO AND PROTECT
EACH INDEMNIFIED PARTY FROM THE CONSEQUENCES OF ANY LIABILITY INCLUDING STRICT
LIABILITY IMPOSED OR THREATENED TO BE IMPOSED ON THE INDEMNIFIED PARTY AS WELL
AS FROM THE CONSEQUENCES OF ITS OWN NEGLIGENCE, WHETHER OR NOT THAT NEGLIGENCE
IS THE SOLE, CONTRIBUTING, OR CONCURRING CAUSE OF ANY CLAIM.
20. Non-Liability of Lenders. The relationship between the Borrowers and
Guarantor on the one hand and the Lenders and the Agent on the other hand shall
be solely that of borrower/guarantor and lender. Neither the Agent nor any
Lender shall have any fiduciary responsibility to the Borrowers or Guarantor.
Neither the Agent nor any Lender undertakes any responsibility to the Borrowers
or Guarantor to review or inform the Borrowers or Guarantor of any matter in
connection with any phase of the Borrowers' or Guarantor's businesses or
operations. The Borrowers and Guarantor agree that neither the Agent nor any
Lender shall have any liability to the Borrowers or Guarantor (whether sounding
in tort, contract or otherwise) for losses suffered by the Borrowers or
Guarantor in connection with, arising out of, or in any way related to, the
transactions contemplated and the relationship established by this Agreement and
the other Loan Documents, or any act, omission or event occurring in connection
therewith, unless it is determined in a final non-appealable judgment by a court
of competent jurisdiction that such loss resulted from the gross negligence or
willful misconduct of the party from which recovery is sought. Neither the Agent
nor any Lender shall have any liability with respect to, and the Borrowers and
Guarantor hereby waive, release and agree not to sue for, any special, indirect,
consequential or punitive damages suffered by the Borrowers or Guarantor in
connection with, arising out of, or in any way related to this Agreement, the
Loan Documents or any transaction contemplated thereby.
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21. Governing Law. THIS AGREEMENT IS BEING EXECUTED AND DELIVERED, AND IS
INTENDED TO BE PERFORMED, IN MIDLAND, MIDLAND COUNTY, TEXAS, AND THE SUBSTANTIVE
LAWS OF TEXAS SHALL GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND
INTERPRETATION OF THIS AGREEMENT AND ALL OTHER DOCUMENTS AND INSTRUMENTS
REFERRED TO HEREIN, UNLESS OTHERWISE SPECIFIED THEREIN.
22. Invalid Provisions. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under present or future laws effective during
the term of this Agreement, such provisions shall be fully severable and this
Agreement shall be construed and enforced as if such illegal, invalid or
unenforceable provision had never comprised a part of this Agreement, and the
remaining provisions of the Agreement shall remain in full force and effect and
shall not be affected by the illegal, invalid or unenforceable provision or by
its severance from this Agreement.
23. Maximum Interest Rate. Regardless of any provisions contained in this
Agreement or in any other documents and instruments referred to herein, the
Lenders shall never be deemed to have contracted for or be entitled to receive,
collect or apply as interest on the Notes any amount in excess of the Maximum
Rate, and in the event any Lender ever receives, collects or applies as interest
any such excess, or if an acceleration of the maturities of any Notes or if any
prepayment by the Borrowers results in the Borrowers having paid any interest in
excess of the Maximum Rate, such amount which would be excessive interest shall
be applied to the reduction of the unpaid principal balance of the Notes for
which such excess was received, collected or applied, and, if the principal
balance of such Note is paid in full, any remaining excess shall forthwith be
paid to the Borrowers. All sums paid or agreed to be paid to the Lenders for the
use, forbearance or detention of the indebtedness evidenced by the Notes and/or
this Agreement shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full term of such indebtedness
until payment in full so that the rate or amount of interest on account of such
indebtedness does not exceed the Maximum Rate. In determining whether or not the
interest paid or payable under any specific contingency exceeds the Maximum Rate
of interest permitted by law, the Borrowers and the Lenders shall, to the
maximum extent permitted under applicable law, (i) characterize any
non-principal payment as an expense, fee or premium, rather than as
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interest; and (ii) exclude voluntary prepayments and the effect thereof; and
(iii) compare the total amount of interest contracted for, charged or received
with the total amount of interest which could be contracted for, charged or
received throughout the entire contemplated term of the Note at the Maximum
Rate.
For purposes of Section 303 of the Texas Finance Code, to the extent
applicable to any Lender or Agent, Borrowers agree that the Maximum Rate shall
be the "weekly ceiling" as defined in said Chapter, provided that such Lender or
Agent, as applicable, may also rely, to the extent permitted by applicable laws
of the State of Texas and the United States of America, on alternative maximum
rates of interest under the Texas Finance Code or other laws applicable to such
Lender or Agent from time to time if greater.
24. Amendments. This Agreement may be amended only by an instrument in
writing executed by an authorized officer of the party against whom such
amendment is sought to be enforced. No modification or waiver of any provision
of the Loan Documents, including this Agreement, or the Notes nor consent to
departure therefrom, shall be effective unless in writing signed by Borrowers
and/or Guarantor, as applicable, and Majority Lenders (or by Agent on behalf of
Majority Lenders) subject to the additional requirements of Section 15(f)
hereof, to the extent applicable. No such consent or waiver shall extend beyond
the particular case and purpose involved. No notice or demand given in any case
shall constitute a waiver of the right to take other action in the same, similar
or other circumstances without such notice or demand. No amendment of any
provision of this Agreement relating to the Agent shall be effective without the
written consent of the Agent.
25. Multiple Counterparts. This Agreement may be executed in a number of
identical separate counterparts, each of which for all purposes is to be deemed
an original, but all of which shall constitute, collectively, one agreement. No
party to this Agreement shall be bound hereby until a counterpart of this
Agreement has been executed by all parties hereto.
26. Conflict. In the event any term or provision hereof is inconsistent
with or conflicts with any provision of the Loan Documents, the terms or
provisions contained in this Agreement shall be controlling.
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27. Survival. All covenants, agreements, undertakings, representations and
warranties made in the Loan Documents, including this Agreement, the Notes or
other documents and instruments referred to herein shall survive all closings
hereunder and shall not be affected by any investigation made by any party.
28. Parties Bound. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors, assigns, heirs,
legal representatives and estates, provided, however, that neither the Borrowers
nor the Guarantor may, without the prior written consent of all of the Lenders,
assign any rights, powers, duties or obligations hereunder.
