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AMENDED AND RESTATED CREDIT AGREEMENT
BETWEEN
SOUTHERN MINERAL CORPORATION
SMC ECUADOR, INC.
SMC PRODUCTION CO.
BEC ENERGY, INC.
AND
AMERAC ENERGY CORPORATION
AND
COMPASS BANK, AS AGENT AND LENDER
AND
FIRST UNION NATIONAL BANK AS A LENDER
JUNE 19, 1998
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REVOLVING LINE OF CREDIT OF UP TO $200,000,000
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TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS AND INTERPRETATION
1.1 Terms Defined Above...........................................1
1.2 Additional Defined Terms......................................1
1.3 Undefined Financial Accounting Terms.........................16
1.4 References...................................................16
1.5 Articles and Sections........................................16
1.6 Number and Gender............................................16
1.7 Incorporation of Exhibits....................................17
ARTICLE II TERMS OF FACILITY
2.1 Revolving Line of Credit.....................................17
2.2 Letter of Credit Facility....................................18
2.3 Use of Loan Proceeds and Letters of Credit. ................20
2.4 Interest.....................................................20
2.5 Repayment of Loans and Interest..............................20
2.6 Outstanding Amounts..........................................21
2.7 Time, Place, and Method of Payments..........................21
2.8 Pro Rata Treatment; Adjustments..............................21
2.9 Borrowing Base Determinations................................22
2.10 Mandatory Prepayments........................................23
2.11 Voluntary Prepayments and Conversions of Loans...............23
2.12 Commitment Fee...............................................24
2.13 Facility Fee.................................................24
2.14 Letter of Credit Fee.........................................24
2.15 Agency Fee...................................................25
2.16 Loans to Satisfy Obligations of Borrower.....................25
2.17 Security Interest in Accounts; Right of Offset...............25
2.18 General Provisions Relating to Interest......................25
2.19 Yield Protection.............................................27
2.20 Limitation on Types of Loans.................................28
2.21 Illegality...................................................29
2.22 Regulatory Change............................................29
2.23 Limitations on Interest Periods..............................29
2.24 Letters in Lieu of Transfer Orders...........................30
2.25 Power of Attorney............................................30
ARTICLE III CONDITIONS
3.1 Receipt of Loan Documents and Other Items....................31
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3.2 Each Loan....................................................33
3.3 Each Letter of Credit........................................34
ARTICLE IV REPRESENTATIONS AND WARRANTIES
4.1 Due Authorization............................................35
4.2 Corporate Existence..........................................35
4.3 Valid and Binding Obligations................................35
4.4 Security Instruments.........................................36
4.5 Title to Assets..............................................36
4.6 Scope and Accuracy of Financial Statements...................36
4.7 No Material Misstatements....................................36
4.8 Liabilities, Litigation, and Restrictions....................36
4.9 Compliance with Laws.........................................36
4.10 ERISA........................................................37
4.11 Environmental Laws...........................................37
4.12 Compliance with Federal Reserve Regulations..................37
4.13 Investment Company Act Compliance............................37
4.14 Public Utility Holding Company Act Compliance................37
4.15 Proper Filing of Tax Returns; Payment of Taxes Due...........38
4.16 Refunds......................................................38
4.17 Gas Contracts................................................38
4.18 Intellectual Property........................................38
4.19 Casualties or Taking of Property.............................38
4.20 Locations of Borrower........................................39
4.21 Subsidiaries.................................................39
ARTICLE V AFFIRMATIVE COVENANTS
5.1 Maintenance and Access to Records............................39
5.2 Quarterly Financial Statements; Compliance Certificates......39
5.3 Annual Financial Statements..................................39
5.4 Oil and Gas Reserve Reports..................................40
5.5 Title Opinions; Title Defects................................40
5.6 Notices of Certain Events....................................41
5.7 Letters in Lieu of Transfer Orders; Division Orders..........42
5.8 Additional Information.......................................42
5.9 Compliance with Laws.........................................42
5.10 Payment of Assessments and Charges...........................42
5.11 Maintenance of Corporate Existence and Good Standing.........43
5.12 Payment of Notes; Performance of Obligations.................43
5.13 Further Assurances...........................................43
5.14 Initial Fees and Expenses of Counsel to Agent................43
5.15 Subsequent Fees and Expenses of Agent and Lenders............43
5.16 Operation of Oil and Gas Properties..........................44
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5.17 Maintenance and Inspection of Properties.....................44
5.18 Maintenance of Insurance.....................................44
5.19 INDEMNIFICATION..............................................45
ARTICLE VI NEGATIVE COVENANTS
6.1 Indebtedness.................................................46
6.2 Contingent Obligations.......................................46
6.3 Liens........................................................47
6.4 Sales of Assets..............................................47
6.5 Leasebacks...................................................47
6.6 Loans or Advances............................................47
6.7 Investments..................................................47
6.8 Dividends and Distributions..................................48
6.9 Issuance of Stock; Changes in Corporate Structure............48
6.10 Transactions with Affiliates.................................48
6.11 Lines of Business............................................48
6.12 Plan Obligations.............................................48
6.13 New Subsidiaries.............................................48
6.14 Tangible Net Worth...........................................48
6.15 Cash Flow Coverage...........................................49
ARTICLE VII EVENTS OF DEFAULT
7.1 Enumeration of Events of Default.............................49
7.2 Remedies.....................................................51
ARTICLE VIII THE AGENT
8.1 Appointment..................................................52
8.2 Waivers, Amendments..........................................52
8.3 Delegation of Duties.........................................52
8.4 Exculpatory Provisions.......................................52
8.5 Reliance by Agent............................................53
8.6 Notice of Default............................................53
8.7 Non-Reliance on Agent and Other Lenders......................54
8.8 Indemnification..............................................54
8.9 Restitution..................................................55
8.10 Agent in Its Individual Capacity.............................56
8.11 Successor Agent..............................................56
8.12 Applicable Parties...........................................56
ARTICLE IX MISCELLANEOUS
9.1 Assignments; Participations..................................56
9.2 Survival of Representations, Warranties, and Covenants.......58
9.3 Notices and Other Communications.............................58
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9.4 Parties in Interest..........................................59
9.5 Rights of Third Parties......................................59
9.6 Renewals; Extensions.........................................59
9.7 No Waiver; Rights Cumulative.................................59
9.8 Survival Upon Unenforceability...............................60
9.9 Amendments; Waivers..........................................60
9.10 Controlling Agreement........................................60
9.11 Disposition of Collateral....................................60
9.12 GOVERNING LAW................................................60
9.13 JURISDICTION AND VENUE.......................................60
9.14 WAIVER OF RIGHTS TO JURY TRIAL...............................61
9.15 ENTIRE AGREEMENT.............................................61
9.16 Counterparts.................................................61
LIST OF EXHIBITS
Exhibit I - Form of Notes
Exhibit II - Form of Borrowing Request
Exhibit III - Form of Opinion of Counsel
Exhibit IV - Form of Compliance Certificate
Exhibit V - Form of Borrowing Base Utilization
Exhibit VI - Disclosures
Exhibit VII - Form of Lender Assignment Agreement
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AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT is made and entered into
this 19th day of June, 1998, by and between SOUTHERN MINERAL CORPORATION, a
Nevada corporation, (the "BORROWER"), SMC PRODUCTION CO., a Texas corporation,
AMERAC ENERGY CORPORATION, a Delaware corporation, SMC ECUADOR, INC., a Texas
corporation, and BEC ENERGY, INC., a Texas corporation ("CO-BORROWERS") and
COMPASS BANK, a Texas state chartered banking institution ("COMPASS"), and FIRST
UNION NATIONAL BANK, a national banking association ("FIRST UNION"), with each
other lender that becomes a signatory hereto as provided in Section 9.1,
individually, together with its successors and assigns, the "Lenders", and
Compass, as Agent for the Lenders in such capacity together with its successors
in such capacity pursuant to the terms hereof, the "AGENT".
W I T N E S S E T H:
In consideration of the mutual covenants and agreements herein
contained, the parties hereto hereby agree as follows, amending and restating in
its entirety, the Credit Agreement dated December 20, 1995, by and between
Southern Mineral Corporation, SMC Production Co., San Salvador Development
Company, Inc., Venture Resources, Inc., Venture Pipeline Company, Vengas
Pipeline Company, and Spruce Hills Production Company, Inc., and Compass (as
heretofore amended, the "AGREEMENT"). San Salvador Development Company, Inc. has
merged into the Borrower. Venture Resources, Inc., Venture Pipeline Company and
Vengas Pipeline Company have been sold and the proceeds paid to Compass. Spruce
Hills Production Company, Inc. is being released from this Agreement.
ARTICLE I
DEFINITIONS AND INTERPRETATION
1.1 TERMS DEFINED ABOVE. As used in this Credit Agreement, the terms
"AGENT", "AGREEMENt", "BORROWER", "CO-BORROWERS", "COMPASS", "FIRST UNION",
"LENDER" and "LENDERS" shall have the meaning assigned to them hereinabove.
1.2 ADDITIONAL DEFINED TERMS. As used in this Credit Agreement, each
of the following terms shall have the meaning assigned thereto in this Section,
unless the context otherwise requires:
"779776 ALBERTA, LTD." shall mean the Alberta, Canada corporation
organized to purchase the common stock of Neutrino Resources, Inc.
"ADDITIONAL COSTS" shall mean costs which the Agent or any Lender
determines are attributable to its obligation to make or its making or
maintaining any LIBO Rate Loan or issuing or participating in Letters of
Credit, or any reduction in any amount receivable by the Agent or any
Lender in respect of any such obligation
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or any LIBO Rate Loan or Letter of Credit, resulting from any Regulatory
Change which (a) changes the basis of taxation of any amounts payable to
the Agent or such Lender under this Agreement or any Note in respect of
any LIBO Rate Loan or Letter of Credit (other than taxes imposed on the
overall net income of the Agent or such Lender or its Applicable Lending
Office for any such LIBO Rate Loan by the jurisdiction in which the Agent
or such Lender has its principal office or Applicable Lending Office), (b)
imposes or modifies any reserve, special deposit, minimum capital, capital
ratio, or similar requirements (other than the Reserve Requirement
utilized in the determination of the Adjusted LIBO Rate for such Loan)
relating to any extensions of credit or other assets of, or any deposits
with or other liabilities of, the Agent or such Lender (including LIBO
Rate Loans and Dollar deposits in the London interbank market in
connection with LIBO Rate Loans), or the Commitment of the Agent or such
Lender, or the London interbank market, or (c) imposes any other condition
affecting this Agreement or any Note or any of such extensions of credit,
liabilities, or Commitments.
"ADJUSTED LIBO RATE" shall mean, for any LIBO Rate Loan, an interest
rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
determined by the Agent to be equal to the sum of the LIBO Rate for such
Loan plus the Applicable Margin, but in no event exceeding the Highest
Lawful Rate.
"AFFILIATE" shall mean any Person directly or indirectly
controlling, or under common control with, the Borrower and includes any
Subsidiary of the Borrower and any "affiliate" of the Borrower within the
meaning of Reg. ss.240.12b-2 of the Securities Exchange Act of 1934, as
amended, with "control," as used in this definition, meaning possession,
directly or indirectly, of the power to direct or cause the direction of
management, policies or action through ownership of voting securities,
contract, voting trust, or membership in management or in the group
appointing or electing management or otherwise through formal or informal
arrangements or business relationships.
"AGENCY FEE LETTER" shall mean the letter agreement dated as of June
__, 1998, between Compass Bank and the Borrower and Co-Borrowers
concerning certain fees in connection with the transactions contemplated
hereby, and any agreements or instruments executed in connection
therewith, as amended, restated, or supplemented from time to time.
"AGENT" shall mean Compass Bank.
"AGREEMENT" shall mean this Credit Agreement, as it may be amended,
supplemented, or restated from time to time.
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"APPLICABLE LENDING OFFICE" shall mean, for each Lender and type of
Loan, the lending office of such Lender (or an affiliate of such Lender)
designated for such type of Loan on the signature pages hereof or such
other office of such Lender (or an affiliate of such Lender) as such
Lender may from time to time specify to the Agent and the Borrower as the
office by which Loans of such type are to be made and maintained.
"APPLICABLE MARGIN" shall mean as to each LIBO Rate Loan, the
following:
BORROWING BASE LIBO RATE LOAN
UTILIZATION APPLICABLE MARGIN
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1) greater than 66-2/3% two percent (2%)
of Borrowing Base
2) less than or equal to one and three-fourths
66-2/3% and greater than percent (1-3/4%)
33-1/3% of Borrowing Base
3) less than or equal to one and one-half
33-1/3% of Borrowing Base percent (1-1/2%)
The Borrowing Base Utilization and the corresponding LIBO Rate shall
be set at each quarter end for the next quarter. Borrower will furnish to
the Agent a Form of Borrowing Base Utilization, which is attached as
Exhibit V to this Agreement, which shall stipulate the Borrowing Base
Utilization level at the end of such quarter. Such form shall be furnished
to the Agent within five (5) days of the end of such quarter.
"ASSIGNMENT" shall mean that certain Assignment of Notes and Liens
assigning the Existing Note and Existing Liens by Compass to Agent for the
benefit of the Lenders.
"AVAILABLE COMMITMENT" shall mean, at any time, an amount equal to
the remainder, if any, of (a) the Borrowing Base in effect at such time
MINUS (b) the sum of the Loan Balance at such time and the L/C Exposure at
such time.