29. Assignments and Participations.
(a) Each Lender shall have the right to sell, assign or transfer all
or any part of its Note or Notes, its Commitment and its rights and
obligations hereunder to one or more Affiliates, Lenders, financial
institutions, pension plans, insurance companies, investment funds, or
similar Persons who are Eligible Assignees or to a Federal Reserve Bank;
provided, that each sale, assignment or transfer (other than to an
Affiliate, a Lender or a Federal Reserve Bank) shall require the consent of
Agent and the Borrowers, which consents will not be unreasonably withheld;
provided, however, that if an Event of Default has occurred and is
continuing, the consent of the Borrower shall not be required. Any such
assignee, transferee or recipient shall have, to the extent of such sale,
assignment, or transfer, the same rights, benefits and obligations as it
would if it were such Lender and a holder of such Note, Commitment and
rights and obligations, including, without limitation, the right to vote on
decisions requiring consent or approval of all Lenders or Majority Lenders
and the obligation to fund its Commitment; provided, that (1) each such
sale, assignment, or transfer (other than to an Affiliate, a Lender or a
Federal Reserve Bank) shall be in an aggregate principal amount not less
than $5,000,000, (2) each remaining Lender shall at all times maintain its
Commitment then outstanding in an aggregate principal amount at least equal
to $5,000,000; (3) each such sale, assignment or transfer shall be of a Pro
Rata portion of such Lender's Commitment, (4) no Lender may offer to sell
its Note or Notes, Commitment, rights and obligations or interests therein
in violation of any securities laws; and (5) no
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such assignments (other than to a Federal Reserve Bank) shall become
effective until the assigning Lender and its assignee delivers to Agent and
Borrowers an Assignment and Acceptance and the Note or Notes subject to
such assignment and other documents evidencing any such assignment. An
assignment fee in the amount of $2,500 for each such assignment (other than
to an Affiliate, a Lender or the Federal Reserve Bank) will be payable to
Agent by assignor or assignee. Within five (5) Business Days after its
receipt of copies of the Assignment and Acceptance and the other documents
relating thereto and the Note or Notes, the Borrowers shall execute and
deliver to Agent (for delivery to the relevant assignee) a new Note or
Notes evidencing such assignee's assigned Commitment and if the assignor
Lender has retained a portion of its Commitment, a replacement Note in the
principal amount of the Commitment retained by the assignor (except as
provided in the last sentence of this paragraph (a) such Note or Notes to
be in exchange for, but not in payment of, the Note or Notes held by such
Lender). On and after the effective date of an assignment hereunder, the
assignee shall for all purposes be a Lender, party to this Agreement and
any other Loan Document executed by the Lenders and shall have all the
rights and obligations of a Lender under the Loan Documents, to the same
extent as if it were an original party thereto, and no further consent or
action by Borrowers, Lenders or the Agent shall be required to release the
transferor Lender with respect to its Commitment assigned to such assignee
and the transferor Lender shall henceforth be so released.
(b) Each Lender shall have the right to grant participations in all or
any part of such Lender's Notes and Commitment hereunder to one or more
pension plans, investment funds, insurance companies, financial
institutions or other Persons, provided, that:
(i) each Lender granting a participation shall retain the right
to vote hereunder, and no participant shall be entitled to vote
hereunder on decisions requiring consent or approval of Lenders or
Majority Lenders (except as set forth in (iii) below);
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(ii) in the event any Lender grants a participation hereunder,
such Lender's obligations under the Loan Documents shall remain
unchanged, such Lender shall remain solely responsible to the other
parties hereto for the performance of such obligations, such Lender
shall remain the holder of any such Note or Notes for all purposes
under the Loan Documents, and Agent, each Lender and Borrowers shall
be entitled to deal with the Lender granting a participation in the
same manner as if no participation had been granted; and
(iii) no participant shall ever have any right by reason of its
participation to exercise any of the rights of Lenders hereunder,
except that any Lender may agree with any participant that such Lender
will not, without the consent of such participant (which consent may
not be unreasonably withheld) consent to any amendment or waiver
requiring approval of all Lenders.
(c) It is understood and agreed that any Lender may provide to
assignees and participants and prospective assignees and participants
financial information and reports and data concerning Borrowers' or
Guarantor's properties and operations which was provided to such Lender
pursuant to this Agreement, provided, that each recipient thereto has first
agreed, for the benefit of Borrowers and Guarantor, to hold such
information, reports and data in confidence on the terms set out in Section
12(j) hereof.
(d) Upon the reasonable request of either Agent or Borrower, each
Lender will identify those to whom it has assigned or participated any part
of its Notes and Commitment, and provide the amounts so assigned or
participated.
30. Choice of Forum: Consent to Service of Process and Jurisdiction. THE
OBLIGATIONS OF BORROWERS AND GUARANTOR UNDER THE LOAN DOCUMENTS ARE PERFORMABLE
IN MIDLAND COUNTY, TEXAS. ANY SUIT, ACTION OR PROCEEDING AGAINST EITHER BORROWER
OR GUARANTOR WITH RESPECT TO THE LOAN DOCUMENTS OR ANY JUDGMENT ENTERED BY ANY
COURT IN RESPECT THEREOF, MAY BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS,
COUNTY OF MIDLAND, OR IN THE UNITED STATES COURTS LOCATED IN MIDLAND COUNTY,
TEXAS AND THE BORROWER AND EACH
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GUARANTOR HEREBY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF SUCH COURTS FOR
THE PURPOSE OF ANY SUCH SUIT, ACTION OR PROCEEDING. EACH BORROWER AND GUARANTOR
HEREBY IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN ANY SUIT, ACTION OR
PROCEEDING IN SAID COURT BY THE MAILING THEREOF BY LENDER BY REGISTERED OR
CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWERS, AT THE ADDRESSES FOR NOTICES
AS PROVIDED IN SECTION 17. EACH BORROWER AND GUARANTOR HEREBY IRREVOCABLY WAIVES
ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY
SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENT
BROUGHT IN THE COURTS LOCATED IN THE STATE OF TEXAS, COUNTY OF MIDLAND, AND
HEREBY FURTHER IRREVOCABLY WAIVES ANY CLAIM THAT ANY SUCH SUIT, ACTION OR
PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
31. Waiver of Jury Trial. EACH BORROWER AND GUARANTOR HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY
IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
32. Other Agreements. THIS WRITTEN CREDIT 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.
33. Financial Terms. All accounting terms used in this Agreement which are
not specifically defined herein shall be construed in accordance with GAAP.
34. Communications Via Internet. Borrowers and Guarantor hereby authorize
the Agent and each Lender and their respective counsel, engineers and advisors
to communicate and transfer documents and other information (including
confidential information) concerning this transaction or Borrowers and Guarantor
and the Collateral or the business affairs of Borrowers and Guarantor via the
internet or other electronic communication without regard to the lack of
security of such communications.