"BORROWING BASE" shall mean, at any time, the amount determined by
the Lenders in accordance with Section 2.9 and then in effect.
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"BORROWING BASE UTILIZATION" shall mean the aggregate principal
amount of Loans outstanding hereunder, plus any L/C Exposure hereunder as
a percentage of the Borrowing Base.
"BORROWING REQUEST" shall mean each written request, in
substantially the form attached hereto as Exhibit II, by the Borrower
and/or the Co-Borrowers to the Agent for a borrowing or conversion
pursuant to Sections 2.1 or 2.11, each of which shall:
(a) be signed by a Responsible Officer of the Borrower
and/or the Co-Borrowers;
(b) specify the amount and type of Loan requested, and, as
applicable, the Loan to be converted or prepaid and the date of the
borrowing, conversion, or prepayment (which shall be a Business
Day);
(c) when requesting a Floating Rate Loan, be delivered to the
Agent no later than 10:00 a.m., Central Standard or Daylight Savings
Time, as the case may be, on the Business Day of the requested
borrowing, conversion, or prepayment;
(d) when requesting a LIBO Rate Loan, be delivered to the
Agent no later than 10:00 a.m., Central Standard or Daylight Savings
Time, as the case may be, two Business Days preceding the requested
borrowing, conversion, or prepayment and designate the Interest
Period requested with respect to such Loan.
"BUSINESS DAY" shall mean (a) for all purposes other than as covered
by clause (b) of this definition, a day other than a Saturday, Sunday,
legal holiday for commercial banks under the laws of the State of Texas,
or any other day when banking is suspended in the State of Texas, and (b)
with respect to all requests, notices, and determinations in connection
with, and payments of principal and interest on, LIBO Rate Loans, a day
which is a Business Day described in clause (a) of this definition and
which is a day for trading by and between banks for Dollar deposits in the
London interbank market.
"CASH FLOW" shall mean, for any period, Net Income of the Borrower
and the Co-Borrowers for such period plus, without duplication and to the
extent deducted from revenues in determining Net Income for the period,
depreciation, amortization, depletion, and other non-cash expenses less,
without duplication and to the extent added to revenues in determining Net
Income for that period, all non-cash revenue and non-recurring gains of
the Borrower and the Co-Borrowers for such period.
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"CLOSING DATE" shall mean the date of this Agreement.
"CODE" shall mean the United States Internal Revenue Code of 1986,
as amended from time to time.
"COLLATERAL" shall mean the Mortgaged Properties and any other
Property now or at any time used or intended as security for the payment
or performance of all or any portion of the Obligations which is subject
to a Security Instrument.
"COMMITMENTS" shall mean the several obligation of the Lenders,
subject to applicable provisions of this Agreement, to make Loans to or
for the benefit of the Borrower and the Co-Borrowers pursuant to Section
2.1.
"COMMITMENT AMOUNT" shall mean for Compass, $29,250,000 and for
First Union, $15,750,000 as of the Closing Date.
"COMMITMENT FEE" shall mean each fee payable to the Lenders by the
Borrower and the Co-Borrowers pursuant to Section 2.12.
"COMMITMENT PERIOD" shall mean the period from and including the
Closing Date to but not including the Commitment Termination Date.
"COMMITMENT TERMINATION DATE" shall mean June 1, 2001.
"COMMONLY CONTROLLED ENTITY" shall mean any Person which is under
common control with the Borrower and/or the Co-Borrowers within the
meaning of Section 4001 of ERISA.
"COMPLIANCE CERTIFICATE" shall mean each certificate, substantially
in the form attached hereto as Exhibit IV, executed by a Responsible
Officer of the Borrower and the Co-Borrowers and furnished to the Agent
from time to time in accordance with Section 5.2.
"CONTINGENT OBLIGATION" shall mean, as to any Person, any obligation
of such Person guaranteeing or in effect guaranteeing any Indebtedness,
leases, dividends, or other obligations of any other Person (for purposes
of this definition, a "PRIMARY OBLIGATION") in any manner, whether
directly or indirectly, including, without limitation, any obligation of
such Person, regardless of whether such obligation is contingent, (a) to
purchase any primary obligation or any Property constituting direct or
indirect security therefor, (b) to advance or supply funds (i)
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for the purchase or payment of any primary obligation, or (ii) to maintain
working or equity capital of any other Person in respect of any primary
obligation, or otherwise to maintain the net worth or solvency of any
other Person, (c) to purchase Property, securities or services primarily
for the purpose of assuring the owner of any primary obligation of the
ability of the Person primarily liable for such primary obligation to make
payment thereof, or (d) otherwise to assure or hold harmless the owner of
any such primary obligation against loss in respect thereof, with the
amount of any Contingent Obligation being deemed to be equal to the stated
or determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof as determined
by such Person in good faith.
"DEBT SERVICE" shall mean an amount equal to (i) actual principal
amounts paid on Indebtedness other than the Obligations during each
quarter, including all consolidated debt of the Borrower and/or the
Co-Borrowers, plus (ii) principal amounts required to be paid on the
Obligations during such quarter.
"DEFAULT" shall mean any event or occurrence which with the lapse of
time or the giving of notice or both would become an Event of Default.
"DEFAULT RATE" shall mean a per annum interest rate equal to the
Index Rate plus five percent (5%), but in no event exceeding the Highest
Lawful Rate.
"DOLLARS" and "$" shall mean dollars in lawful currency of the
United States of America.
"ENVIRONMENTAL COMPLAINT" shall mean any written or oral complaint,
order, directive, claim, citation, notice of environmental report or
investigation, or other notice by any Governmental Authority with respect
to (a) air emissions, (b) spills, releases, or discharges to soils, any
improvements located thereon, surface water, groundwater, or the sewer,
septic, waste treatment, storage, or disposal systems servicing any
Property of the Borrower and/or the Co-Borrowers, (c) solid or liquid
waste disposal, (d) the use, generation, storage, transportation, or
disposal of any Hazardous Substance, or (e) other environmental, health,
or safety matters affecting any Property of the Borrower and/or the
Co-Borrowers or the business conducted thereon.
"ENVIRONMENTAL LAWS" shall mean (a) the following federal laws as
they may be cited, referenced, and amended from time to time: the Clean
Air Act, the Clean Water Act, the Safe Drinking Water Act, the
Comprehensive Environmental Response, Compensation and Liability Act, the
Endangered Species Act, the Resource Conservation and Recovery Act, the
Occupational Safety and Health Act,
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the Hazardous Materials Transportation Act, the Superfund Amendments and
Reauthorization Act, and the Toxic Substances Control Act; (b) any and all
equivalent environmental statutes of any state in which Property of the
Borrower and/or the Co-Borrowers is situated, as they may be cited,
referenced and amended from time to time; (c) any rules or regulations
promulgated under or adopted pursuant to the above federal and state laws;
and (d) any other equivalent foreign, federal, state, or local statute or
any requirement, rule, regulation, code, ordinance, or order adopted
pursuant thereto, including, without limitation, those relating to the
generation, transportation, treatment, storage, recycling, disposal,
handling, or release of Hazardous Substances.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations thereunder and
interpretations thereof.
"EVENT OF DEFAULT" shall mean any of the events specified in
Section 7.1.
"EXISTING CREDIT AGREEMENT" shall mean that certain credit agreement
dated December 20, 1995, between Borrower and Co-Borrowers as were in
effect at that time and Compass Bank, individually.
"EXISTING INDEBTEDNESS" shall mean the Obligations as defined under
the Existing Credit Agreement outstanding as of the Closing Date.
"EXISTING NOTE" shall mean that certain promissory note dated
January 28, 1998, in the amount of $100,000,000 from Borrower to Compass.
"EXISTING LIENS" shall mean the Liens securing the Existing
Indebtedness in effect as of the Closing Date from Borrower to Compass
which are assigned to Agent for the benefit of the Lenders under the
Assignment.
"FACILITY FEE" shall mean the fee payable to the Lenders by the
Borrower and the Co-Borrowers pursuant to Section 2.13.
"FINAL MATURITY" shall mean June 1, 2001.
"FINANCIAL STATEMENTS" shall mean statements of the financial
condition of the Borrower and the Co-Borrowers as at the point in time and
for the period indicated and consisting of at least a balance sheet and
related statements of operations, common stock and other stockholders'
equity, and cash flows for the Borrower on a consolidated and
consolidating basis with the Co-Borrowers, when required by applicable
provisions of this Agreement to be audited, accompanied by the unqualified
certification of a nationally-recognized firm of independent certified
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public accountants or other independent certified public accountants
acceptable to the Agent and footnotes to any of the foregoing, all of
which shall be prepared in accordance with GAAP consistently applied and
in comparative form with respect to the corresponding period of the
preceding fiscal period.
"FIXED RATE LOAN" shall mean any LIBO Rate Loan.
"FLOATING RATE" shall mean an interest rate per annum equal to the
Index Rate from time to time in effect, but in no event exceeding the
Highest Lawful Rate.
"FLOATING RATE LOAN" shall mean any Loan and any portion of the Loan
Balance which the Borrower and/or the Co-Borrowers have requested, in the
initial Borrowing Request for such Loan or a subsequent Borrowing Request
for such portion of the Loan Balance, bear interest at the Floating Rate,
or which pursuant to the terms hereof is otherwise required to bear
interest at the Floating Rate.
"GAAP" shall mean generally accepted accounting principles
established by the Financial Accounting Standards Board or the American
Institute of Certified Public Accountants and in effect in the United
States from time to time.
"GOVERNMENTAL AUTHORITY" shall mean any nation, country,
commonwealth, territory, government, state, county, parish, municipality,
or other political subdivision and any entity exercising executive,
legislative, judicial, regulatory, or administrative functions of or
pertaining to government.
"HAZARDOUS SUBSTANCES" shall mean flammables, explosives,
radioactive materials, hazardous wastes, asbestos, or any material
containing asbestos, polychlorinated biphenyls (PCBs), toxic substances or
related materials, petroleum, petroleum products, associated oil or
natural gas exploration, production, and development wastes, or any
substances defined as "hazardous substances," "hazardous materials,"
"hazardous wastes," or "toxic substances" under the Comprehensive
Environmental Response, Compensation and Liability Act, as amended, the
Superfund Amendments and Reauthorization Act, as amended, the Hazardous
Materials Transportation Act, as amended, the Resource Conservation and
Recovery Act, as amended, the Toxic Substances Control Act, as amended, or
any other law or regulation now or hereafter enacted or promulgated by any
Governmental Authority.
"HIGHEST LAWFUL RATE" shall mean the maximum non-usurious interest
rate, if any (or, if the context so requires, an amount calculated at such
rate), that at any time or from time to time may be contracted for, taken,
reserved, charged, or received under applicable laws of the State of North
Carolina, or if applicable, the
8
State of Texas or the United States of America, whichever authorizes the
greater rate, as such laws are presently in effect or, to the extent
allowed by applicable law, as such laws may hereafter be in effect and
which allow a higher maximum non-usurious interest rate than such laws now
allow.
"INDEBTEDNESS" shall mean, as to any Person, without duplication,
(a) all liabilities (excluding reserves for deferred income taxes,
deferred compensation liabilities, and other deferred liabilities and
credits) which in accordance with GAAP would be included in determining
total liabilities as shown on the liability side of a balance sheet, (b)
all obligations of such Person evidenced by bonds, debentures, promissory
notes, or similar evidences of indebtedness, (c) all other indebtedness of
such Person for borrowed money, (d) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (other than
trade payables, which include amounts owed to drilling contractors,
entered into in the ordinary course of business on ordinary terms); (e)
all indebtedness created or arising under any conditional sale or other
title retention agreement, or incurred as financing, in either case with
respect to property acquired by the Person (even though the rights and
remedies of the seller or bank under such agreement in the event of
default are limited to repossession or sale of such property) including,
without limitation, production payments, net profit interests and other
hydrocarbon interests subject to repayment out of future oil and gas
production; (f) all obligations with respect to capital leases; (g) all
net obligations with respect to derivative contracts; and (h) all
obligations, including Contingent Obligations of others, to the extent any
such obligation is secured by a Lien on the assets of such Person (whether
or not such Person has assumed or become liable for the obligation secured
by such Lien).
"INDEX RATE" shall mean the prime rate established in THE WALL
STREET JOURNAL'S "MONEY RATES" or similar table. If multiple prime rates
are quoted in the table, then the highest prime rate will be the Index
Rate. In the event that the prime rate is no longer published by THE WALL
STREET JOURNAL in the "MONEY RATES" or similar table, then Agent may
select an alternative published index based upon comparable information as
a substitute Index Rate. Upon the selection of a substitute Index Rate,
the applicable interest rate shall thereafter vary in relation to the
substitute index. Such substitute index shall be the same index that is
generally used as a substitute by Agent on all Index Rate loans.
"INSOLVENCY PROCEEDING" shall mean application (whether voluntary or
instituted by another Person) for or the consent to the appointment of a
receiver, trustee, conservator, custodian, or liquidator of any Person or
of all or a substantial part of the Property of such Person, or the filing
of a petition (whether voluntary or instituted by another Person)
commencing a case under Title 11 of the United States Code, seeking
liquidation, reorganization, or rearrangement or taking
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advantage of any bankruptcy, insolvency, debtor's relief, or other similar
law of the United States, the State of Texas, or any other jurisdiction.