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35. Amendment and Restatement. This Agreement amends and restates in its
entirety that certain Credit Agreement dated July 17, 2002, by and among PPC, as
Borrower, PLP and Guarantor, as Guarantors, First American, as Agent, and First
American and the other lender parties thereto, as Lenders.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
BORROWERS:
PARALLEL PETROLEUM CORPORATION,
a Delaware corporation
By: /s/Larry C. Oldham
-----------------------------------
Larry C. Oldham
President
PARALLEL, L.P., a Texas limited
partnership
By: Parallel Petroleum Corporation,
Its General Partner
By: /s/Larry C. Oldham
-----------------------------------
Larry C. Oldham
President
GUARANTOR:
PARALLEL, L.L.C., a Delaware limited
liability company
By: /s/David R. Hancock
-----------------------------------
David R. Hancock
President
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LENDERS:
COMMITMENT PERCENTAGE FIRST AMERICAN BANK, SSB,
AS OF EFFECTIVE DATE: a state savings bank, as Joint Lead
Arranger and Administrative Agent and
as a Lender
45% By: /s/Frank K. Stowers
- ------------------------------------ -----------------------------------
Frank K. Stowers
Senior Vice President
[SIGNATURE PAGE TO FIRST AMENDED AND RESTATED CREDIT AGREEMENT]
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COMMITMENT PERCENTAGE BNP PARIBAS, as Joint Lead Arranger
AS OF EFFECTIVE DATE: and Syndication Agent and as a Lender
45% By: /s/Douglas R. Littman
- ----------------------------------- -----------------------------------
Name: Douglas R. Littman
---------------------------------
Title:Managing Director
---------------------------------
By: /s/Gabe Ellisor
-----------------------------------
Name: Gabe Ellisor
-----------------------------------
Title:Vice President
-----------------------------------
[SIGNATURE PAGE TO FIRST AMENDED AND RESTATED CREDIT AGREEMENT]
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COMMITMENT PERCENTAGE WESTERN NATIONAL BANK,
AS OF EFFECTIVE DATE: as a Lender
10% By: /s/Wesley D.Bownds
- ------------------------------------- -----------------------------------
Wesley D. Bownds
Executive Vice President
[SIGNATURE PAGE TO FIRST AMENDED AND RESTATED CREDIT AGREEMENT]
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REVOLVING NOTE
$10,000,000.00 Midland, Texas December 20, 2002
FOR VALUE RECEIVED, the undersigned PARALLEL PETROLEUM CORPORATION, a
Delaware corporation, and PARALLEL, L.P., a Texas limited partnership
(hereinafter collectively referred to as "Borrowers"), hereby jointly and
severally and unconditionally promise to pay to the order of WESTERN NATIONAL
BANK (the "Lender") at the offices of FIRST AMERICAN BANK, SSB (the "Agent") in
Midland County, Texas, the principal sum of TEN MILLION AND NO/100 DOLLARS
($10,000,000.00), or so much thereof as may be advanced and outstanding at any
time or from time to time pursuant to the Credit Agreement (as hereinafter
defined) in lawful money of the United States of America together with interest
from the date hereof until paid at the rates specified in the Credit Agreement.
All payments of principal and interest due hereunder are payable at the offices
of Agent at 1004 N. Big Spring, Suite 121, Midland, Texas 79701, or at such
other address as Lender shall designate in writing to Borrowers.
The principal and all accrued interest on this Note shall be due and
payable in accordance with the terms and provisions of the Credit Agreement.
This Note is executed pursuant to that certain First Amended and Restated
Credit Agreement dated of even date herewith between Borrowers, the Guarantor
named therein, First American Bank, SSB, as Joint Lead Arranger and
Administrative Agent, BNP Paribas, as Joint Lead Arranger and Syndication Agent,
and the Lenders from time to time parties thereto (as the same may be modified
or amended from time to time, the "Credit Agreement"), and is one of the Notes
referred to therein. Reference is made to the Credit Agreement and the Loan
Documents (as that term is defined in the Credit Agreement) for a statement of
prepayment rights and obligations of Borrowers, for a statement of the terms and
conditions under which the due date of this Note may be accelerated and for
statements regarding other matters affecting this Note (including without
limitation the obligations of the holder hereof to advance funds hereunder,
principal and interest payment due dates, voluntary and mandatory prepayments,
exercise of rights and remedies, payment of attorneys' fees, court costs and
other costs of collection and certain waivers by Borrowers and others now or
hereafter obligated for payment of any sums due hereunder). Upon the occurrence
of an Event of Default, as that term is defined in the Credit Agreement and Loan
Documents, the Agent may declare
forthwith to be entirely and immediately due and payable the principal balance
hereof and the interest accrued hereon, and the Lender shall have all rights and
remedies of the Lender under the Credit Agreement and Loan Documents. This Note
may be prepaid in accordance with the terms and provisions of the Credit
Agreement.
Regardless of any provision contained in this Note, the holder hereof shall
never be entitled to receive, collect or apply, as interest on this Note, any
amount in excess of the Maximum Rate (as such term is defined in the Credit
Agreement), and, if the holder hereof ever receives, collects, or applies as
interest, any such amount which would be excessive interest, it shall be deemed
a partial prepayment of principal and treated hereunder as such; and, if the
indebtedness evidenced hereby is paid in full, any remaining excess shall
forthwith be paid to Borrower. In determining whether or not the interest paid
or payable, under any specific contingency, exceeds the Maximum Rate, Borrowers
and the holder hereof shall, to the maximum extent permitted under applicable
law (i) characterize any non-principal payment as an expense, fee or premium
rather than as interest, (ii) exclude voluntary prepayments and the effects
thereof, and (iii) spread the total amount of interest throughout the entire
contemplated term of the obligations evidenced by this Note and/or referred to
in the Credit Agreement so that the interest rate is uniform throughout the
entire term of this Note; provided that, if this Note is paid and performed in
full prior to the end of the full contemplated term thereof; and if the interest
received for the actual period of existence thereof exceeds the Maximum Rate,
the holder hereof shall refund to Borrowers the amount of such excess or credit
the amount of such excess against the indebtedness evidenced hereby, and, in
such event, the holder hereof shall not be subject to any penalties provided by
any laws for contracting for, charging, taking, reserving or receiving interest
in excess of the Maximum Rate.
If any payment of principal or interest on this Note shall become due on a
day other than a Business Day (as such term is defined in the Credit Agreement),
such payment shall be made on the next succeeding Business Day and such
extension of time shall in such case be included in computing interest in
connection with such payment.
If this Note is placed in the hands of an attorney for collection, or if it
is collected through any legal proceeding at law or in equity or in bankruptcy,
receivership or other court proceedings, Borrowers agree to pay all costs of
collection, including, but not limited to, court costs and reasonable attorneys'
fees.
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Borrowers and each surety, endorser, guarantor and other party ever liable
for payment of any sums of money payable on this Note, jointly and severally
waive presentment and demand for payment, notice of intention to accelerate the
maturity, protest, notice of protest and nonpayment, as to this Note and as to
each and all installments hereof, and agree that their liability under this Note
shall not be affected by any renewal or extension in the time of payment hereof,
or in any indulgences, or by any release or change in any security for the
payment of this Note, and hereby consent to any and all renewals, extensions,
indulgences, releases or changes.