"INTELLECTUAL PROPERTY" shall mean patents, patent applications,
trademarks, tradenames, copyrights, technology, know-how, and processes.
"INTEREST PERIOD" shall mean, subject to the limitations set forth
in Section 2.23, and with respect to any LIBO Rate Loan, a period
commencing on the date such Loan is made or converted from a Loan of
another type pursuant to this Agreement or the last day of the next
preceding Interest Period with respect to such Loan and ending on the
numerically corresponding day in the calendar month that is one, two,
three, or, subject to availability, six months thereafter, as the Borrower
and/or the Co-Borrowers may request in the Borrowing Request for such
Loan.
"INVESTMENT" in any Person shall mean any stock, bond, note, or
other evidence of Indebtedness, or any other security (other than current
trade and customer accounts) of, investment or partnership interest in or
loan to, such Person.
"L/C EXPOSURE" shall mean, at any time, the aggregate maximum amount
available to be drawn under outstanding Letters of Credit at such time.
"LETTER OF CREDIT" shall mean any standby letter of credit issued by
the Agent for the account of the Borrower and/or the Co-Borrowers pursuant
to Section 2.23.
"LETTER OF CREDIT APPLICATION" shall mean the standard letter of
credit application employed by the Agent as the issuer of the Letters of
Credit, from time to time, in connection with Letters of Credit.
"LETTER OF CREDIT FEE" shall mean each fee payable to the Agent for
the account of the Lenders by the Borrower and the Co-Borrowers pursuant
to Section 2.25 upon or in connection with the issuance or renewal of each
Letter of Credit.
"LETTER OF CREDIT PAYMENT" shall mean any payment made by the Agent
on behalf of the Lenders under a Letter of Credit, to the extent that such
payment has not been repaid by the Borrower and/or the Co-Borrowers.
"LIBO RATE" shall mean, with respect to any Interest Period for any
LIBO Rate Loan, the lesser of (a) the rate per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) equal to the average of the offered
quotations appearing on Telerate Page 3750 (or if such Telerate Page shall
not be available, any
10
successor or similar service selected by the Agent and the Borrower and/or
the Co- Borrowers) as of approximately 11:00 a.m., Central Standard or
Daylight Savings Time, as the case may be, on the day two Business Days
prior to the first day of such Interest Period for Dollar deposits in an
amount comparable to the principal amount of such LIBO Rate Loan and
having a term comparable to the Interest Period for such LIBO Rate Loan,
or (b) the Highest Lawful Rate. If neither such Telerate Page 3750 nor any
successor or similar service is available, the term "LIBO Rate" shall
mean, with respect to any Interest Period for any LIBO Rate Loan, the
lesser of (a) the rate per annum (rounded upwards if necessary, to the
nearest 1/100 of 1%) quoted by the Agent at approximately 11:00 a.m.,
London time (or as soon thereafter as practicable) two Business Days prior
to the first day of the Interest Period for such LIBO Rate Loan for the
offering by the Agent to leading banks in the London interbank market of
Dollar deposits in an amount comparable to the principal amount of such
LIBO Rate Loan and having a term comparable to the Interest Period for
such LIBO Rate Loan, or (b) the Highest Lawful Rate.
"LIBO RATE LOAN" shall mean any Loan and any portion of the Loan
Balance which the Borrower and/or the Co-Borrowers have requested, in the
initial Borrowing Request for such Loan or a subsequent Borrowing Request
for such portion of the Loan Balance, bear interest at the Adjusted LIBO
Rate and which is permitted by the terms hereof to bear interest at the
Adjusted LIBO Rate.
"LIEN" shall mean any interest in Property securing an obligation
owed to, or a claim by, a Person other than the owner of such Property,
whether such interest is based on common law, statute, or contract, and
including, but not limited to, the lien or security interest arising from
a mortgage, ship mortgage, encumbrance, pledge, security agreement,
conditional sale or trust receipt, or a lease, consignment, or bailment
for security purposes (other than true leases or true consignments), liens
of mechanics, materialmen, and artisans, maritime liens and reservations,
exceptions, encroachments, easements, rights of way, covenants,
conditions, restrictions, leases, and other title exceptions and
encumbrances affecting Property which secure an obligation owed to, or a
claim by, a Person other than the owner of such Property (for the purpose
of this Agreement, the Borrower and/or the Co-Borrowers shall be deemed to
be the owner of any Property which it has acquired or holds subject to a
conditional sale agreement, financing lease, or other arrangement pursuant
to which title to the Property has been retained by or vested in some
other Person for security purposes), and the filing or recording of any
financing statement or other security instrument in any public office.
"LIMITATION PERIOD" shall mean any period while any amount remains
owing on the Notes and interest on such amount, calculated at the
applicable interest rate,
11
plus any fees or other sums payable under any Loan Document and deemed to
be interest under applicable law, would exceed the amount of interest
which would accrue at the Highest Lawful Rate.
"LOAN" shall mean any loan made by any Lender to or for the benefit
of the Borrower and/or the Co-Borrowers pursuant to this Agreement and any
payment made by any Lender under a Letter of Credit.
"LOAN BALANCE" shall mean, at any time, the outstanding principal
balance of the Notes at such time.
"LOAN DOCUMENTS" shall mean this Agreement, Assignment of Notes and
Liens, the Notes, the Letter of Credit Applications, the Letters of
Credit, the Security Instruments, and all other documents and instruments
now or hereafter delivered pursuant to the terms of or in connection with
this Agreement, the Notes, the Letter of Credit Applications, the Letters
of Credit, or the Security Instruments, and all renewals and extensions
of, amendments and supplements to, and restatements of, any or all of the
foregoing from time to time in effect.
"MATERIAL ADVERSE EFFECT" shall mean (a) any material adverse effect
on the business, operations, properties, condition (financial or
otherwise), or prospects of the Borrower and/or the Co-Borrowers taken as
a whole, or (b) any adverse effect upon the Collateral taken as a whole.
"MAXIMUM COMMITMENT AMOUNT" shall mean the sum of the Commitment
Amounts of all Lenders.
"MORTGAGED PROPERTIES" shall mean all Oil and Gas Properties of the
Borrower and Co-Borrowers subject to a perfected first-priority Lien in
favor of the Agent for the benefit of the Lenders, subject only to
Permitted Liens, as security for the Obligations.
"NET INCOME" shall mean, for any period, the net income of the
Borrower on a consolidated basis for such period, determined in accordance
with GAAP.
"NOTES" shall mean, collectively, each of the promissory notes of
the Borrower and Co-Borrowers, which Notes shall be in partial renewal,
extension and modification, but not discharge or novation of the Existing
Note, and shall be in the form attached hereto as Exhibit I, together with
all renewals, extensions for any period, increases, and rearrangements
thereof.
"OBLIGATIONS" shall mean, without duplication, (a) all Indebtedness
evidenced by the Notes, (b) the undrawn, unexpired amount of all
outstanding
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Letters of Credit, (c) the obligation of the Borrower and the Co-Borrowers
for the payment of Commitment Fees, Facility Fees and Letter of Credit
Fees, and (e) all other obligations and liabilities of the Borrower and
the Co-Borrowers to the Agent and the Lenders, now existing or hereafter
incurred, under, arising out of or in connection with any Loan Document,
and to the extent that any of the foregoing includes or refers to the
payment of amounts deemed or constituting interest, only so much thereof
as shall have accrued, been earned and which remains unpaid at each
relevant time of determination.
"OIL AND GAS PROPERTIES" shall mean fee, leasehold, or other
interests in or under mineral estates or oil, gas, and other liquid or
gaseous hydrocarbon leases with respect to Properties situated in the
United States or offshore from any State of the United States, including,
without limitation, overriding royalty and royalty interests, leasehold
estate interests, net profits interests, production payment interests, and
mineral fee interests, together with contracts executed in connection
therewith and all tenements, hereditaments, appurtenances and Properties
appertaining, belonging, affixed, or incidental thereto.
"PERCENTAGE SHARE" shall mean, as to each Lender, the percentage
such Lender's Commitment Amount constitutes of the Maximum Commitment
Amount.
"PERMITTED INDEBTEDNESS" shall mean (a) the Obligations under the
Loan Documents, (b) Indebtedness arising from endorsing negotiable
instruments for deposit or collection in the ordinary course of business,
(c) current liabilities incurred in the ordinary course of business, (d)
purchase money Indebtedness which does not exceed an aggregate principal
amount of $750,000 during the term of this Agreement, (e) Indebtedness
existing by virtue of the requirements of GAAP or any changes in the
requirements of GAAP, (f) the existing $41,400,000 aggregate principal
amount of 6-7/8% convertible subordinated debentures due 2007, but not any
renewal or rearrangement thereof, and (g) debt of 779776 Alberta, Ltd.
and/or Neutrino Resources, Inc. to National Bank of Canada structured on a
senior secured basis.
"PERMITTED LIENS" shall mean (a) Liens for taxes, assessments, or
other governmental charges or levies not yet due or which (if foreclosure,
distraint, sale, or other similar proceedings shall not have been
initiated) are being contested in good faith by appropriate proceedings,
and such reserve as may be required by GAAP shall have been made therefor,
(b) Liens in connection with workers' compensation, unemployment insurance
or other social security (other than Liens created by Section 4068 of
ERISA), old-age pension, or public liability obligations which are not yet
due or which are being contested in good faith by appropriate proceedings,
if such reserve as may be required by GAAP shall have been made therefor,
(c) Liens in favor of vendors, carriers, warehousemen, repairmen,
13
mechanics, workmen, materialmen, construction, or similar Liens arising by
operation of law in the ordinary course of business in respect of
obligations which are not yet due or which are being contested in good
faith by appropriate proceedings, if such reserve as may be required by
GAAP shall have been made therefor, (d) Liens in favor of operators and
non-operators under joint operating agreements or similar contractual
arrangements arising in the ordinary course of the business of the
Borrower and/or the Co-Borrowers to secure amounts owing, which amounts
are not yet due or are being contested in good faith by appropriate
proceedings, if such reserve as may be required by GAAP shall have been
made therefor, (e) Liens under production sales agreements, division
orders, operating agreements, and other agreements customary in the oil
and gas business for processing, producing, and selling hydrocarbons
securing obligations not constituting Indebtedness and provided that such
Liens do not secure obligations to deliver hydrocarbons at some future
date without receiving full payment therefor within 90 days of delivery,
(f) easements, rights of way, restrictions, and other similar
encumbrances, and minor defects in the chain of title which are
customarily accepted in the oil and gas financing industry, none of which
interfere with the ordinary conduct of the business of the Borrower and/or
the Co-Borrowers or materially detract from the value or use of the
Property to which they apply, and (g) Liens in favor of the Agent for the
benefit of the Lenders and other Liens expressly permitted under the
Security Instruments.
"PERSON" shall mean an individual, corporation, partnership, trust,
unincorporated organization, government, any agency or political
subdivision of any government, or any other form of entity.
"PLAN" shall mean, at any time, any employee benefit plan which is
covered by ERISA and in respect of which the Borrower or any Commonly
Controlled Entity is (or, if such plan were terminated at such time, would
under Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
"PRINCIPAL OFFICE" shall mean the principal office of the Agent in
Houston, Texas, presently located at 24 Greenway Plaza, 14th Floor,
Houston, Texas
77046.
"PROPERTY" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, tangible or intangible.
"REGULATION D" shall mean Regulation D of the Board of Governors of
the Federal Reserve System, as the same may be amended or supplemented
from time to time.
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"REGULATORY CHANGE" shall mean the passage, adoption, institution,
or amendment of any federal, state, local, or foreign Requirement of Law
(including, without limitation, Regulation D), or any interpretation,
directive, or request of any Governmental Authority or monetary authority
charged with the enforcement, interpretation, or administration thereof,
occurring after the Closing Date and applying to a class of banks
including any Lender or its Applicable Lending Office.
"RELEASE OF HAZARDOUS SUBSTANCES" shall mean any emission, spill,
release, disposal, or discharge, except in accordance with the Requirement
of Law, a valid permit, license, certificate, or approval of the relevant
Governmental Authority, of any Hazardous Substance into or upon (a) the
air, (b) soils or any improvements located thereon, (c) surface water or
groundwater, or (d) the sewer or septic system, or the waste treatment,
storage, or disposal system servicing any Property of the Borrower and/or
the Co-Borrowers.
"REQUIRED LENDERS" shall mean, Lenders (including the Agent) holding
at least 80% of the then aggregate outstanding principal amount of the
Notes then held by the Lenders, or, if no such principal amount is then
outstanding, Lenders (including the Agent) having at least 80% of the
aggregate amount of the Commitments.
"REQUIREMENT OF LAW" shall mean, as to any Person, the certificate
or articles of incorporation and by-laws or other organizational or
governing documents of such Person, and any applicable law, treaty,
ordinance, order, judgment, rule, decree, regulation, or determination of
an arbitrator, court, or other Governmental Authority, including, without
limitation, rules, regulations, orders, and requirements for permits,
licenses, registrations, approvals, or authorizations, in each case as
such now exist or may be hereafter amended and are applicable to or
binding upon such Person or any of its Property or to which such Person or
any of its Property is subject.
"RESERVE REPORT" shall mean each report delivered to the Agent and
each Lender pursuant to Section 5.4.