This Note shall be governed by and construed in accordance with the
applicable laws of the United States of America and the laws of the State of
Texas.
THIS INSTRUMENT SECURES A LINE OF CREDIT USED PRIMARILY FOR BUSINESS,
COMMERCIAL OR AGRICULTURAL PURPOSES.
This Note is, to the extent of $815,000.00, executed in renewal,
extension and rearrangement, but not in extinguishment or novation, of that
certain Revolving Note dated July 17, 2002, in the original principal amount of
$100,000,000, executed by Parallel Petroleum Corporation and payable to the
order of First American Bank, SSB.
THIS WRITTEN NOTE, THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENTS 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.
EXECUTED as of the date and year first above written.
BORROWERS:
PARALLEL PETROLEUM CORPORATION
a Delaware corporation
By: /s/ Larry C. Oldham
-----------------------------------
Larry C. Oldham
President
-3-
PARALLEL, L.P., a Texas limited
partnership
By: Parallel Petroleum Corporation,
Its General Partner
By: /s/ Larry C. Oldham
-----------------------------------
Larry C. Oldham
President
-4-
REVOLVING NOTE
$45,000,000.00 Midland, Texas December 20, 2002
FOR VALUE RECEIVED, the undersigned PARALLEL PETROLEUM CORPORATION, a
Delaware corporation, and PARALLEL, L.P., a Texas limited partnership
(hereinafter collectively referred to as "Borrowers"), hereby jointly and
severally and unconditionally promise to pay to the order of BNP PARIBAS (the
"Lender") at the offices of FIRST AMERICAN BANK, SSB (the "Agent") in Midland
County, Texas, the principal sum of FORTY-FIVE MILLION AND NO/100 DOLLARS
($45,000,000.00), or so much thereof as may be advanced and outstanding at any
time or from time to time pursuant to the Credit Agreement (as hereinafter
defined) in lawful money of the United States of America together with interest
from the date hereof until paid at the rates specified in the Credit Agreement.
All payments of principal and interest due hereunder are payable at the offices
of Agent at 1004 N. Big Spring, Suite 121, Midland, Texas 79701, or at such
other address as Lender shall designate in writing to Borrowers.
The principal and all accrued interest on this Note shall be due and
payable in accordance with the terms and provisions of the Credit Agreement.
This Note is executed pursuant to that certain First Amended and Restated
Credit Agreement dated of even date herewith between Borrowers, the Guarantor
named therein, First American Bank, SSB, as Joint Lead Arranger and
Administrative Agent, BNP Paribas, as Joint Lead Arranger and Syndication Agent,
and the Lenders from time to time parties thereto (as the same may be modified
or amended from time to time, the "Credit Agreement"), and is one of the Notes
referred to therein. Reference is made to the Credit Agreement and the Loan
Documents (as that term is defined in the Credit Agreement) for a statement of
prepayment rights and obligations of Borrowers, for a statement of the terms and
conditions under which the due date of this Note may be accelerated and for
statements regarding other matters affecting this Note (including without
limitation the obligations of the holder hereof to advance funds hereunder,
principal and interest payment due dates, voluntary and mandatory prepayments,
exercise of rights and remedies, payment of attorneys' fees, court costs and
other costs of collection and certain waivers by Borrowers and others now or
hereafter obligated for payment of any sums due hereunder). Upon the occurrence
of an Event of Default, as that term is
defined in the Credit Agreement and Loan Documents, the Agent may declare
forthwith to be entirely and immediately due and payable the principal balance
hereof and the interest accrued hereon, and the Lender shall have all rights and
remedies of the Lender under the Credit Agreement and Loan Documents. This Note
may be prepaid in accordance with the terms and provisions of the Credit
Agreement.
Regardless of any provision contained in this Note, the holder hereof shall
never be entitled to receive, collect or apply, as interest on this Note, any
amount in excess of the Maximum Rate (as such term is defined in the Credit
Agreement), and, if the holder hereof ever receives, collects, or applies as
interest, any such amount which would be excessive interest, it shall be deemed
a partial prepayment of principal and treated hereunder as such; and, if the
indebtedness evidenced hereby is paid in full, any remaining excess shall
forthwith be paid to Borrower. In determining whether or not the interest paid
or payable, under any specific contingency, exceeds the Maximum Rate, Borrowers
and the holder hereof shall, to the maximum extent permitted under applicable
law (i) characterize any non-principal payment as an expense, fee or premium
rather than as interest, (ii) exclude voluntary prepayments and the effects
thereof, and (iii) spread the total amount of interest throughout the entire
contemplated term of the obligations evidenced by this Note and/or referred to
in the Credit Agreement so that the interest rate is uniform throughout the
entire term of this Note; provided that, if this Note is paid and performed in
full prior to the end of the full contemplated term thereof; and if the interest
received for the actual period of existence thereof exceeds the Maximum Rate,
the holder hereof shall refund to Borrowers the amount of such excess or credit
the amount of such excess against the indebtedness evidenced hereby, and, in
such event, the holder hereof shall not be subject to any penalties provided by
any laws for contracting for, charging, taking, reserving or receiving interest
in excess of the Maximum Rate.
If any payment of principal or interest on this Note shall become due on a
day other than a Business Day (as such term is defined in the Credit Agreement),
such payment shall be made on the next succeeding Business Day and such
extension of time shall in such case be included in computing interest in
connection with such payment.
If this Note is placed in the hands of an attorney for collection, or if it
is collected through any legal proceeding at law or in equity or in bankruptcy,
receivership or other court proceedings, Borrowers agree to pay all costs of
-2-
collection, including, but not limited to, court costs and reasonable attorneys'
fees.
Borrowers and each surety, endorser, guarantor and other party ever liable
for payment of any sums of money payable on this Note, jointly and severally
waive presentment and demand for payment, notice of intention to accelerate the
maturity, protest, notice of protest and nonpayment, as to this Note and as to
each and all installments hereof, and agree that their liability under this Note
shall not be affected by any renewal or extension in the time of payment hereof,
or in any indulgences, or by any release or change in any security for the
payment of this Note, and hereby consent to any and all renewals, extensions,
indulgences, releases or changes.
This Note shall be governed by and construed in accordance with the
applicable laws of the United States of America and the laws of the State of
Texas.
THIS INSTRUMENT SECURES A LINE OF CREDIT USED PRIMARILY FOR BUSINESS,
COMMERCIAL OR AGRICULTURAL PURPOSES.
This Note is, to the extent of $3,667,500.00, executed in renewal,
extension and rearrangement, but not in extinguishment or novation, of that
certain Revolving Note dated July 17, 2002, in the original principal amount of
$100,000,000, executed by Parallel Petroleum Corporation and payable to the
order of First American Bank, SSB.
THIS WRITTEN NOTE, THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENTS 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.
-3-
EXECUTED as of the date and year first above written.
BORROWERS:
PARALLEL PETROLEUM CORPORATION
a Delaware corporation
By: /s/ Larry C. Oldham
-----------------------------------
Larry C. Oldham
President
PARALLEL, L.P., a Texas limited
partnership
By: Parallel Petroleum Corporation,
Its General Partner
By: /s/ Larry C. Oldham
-----------------------------------
Larry C. Oldham
President
REVOLVING NOTE
$45,000,000.00 Midland, Texas December 20, 2002
FOR VALUE RECEIVED, the undersigned PARALLEL PETROLEUM CORPORATION, a
Delaware corporation, and PARALLEL, L.P., a Texas limited partnership
(hereinafter collectively referred to as "Borrowers"), hereby jointly and
severally and unconditionally promise to pay to the order of FIRST AMERICAN
BANK, SSB (the "Lender") at the offices of FIRST AMERICAN BANK, SSB (the
"Agent") in Midland County, Texas, the principal sum of FORTY-FIVE MILLION AND
NO/100 DOLLARS ($45,000,000.00), or so much thereof as may be advanced and
outstanding at any time or from time to time pursuant to the Credit Agreement
(as hereinafter defined) in lawful money of the United States of America
together with interest from the date hereof until paid at the rates specified in
the Credit Agreement. All payments of principal and interest due hereunder are
payable at the offices of Agent at 1004 N. Big Spring, Suite 121, Midland, Texas
79701, or at such other address as Lender shall designate in writing to
Borrowers.
The principal and all accrued interest on this Note shall be due and
payable in accordance with the terms and provisions of the Credit Agreement.
This Note is executed pursuant to that certain First Amended and Restated
Credit Agreement dated of even date herewith between Borrowers, the Guarantor
named therein, First American Bank, SSB, as Joint Lead Arranger and
Administrative Agent, BNP Paribas, as Joint Lead Arranger and Syndication Agent,
and the Lenders from time to time parties thereto (as the same may be modified
or amended from time to time, the "Credit Agreement"), and is one of the Notes
referred to therein. Reference is made to the Credit Agreement and the Loan
Documents (as that term is defined in the Credit Agreement) for a statement of
prepayment rights and obligations of Borrowers, for a statement of the terms and
conditions under which the due date of this Note may be accelerated and for
statements regarding other matters affecting this Note (including without
limitation the obligations of the holder hereof to advance funds hereunder,
principal and interest payment due dates, voluntary and mandatory prepayments,
exercise of rights and remedies, payment of attorneys' fees, court costs and
other costs of collection and certain waivers by Borrowers and others now or
hereafter obligated for payment of any sums due hereunder). Upon the occurrence
of an Event of Default, as that term is defined in the Credit Agreement and Loan
Documents, the Agent may declare
forthwith to be entirely and immediately due and payable the principal balance
hereof and the interest accrued hereon, and the Lender shall have all rights and
remedies of the Lender under the Credit Agreement and Loan Documents. This Note
may be prepaid in accordance with the terms and provisions of the Credit
Agreement.
Regardless of any provision contained in this Note, the holder hereof
shall never be entitled to receive, collect or apply, as interest on this Note,
any amount in excess of the Maximum Rate (as such term is defined in the Credit
Agreement), and, if the holder hereof ever receives, collects, or applies as
interest, any such amount which would be excessive interest, it shall be deemed
a partial prepayment of principal and treated hereunder as such; and, if the
indebtedness evidenced hereby is paid in full, any remaining excess shall
forthwith be paid to Borrower. In determining whether or not the interest paid
or payable, under any specific contingency, exceeds the Maximum Rate, Borrowers
and the holder hereof shall, to the maximum extent permitted under applicable
law (i) characterize any non-principal payment as an expense, fee or premium
rather than as interest, (ii) exclude voluntary prepayments and the effects
thereof, and (iii) spread the total amount of interest throughout the entire
contemplated term of the obligations evidenced by this Note and/or referred to
in the Credit Agreement so that the interest rate is uniform throughout the
entire term of this Note; provided that, if this Note is paid and performed in
full prior to the end of the full contemplated term thereof; and if the interest
received for the actual period of existence thereof exceeds the Maximum Rate,
the holder hereof shall refund to Borrowers the amount of such excess or credit
the amount of such excess against the indebtedness evidenced hereby, and, in
such event, the holder hereof shall not be subject to any penalties provided by
any laws for contracting for, charging, taking, reserving or receiving interest
in excess of the Maximum Rate.
If any payment of principal or interest on this Note shall become due on a
day other than a Business Day (as such term is defined in the Credit Agreement),
such payment shall be made on the next succeeding Business Day and such
extension of time shall in such case be included in computing interest in
connection with such payment.
If this Note is placed in the hands of an attorney for collection, or if it
is collected through any legal proceeding at law or in equity or in bankruptcy,
receivership or other court proceedings, Borrowers agree to pay all costs of
-2-
collection, including, but not limited to, court costs and reasonable attorneys'
fees.
Borrowers and each surety, endorser, guarantor and other party ever liable
for payment of any sums of money payable on this Note, jointly and severally
waive presentment and demand for payment, notice of intention to accelerate the
maturity, protest, notice of protest and nonpayment, as to this Note and as to
each and all installments hereof, and agree that their liability under this Note
shall not be affected by any renewal or extension in the time of payment hereof,
or in any indulgences, or by any release or change in any security for the
payment of this Note, and hereby consent to any and all renewals, extensions,
indulgences, releases or changes.
This Note shall be governed by and construed in accordance with the
applicable laws of the United States of America and the laws of the State of
Texas.
THIS INSTRUMENT SECURES A LINE OF CREDIT USED PRIMARILY FOR BUSINESS,
COMMERCIAL OR AGRICULTURAL PURPOSES.
This Note is, to the extent of $3,667,500.00, executed in renewal,
extension and rearrangement, but not in extinguishment or novation, of that
certain Revolving Note dated July 17, 2002, in the original principal amount of
$100,000,000, executed by Parallel Petroleum Corporation and payable to the
order of First American Bank, SSB.
THIS WRITTEN NOTE, THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS
REPRESENT THE FINAL AGREEMENTS 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.
-3-
EXECUTED as of the date and year first above written.