"RESPONSIBLE OFFICER" shall mean, as to any Person, its President,
Chief Executive Officer, Chief Financial Officer or any Vice President.
"SCHEDULED REDUCTION AMOUNT" shall mean the amount by which the
Borrowing Base shall be reduced each calendar month as determined by the
Lenders under Section 2.9(b) from time to time.
"SECURITY INSTRUMENTS" shall mean the security instruments executed
and delivered in satisfaction of the condition set forth in Section
3.1(f), and all other
15
documents and instruments at any time executed as security for all or any
portion of the Obligations, as such instruments may be amended, restated,
or supplemented from time to time.
"SUBSIDIARY" shall mean, as to any Person, a corporation of which
shares of stock having ordinary voting power (other than stock having such
power only by reason of the happening of a contingency) to elect a
majority of the board of directors or other managers of such corporation
are at the time owned, or the management of which is otherwise controlled,
directly or indirectly through one or more intermediaries, or both, by
such Person.
"SUPERFUND SITE" shall mean those sites listed on the Environmental
Protection Agency National Priority List and eligible for remedial action
or any comparable state registries or list in any state of the United
States.
"TANGIBLE NET WORTH" shall mean (a) total assets, as would be
reflected on a balance sheet of the Borrower prepared on a consolidated
basis and in accordance with GAAP, exclusive of Intellectual Property,
experimental or organization expenses, franchises, licenses, permits, and
other intangible assets, treasury stock, unamortized underwriters' debt
discount and expenses, and goodwill minus (b) total liabilities, as would
be reflected on a balance sheet of the Borrower prepared on a consolidated
basis and in accordance with GAAP.
"UCC" shall mean the Uniform Commercial Code as from time to time in
effect in the State of Texas.
"YEAR 2000 COMPLIANCE" shall mean, with regard to any entity, that
all software, embedded microchips, and other processing capabilities
utilized by, and material to the business operations or financial
condition of, such entity are able to interpret and manipulate data on and
involving all calendar dates correctly and without causing any abnormal
ending scenario, including in relation to dates in and after the year
2000.
1.3 UNDEFINED FINANCIAL ACCOUNTING TERMS. Undefined financial
accounting terms used in this Agreement shall be defined according to GAAP at
the time in effect.
1.4 REFERENCES. References in this Agreement to Exhibit, Article, or
Section numbers shall be to Exhibits, Articles, or Sections of this Agreement,
unless expressly stated to the contrary. References in this Agreement to
"hereby," "herein," "hereinafter," "hereinabove," "hereinbelow," "hereof,"
"hereunder" and words of similar import shall be to this Agreement in its
entirety and not only to the particular Exhibit, Article, or Section in which
such reference appears.
16
1.5 ARTICLES AND SECTIONS. This Agreement, for convenience only, has
been divided into Articles and Sections; and it is understood that the rights
and other legal relations of the parties hereto shall be determined from this
instrument as an entirety and without regard to the aforesaid division into
Articles and Sections and without regard to headings prefixed to such Articles
or Sections.
1.6 NUMBER AND GENDER. Whenever the context requires, reference
herein made to the single number shall be understood to include the plural; and
likewise, the plural shall be understood to include the singular. Definitions of
terms defined in the singular or plural shall be equally applicable to the
plural or singular, as the case may be, unless otherwise indicated. Words
denoting sex shall be construed to include the masculine, feminine and neuter,
when such construction is appropriate; and specific enumeration shall not
exclude the general but shall be construed as cumulative.
1.7 INCORPORATION OF EXHIBITS. The Exhibits attached to this
Agreement are incorporated herein and shall be considered a part of this
Agreement for all purposes.
ARTICLE II
TERMS OF FACILITY
2.1 REVOLVING LINE OF CREDIT. (a) Upon the terms and conditions
(including, without limitation, the right of the Lenders to decline to make any
Loan so long as any Default or Event of Default exists) and relying on the
representations and warranties contained in this Agreement, the Lenders
severally agree, during the Commitment Period, to make Loans, in immediately
available funds at the Applicable Lending Office or the Principal Office, to or
for the benefit of the Borrower and/or the Co-Borrowers, from time to time on
any Business Day designated by the Borrower and/or the Co-Borrowers following
receipt by the Agent of a Borrowing Request; provided, however, no Loan at the
time it is made shall exceed the then existing Available Commitment.
(b) Subject to the terms of this Agreement, during the Commitment
Period, the Borrower and/or the Co-Borrowers may borrow, repay, and reborrow and
convert Loans of one type or with one Interest Period into Loans of another type
or with a different Interest Period. Except for prepayments made pursuant to
Section 2.10, each borrowing, conversion, and prepayment of principal of Loans
shall be in an aggregate amount at least equal to $100,000. Each borrowing,
prepayment, or conversion of or into a Loan of a different type or, in the case
of a Fixed Rate Loan, having a different Interest Period, shall be deemed a
separate borrowing, conversion, or prepayment for purposes of the foregoing, one
for each type of Loan or Interest Period. Anything in this Agreement to the
contrary notwithstanding, the aggregate principal amount of LIBO Rate Loans
having the same Interest Period shall be at least equal to $100,000;
17
and if any LIBO Rate Loan would otherwise be in a lesser aggregate principal
amount for any period, such Loan shall be a Floating Rate Loan during such
period.
(c) The Loans shall be made and maintained at the Applicable Lending
Office or the Principal Office and shall be evidenced by the Notes.
(d) Not later than 3:00 p.m., Central Standard or Daylight Savings
Time, as the case may be, on the date specified for each borrowing, each Lender
shall make available an amount equal to its Percentage Share of the borrowing to
be made on such date to the Agent, at an account designated by the Agent, in
immediately available funds, for the account of the Borrower. The amount so
received by the Agent shall, subject to the terms and conditions hereof, be made
available to the Borrower in immediately available funds at the Principal
Office. All Loans by each Lender shall be maintained at the Applicable Lending
Office of such Lender and shall be evidenced by the Note of such Lender.
(e) The failure of any Lender to make any Loan required to be made
by it hereunder shall not relieve any other Lender of its obligation to make any
Loan required to be made by it, and no Lender shall be responsible for the
failure of any other Lender to make any Loan.
(f) The face amounts of the Notes have been established as an
administrative convenience and do not commit any Lender to advance funds
hereunder in excess of the then current Borrowing Base.