BORROWERS:
PARALLEL PETROLEUM CORPORATION
a Delaware corporation
By: /s/ Larry C. Oldham
-----------------------------------
Larry C. Oldham
President
PARALLEL, L.P., a Texas limited
partnership
By: Parallel Petroleum Corporation,
Its General Partner
By: /s/ Larry C. Oldham
-----------------------------------
Larry C. Oldham
President
-4-
EXHIBIT 10.3
GUARANTY
THIS GUARANTY (this "Guaranty") is made as of the 20th day of December,
2002, by PARALLEL, L.L.C, a Delaware limited liability company (the
"Guarantor"), in favor of the Agent, for the benefit of the Lenders, under the
Credit Agreement referred to below;
WITNESSETH:
WHEREAS, PARALLEL PETROLEUM CORPORATION, a Delaware corporation ("PPC") and
PARALLEL, L.P., a Texas limited partnership ("PLP") (PPC and PLP collectively
are hereinafter referred to as the "Principal"), Guarantor, FIRST AMERICAN BANK,
SSB, a state savings bank, having its principal office in Midland, Texas, as
Joint Lead Arranger and Administrative Agent (the "Agent"), BNP PARIBAS, as
Joint Lead Arranger and Syndication Agent, and certain other financial
institutions from time to time parties thereto (the "Lenders") have entered into
a certain First Amended and Restated Credit Agreement dated of even date
herewith (as same may be amended or modified from time to time, the "Credit
Agreement"), providing, subject to the terms and conditions thereof, for
extensions of credit to be made by the Lenders to the Principal;
WHEREAS, it is a condition precedent to the Agent and the Lenders executing
the Credit Agreement that Guarantor execute and deliver this Guaranty whereby
the Guarantor shall guarantee the payment when due, subject to Section 9 hereof,
of all Guaranteed Obligations and Rate Management Obligations, as defined below;
and
WHEREAS, in consideration of the financial and other support that the
Principal has provided, and such financial and other support as the Principal
may in the future provide, to the Guarantor, and in order to induce the Lenders
and the Agent to enter into the Credit Agreement, and the Lenders and their
Affiliates to enter into one or more Rate Management Transactions with the
Principal, and because the Guarantor has determined that executing this Guaranty
is in its interest and to its financial benefit, the Guarantor is willing to
guarantee the obligations of the Principal under the Credit Agreement, any Note,
any Rate Management Transaction, and the other Loan Documents;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
SECTION l.1. Selected Terms Used Herein.
"Guaranteed Obligations" is defined to mean (i) all indebtedness,
obligations and liabilities of Principal, or either Principal, to Agent or any
Lender arising out of or pursuant to the provisions of the Credit Agreement, the
Notes and other Loan Documents, (ii) all Rate Management Obligations, (iii) all
indebtedness, obligations and liabilities of Principal, or either Principal, to
any Lender of any kind or character now existing or hereafter arising, whether
direct, indirect, related, unrelated, fixed, contingent, liquidated,
unliquidated, joint, several or joint and several, and regardless of whether
such indebtedness, obligations and liabilities may, prior to their acquisition
by any Lender, be or have been payable to or in favor of a third party and
subsequently acquired by any Lender (it being contemplated that any Lender may
make such acquisitions from third parties), including without limitation all
indebtedness, obligations and liabilities of Principal, or either Principal, to
any Lender now existing or hereafter arising by note, draft, acceptance,
guaranty, endorsement, letter of credit, assignment, purchase, overdraft,
discount, indemnity agreement or otherwise, (iv) all accrued but unpaid interest
on any of the indebtedness described in (i), (ii) and (iii) above, (v) all
obligations of Principal, or either Principal, to any Lender under any documents
evidencing, securing, governing and/or pertaining to all or any part of the
indebtedness described in (i), (ii), (iii) or (iv) above, (vi) all costs and
expenses incurred by any Lender in connection with the collection and
administration of all or any part of the indebtedness and obligations described
in (i), (ii), (iii), (iv) or (v) above or the protection or preservation of, or
realization upon, the collateral securing all or any part of such indebtedness
and obligations, including without limitation all reasonable attorneys' fees,
and (vii) all renewals, extensions, modifications and rearrangements of the
indebtedness and obligations described in (i), (ii), (iii), (iv), (v) and (vi)
above.
"Rate Management Obligations" means any and all obligations of the
Principal, or either Principal, whether absolute or contingent and howsoever and
whensoever created, arising, evidenced or acquired (including all renewals,
extensions and modifications thereof and substitutions therefor), under (i) any
and all Rate Management Transactions with Agent or a Lender or an Affiliate of
Agent or a Lender, and (ii) any and all cancellations, buy backs, reversals,
terminations or assignments of any Rate Management Transactions.
-2-
SECTION 1.2. Terms in Credit Agreement. Other capitalized terms used herein
but not defined herein shall have the meaning set forth in the Credit Agreement.
SECTION 2.1. Representations and Warranties. The Guarantor represents and
warrants (which representations and warranties shall be deemed to have been
renewed upon each Borrowing Date under the Credit Agreement) that:
(a) It is a corporation, partnership or limited liability company duly
and properly incorporated or organized, as the case may be, validly
existing and (to the extent such concept applies to such entity) in good
standing under the laws of its jurisdiction of incorporation or
organization and has all requisite authority to conduct its business in
each jurisdiction in which its business is conducted.
(b) It has the power and authority and legal right to execute and
deliver this Guaranty and to perform its obligations hereunder. The
execution and delivery by it of this Guaranty and the performance of its
obligations hereunder have been duly authorized by proper corporate,
partnership or limited liability company proceedings, and this Guaranty
constitutes a legal, valid and binding obligation of Guarantor enforceable
against it in accordance with its terms, except as enforceability may be
limited by general principles of equity and bankruptcy, insolvency or
similar laws affecting the enforcement of creditors' rights generally.
(c) Neither the execution and delivery by it of this Guaranty, nor the
consummation of the transactions herein contemplated, nor compliance with
the provisions hereof will violate (i) any law, rule, regulation, order,
writ, judgment, injunction, decree or award binding on it or any of its
subsidiaries or (ii) its articles or certificate of incorporation,
partnership agreement, limited liability company agreement, certificate of
partnership, articles or certificate of organization, by-laws, or operating
or other management agreement, as the case may be, or (iii) the provisions
of any indenture, instrument or agreement to which it or any of its
subsidiaries is a party or is subject, or by which it, or its Property, is
bound, or conflict with or constitute a default thereunder, or result in,
or require, the creation or imposition of any Lien in, of or on the
property of Guarantor or a subsidiary thereof pursuant to the terms of any
such indenture, instrument or agreement. No order, consent, adjudication,
approval, license, authorization, or validation of, or filing, recording or
registration with, or exemption by, or other action in respect of any
governmental or public body or authority, or any subdivision thereof, which
has not been obtained by it or any of its subsidiaries, is required to be
obtained by it or any of its
-3-
subsidiaries in connection with the execution and delivery of this Guaranty
or the performance by it of its obligations hereunder or the legality,
validity, binding effect or enforceability of this Guaranty.
SECTION 2.2. Covenants. The Guarantor covenants that, so long as any
Lender has any Commitment outstanding under the Credit Agreement, any
Reimbursement Obligations remain outstanding, any Rate Management Transaction
remains in effect or any of the Guaranteed Obligations shall remain unpaid, that
it will, and, if necessary, will enable the Principal to, fully comply with
those covenants and agreements set forth in the Credit Agreement.
SECTION 3. The Guaranty. Subject to Section 9 hereof, the Guarantor hereby
absolutely and unconditionally guarantees, as primary obligor and not as surety,
the full and punctual payment (whether at stated maturity, upon acceleration or
early termination or otherwise, and at all times thereafter) and performance of
the Guaranteed Obligations, including without limitation any such Guaranteed
Obligations incurred or accrued during the pendency of any bankruptcy,
insolvency, receivership or other similar proceeding, whether or not allowed or
allowable in such proceeding. Upon failure by the Principal to pay punctually
any such amount, the Guarantor agrees that it shall forthwith on demand pay to
the Agent for the benefit of the Lenders and, if applicable, their Affiliates,
the amount not so paid at the place and in the manner specified in the Credit
Agreement, any Note, any Rate Management Transaction or the relevant Loan
Document, as the case may be. This Guaranty is a guaranty of payment and not of
collection. The Guarantor waives any right to require any Lender, or any
Affiliate of any Lender, to sue the Principal, any other guarantor, or any other
Person obligated for all or any part of the Guaranteed Obligations, or otherwise
to enforce its payment against any Collateral securing all or any part of the
Guaranteed Obligations.
SECTION 4. Guaranty Unconditional. Subject to Section 9 hereof, the
obligations of the Guarantor hereunder shall be unconditional and absolute and,
without limiting the generality of the foregoing, shall not be released,
discharged or otherwise affected by:
(i) any extension, renewal, settlement, compromise, waiver or release
in respect of any of the Guaranteed Obligations, by operation of law or
otherwise, or any obligation of any other guarantor of any of the
Guaranteed Obligations, or any default, failure or delay, willful or
otherwise, in the payment or performance of the Guaranteed Obligations;
(ii) any modification or amendment of or supplement to the Credit
Agreement, any Note, any Rate Management Transaction or any other Loan
Document;
-4-
(iii) any release, nonperfection or invalidity of any direct or
indirect security for any obligation of the Principal under the Credit
Agreement, any Note, the Security Instrument, any Rate Management
Transaction, any other Loan Document, or any obligations of any other
guarantor of any of the Guaranteed Obligations, or any action or failure to
act by the Agent, any Lender or any Affiliate of any Lender with respect to
any collateral securing all or any part of the Guaranteed Obligations;
(iv) any change in the corporate existence, structure or ownership of
the Principal or any other guarantor of any of the Guaranteed Obligations,
or any insolvency, bankruptcy, reorganization or other similar proceeding
affecting the Principal, or any other guarantor of the Guaranteed
Obligations, or its assets or any resulting release or discharge of any
obligation of the Principal, or any other guarantor of any of the
Guaranteed Obligations;
(v) the existence of any claim, setoff or other rights which the
Guarantor may have at any time against the Principal, any other guarantor
of any of the Guaranteed Obligations, the Agent, any Lender or any other
Person, whether in connection herewith or any unrelated transactions;
(vi) any invalidity or unenforceability relating to or against the
Principal, or any other guarantor of any of the Guaranteed Obligations, for
any reason related to the Credit Agreement, any Rate Management
Transaction, any other Loan Document, or any provision of applicable law or
regulation purporting to prohibit the payment by the Principal, or any
other guarantor of the Guaranteed Obligations, of the principal of or
interest on any Note or any other amount payable by the Principal under the
Credit Agreement, any Note, any Rate Management Transaction or any other
Loan Document; or
(vii) any other act or omission to act or delay of any kind by the
Principal, any other guarantor of the Guaranteed Obligations, the Agent,
any Lender or any other Person or any other circumstance whatsoever which
might, but for the provisions of this paragraph, constitute a legal or
equitable discharge of Guarantor's obligations hereunder.
SECTION 5. Discharge Only Upon Payment In Full: Reinstatement In Certain
Circumstances. The Guarantor's obligations hereunder shall remain in full force
and effect until all Guaranteed Obligations shall have been indefeasibly paid in
full, the Commitments under the Credit Agreement shall have terminated or
expired and all Rate Management Transactions have
-5-
terminated or expired. If at any time any payment of the principal of or
interest on any Note or any other amount payable by the Principal or any other
party under the Credit Agreement, any Rate Management Transaction or any other
Loan Document is rescinded or must be otherwise restored or returned upon the
insolvency, bankruptcy or reorganization of the Principal or otherwise, the
Guarantor's obligations hereunder with respect to such payment shall be
reinstated as though such payment had been due but not made at such time.
SECTION 6. Waivers. The Guarantor irrevocably waives acceptance hereof,
presentment, demand, protest and, to the fullest extent permitted by law, any
notice not provided for herein, as well as any requirement that at any time any
action be taken by any Person against the Principal, any other guarantor of any
of the Guaranteed Obligations, or any other Person.
SECTION 7. Subrogation. The Guarantor hereby agrees not to assert any
right, claim or cause of action, including, without limitation, a claim for
subrogation, reimbursement, indemnification or otherwise, against the Principal
arising out of or by reason of this Guaranty or the obligations hereunder,
including, without limitation, the payment or securing or purchasing of any of
the Guaranteed Obligations by the Guarantor unless and until the Guaranteed
Obligations are indefeasibly paid in full, any commitment to lend under the
Credit Agreement and any other Loan Documents is terminated and all Rate
Management Transactions have terminated or expired.
SECTION 8. Stay of Acceleration. If acceleration of the time for payment of
any of the Guaranteed Obligations is stayed upon the insolvency, bankruptcy or
reorganization of the Principal, all such amounts otherwise subject to
acceleration under the terms of the Credit Agreement, any Note, any Rate
Management Transaction or any other Loan Document shall nonetheless be payable
by the Guarantor hereunder forthwith on demand by the Agent made at the request
of the Majority Lenders.
SECTION 9. Limitation on Obligations.
(a) The provisions of this Guaranty are severable, and in any action
or proceeding involving any state corporate law, or any state, federal or
foreign bankruptcy, insolvency, reorganization or other law affecting the
rights of creditors generally, if the obligations of Guarantor under this
Guaranty would otherwise be held or determined to be avoidable, invalid or
unenforceable on account of the amount of Guarantor's liability under this
Guaranty, then, notwithstanding any other provision of this Guaranty to the
contrary, the amount of such
-6-
liability shall, without any further action by the Guarantor, the Agent or
any Lender, be automatically limited and reduced to the highest amount that
is valid and enforceable as determined in such action or proceeding (such
highest amount determined hereunder being the Guarantor's "Maximum
Liability"). This Section 9(a) with respect to the Maximum Liability of the
Guarantor is intended solely to preserve the rights of the Agent hereunder
to the maximum extent not subject to avoidance under applicable law, and
neither the Guarantor nor any other person or entity shall have any right
or claim under this Section 9(a) with respect to the Maximum Liability,
except to the extent necessary so that the obligations of the Guarantor
hereunder shall not be rendered voidable under applicable law.
(b) The Guarantor agrees that the Guaranteed Obligations may at any
time and from time to time exceed the Maximum Liability of the Guarantor,
without impairing this Guaranty or affecting the rights and remedies of the
Agent hereunder. Nothing in this Section 9(b) shall be construed to
increase Guarantor's obligations hereunder beyond its Maximum Liability.
SECTION 10. Application of Payments. All payments received by the Agent
hereunder shall be applied by the Agent to payment of the Guaranteed Obligations
in the following order unless a court of competent jurisdiction shall otherwise
direct:
(a) FIRST, to payment of all costs and expenses of the Agent incurred
in connection with the collection and enforcement of the Guaranteed
Obligations or of any security interest granted to the Agent in connection
with any Collateral securing the Guaranteed Obligations;
(b) SECOND, to payment of that portion of the Guaranteed Obligations
constituting accrued and unpaid interest and fees, pro rata among the
Lenders and their Affiliates in accordance with the amount of such accrued
and unpaid interest and fees owing to each of them;
(c) THIRD, to payment of the principal of the Guaranteed Obligations
then due and unpaid from the Principal to any of the Lenders or their
Affiliates, Pro Rata among the Lenders and their Affiliates in accordance
with the amount of such principal then due and unpaid to each of them; and
(d) FOURTH, to payment of any Guaranteed Obligations (other than those
listed above) Pro Rata among those parties to whom such Guaranteed
Obligations are due in accordance with the amounts owing to each of them.
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SECTION 11. Notices. All notices, requests and other communications to any
party hereunder shall be given or made by telecopier or other writing and
telecopied, or mailed or delivered to the intended recipient at its address or
telecopier number set forth on the signature pages hereof or such other address
or telecopy number as such party may hereafter specify for such purpose by
notice to the Agent in accordance with the provisions of Section 17 of the
Credit Agreement. Except as otherwise provided in this Guaranty, all such
communications shall be deemed to have been duly given when transmitted by
telecopier, or personally delivered or, in the case of a mailed notice sent by
certified mail return-receipt requested, on the date set forth on the receipt
(provided, that any refusal to accept any such notice shall be deemed to be
notice thereof as of the time of any such refusal), in each case given or
addressed as aforesaid.
SECTION 12. No Waivers. No failure or delay by the Agent or any Lender in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies provided in this Guaranty, the Credit Agreement, any
Note, any Rate Management Transaction and the other Loan Documents shall be
cumulative and not exclusive of any rights or remedies provided by law.
SECTION 13. No Duty to Advise. The Guarantor assumes all responsibility for
being and keeping itself informed of the Principal's financial condition and
assets, and of all other circumstances bearing upon the risk of nonpayment of
the Guaranteed Obligations and the nature, scope and extent of the risks that
the Guarantor assumes and incurs under this Guaranty, and agrees that neither
the Agent nor any Lender has any duty to advise the Guarantor of information
known to it regarding those circumstances or risks.
SECTION 14. Successors and Assigns. This Guaranty is for the benefit of the
Agent and the Lenders and their respective successors and permitted assigns and
in the event of an assignment of any amounts payable under the Credit Agreement,
any Note, any Rate Management Transaction, or the other Loan Documents, the
rights hereunder, to the extent applicable to the indebtedness so assigned,
shall be transferred with such indebtedness. This Guaranty shall be binding upon
the Guarantor and its successors and permitted assigns.
SECTION 15. Changes in Writing. Neither this Guaranty nor any provision
hereof may be changed, waived, discharged or terminated orally, but only in
writing signed by the Guarantor and the Agent with the consent of the Majority
Lenders.
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SECTION 16. Costs of Enforcement. The Guarantor agrees to pay all costs and
expenses including, without limitation, all court costs and attorneys' fees and
expenses paid or incurred by the Agent or any Lender or any Affiliate of any
Lender in endeavoring to collect all or any part of the Guaranteed Obligations
from, or in prosecuting any action against, the Principal, the Guarantor or any
other guarantor of all or any part of the Guaranteed Obligations.
SECTION 17. GOVERNING LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY
TRIAL. THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAW OF THE STATE OF TEXAS. THE GUARANTOR HEREBY SUBMITS TO THE NONEXCLUSIVE
JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF
TEXAS (MIDLAND DIVISION) AND OF ANY TEXAS STATE COURT SITTING IN MIDLAND, TEXAS
AND FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
GUARANTY (INCLUDING, WITHOUT LIMITATION, ANY OF THE OTHER LOAN DOCUMENTS) OR THE
TRANSACTIONS CONTEMPLATED HEREBY. THE GUARANTOR IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT
AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT
IN AN INCONVENIENT FORUM. THE GUARANTOR HEREBY IRREVOCABLY WAIVES ANY AND ALL
RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THIS GUARANTY OR THE TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 18. Taxes, etc. All payments required to be made by the Guarantor
hereunder shall be made without setoff or counterclaim and free and clear of and
without deduction or withholding for or on account of, any present or future
taxes, levies, imposts, duties or other charges of whatsoever nature imposed by
any government or any political or taxing authority thereof (but excluding
income and franchise taxes), provided, however, that if the Guarantor is
required by law to make such deduction or withholding, Guarantor shall forthwith
(i) pay to the Agent or any Lender, as applicable, such additional amount as
results in the net amount received by the Agent or any Lender, as applicable,
equaling the full amount which would have been received by the Agent or any
Lender, as applicable, had no such deduction or withholding been made, (ii) pay
the full amount deducted to the relevant authority in accordance with applicable
law, and (iii) furnish to the Agent or any Lender, as applicable, certified
copies of official receipts evidencing payment of such withholding taxes within
30 days after such payment is made.
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SECTION 19. Setoff. Without limiting the rights of the Agent or the Lenders
under applicable law, if all or any part of the Guaranteed Obligations is then
due, whether pursuant to the occurrence of a Default or otherwise, then the
Guarantor authorizes the Agent and the Lenders to apply any sums standing to the
credit of the Guarantor with the Agent or any Lender toward the payment of the
Guaranteed Obligations.
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IN WITNESS WHEREOF, the Guarantor has caused this Guaranty to be duly
executed, under seal, by its authorized officer as of the day and year first
above written.
GUARANTOR:
PARALLEL, L.L.C., a Delaware limited
liability company
By: /s/ David R. Hancock
-----------------------------------
David R. Hancock
President
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