2.2 LETTER OF CREDIT FACILITY. (a) Upon the terms and conditions and
relying on the representations and warranties contained in this Agreement, the
Agent, as issuing bank for the Lenders, agrees from the date of this Agreement
until the date which is thirty days prior to the Commitment Termination Date, to
issue on behalf of the Lenders in their respective Percentage Shares Letters of
Credit for the account of the Borrower and/or any Co-Borrower and to renew and
extend such Letters of Credit. Letters of Credit shall be issued, renewed, or
extended from time to time on any Business Day designated by the Borrower or any
Co-Borrower following the receipt in accordance with the terms hereof by the
Agent of the written (or oral, confirmed promptly in writing) request by a
Responsible Officer of the Borrower and/or any Co-Borrower therefor and a Letter
of Credit Application. Letters of Credit shall be issued in such amounts as the
Borrower or any Co-Borrower may request; provided, however, that (i) no Letter
of Credit shall have an expiration date which is more than 365 days after the
issuance thereof or subsequent to Final Maturity, (ii) each automatically
renewable Letter of Credit shall provide that it may be terminated by the Agent
at its then current expiry date by not less than 30 days' written notice by the
Agent to the beneficiary of such Letter of Credit, and (iii) the Agent shall not
be obligated to issue any Letter of Credit if (A) the face amount thereof would
exceed the Available Commitment, or (B) after giving effect to the issuance
thereof, (I) the L/C Exposure, when added to the Loan Balance then outstanding,
would exceed the lesser of the Maximum Commitment Amount or the Borrowing Base,
or (II) the L/C Exposure would exceed $5,000,000.
18
(b) Prior to any Letter of Credit Payment in respect of any Letter
of Credit, each Lender shall be deemed to be a participant through the Agent
with respect to the relevant Letter of Credit in the obligation of the Agent, as
the issuer of such Letter of Credit, in an amount equal to the Percentage Share
of such Lender of the maximum amount which is or at any time may become
available to be drawn thereunder. Upon delivery by such Lender of funds
requested pursuant to Section 2.2(c), such Lender shall be treated as having
purchased a participating interest in an amount equal to such funds delivered by
such Lender to the Agent in the obligation of the Borrower to reimburse the
Agent, as the issuer of such Letter of Credit, for any amounts payable, paid, or
incurred by the Agent, as the issuer of such Letter of Credit, with respect to
such Letter of Credit.
(c) Each Lender shall be unconditionally and irrevocably liable,
without regard to the occurrence of any Default or Event of Default, to the
extent of the Percentage Share of such Lender at the time of issuance of each
Letter of Credit, to reimburse, on demand, the Agent, as the issuer of such
Letter of Credit, for the amount of each Letter of Credit Payment under such
Letter of Credit. Each Letter of Credit Payment shall be deemed to be a Floating
Rate Loan by each Lender to the extent of funds delivered by such Lender to the
Agent with respect to such Letter of Credit Payment and shall to such extent be
deemed a Floating Rate Loan under and shall be evidenced by the Note of such
Lender and shall be payable by the Borrower and the Co- Borrowers upon demand by
the Agent.
(D) EACH LENDER AGREES TO SEVERALLY INDEMNIFY THE AGENT, AS THE
ISSUER OF EACH LETTER OF CREDIT, AND THE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS,
ATTORNEYS-IN-FACT AND AFFILIATES OF THE AGENT (TO THE EXTENT NOT REIMBURSED BY
THE BORROWER AND/OR THE CO-BORROWERS AND WITHOUT LIMITING THE OBLIGATION OF THE
BORROWER AND/OR THE CO-BORROWERS TO DO SO), RATABLY ACCORDING TO THE PERCENTAGE
SHARE OF SUCH LENDER AT THE TIME OF ISSUANCE OF SUCH LETTER OF CREDIT, FROM AND
AGAINST ANY AND ALL LIABILITIES, CLAIMS, OBLIGATIONS, LOSSES, DAMAGES,
PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES AND DISBURSEMENTS OF ANY
KIND WHATSOEVER WHICH MAY AT ANY TIME (INCLUDING, WITHOUT LIMITATION, ANY TIME
FOLLOWING THE PAYMENT AND PERFORMANCE OF ALL OBLIGATIONS AND THE TERMINATION OF
THIS AGREEMENT) BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST THE AGENT AS THE
ISSUER OF SUCH LETTER OF CREDIT OR ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES,
AGENTS, ATTORNEYS-IN-FACT OR AFFILIATES IN ANY WAY RELATING TO OR ARISING OUT OF
THIS AGREEMENT OR SUCH LETTER OF CREDIT OR ANY ACTION TAKEN OR OMITTED BY THE
AGENT AS THE ISSUER OF SUCH LETTER OF CREDIT OR ANY OF ITS OFFICERS, DIRECTORS,
EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT OR AFFILIATES UNDER OR IN CONNECTION WITH
ANY OF THE FOREGOING, INCLUDING, WITHOUT LIMITATION, ANY LIABILITIES, CLAIMS,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS,
19
SUITS, COSTS, EXPENSES AND DISBURSEMENTS IMPOSED, INCURRED OR ASSERTED AS A
RESULT OF THE NEGLIGENCE, WHETHER SOLE OR CONCURRENT, OF THE AGENT AS THE ISSUER
OF SUCH LETTER OF CREDIT OR ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS,
ATTORNEYS-IN-FACT OR AFFILIATES; PROVIDED THAT NO LENDER (OTHER THAN THE AGENT
AS THE ISSUER OF A LETTER OF CREDIT) SHALL BE LIABLE FOR THE PAYMENT OF ANY
PORTION OF SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS,
JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS RESULTING FROM THE GROSS
NEGLIGENCE WHETHER SOLE OR CONCURRENT OR WILLFUL MISCONDUCT OF THE AGENT AS THE
ISSUER OF A LETTER OF CREDIT. THE AGREEMENTS IN THIS SECTION 2.2(D) SHALL
SURVIVE THE PAYMENT AND PERFORMANCE OF ALL OBLIGATIONS AND THE TERMINATION OF
THIS AGREEMENT.
2.3 USE OF LOAN PROCEEDS AND LETTERS OF CREDIT. (a) On the Closing
Date, each of the Lenders shall pay to Compass the Loan Balance outstanding
under the Existing Credit Agreement times such Lender's Percentage Share. Such
Existing Indebtedness under the Existing Credit Agreement shall be assigned,
renewed, extended, and rearranged pursuant to the terms of this Agreement and
the Notes and shall, for all purposes, be deemed a borrowing hereunder,
(b) Proceeds of all subsequent Loans shall be used for general
corporate purposes of the Borrower and Co-Borrowers, provided, however, that no
funds can be used to purchase margin stock as defined in Regulation U of Code of
Federal Regulations.
(c) Letters of Credit shall be used solely for general
corporate purposes of the Borrower and Co-Borrowers; provided, however, no
Letter of Credit may be used in lieu or in support of stay or appeal bonds.
2.4 INTEREST. Subject to the terms of this Agreement (including,
without limitation, Section 2.18), interest on the Loans shall accrue and be
payable at a rate per annum equal to the Floating Rate for each Floating Rate
Loan and the Adjusted LIBO Rate for each LIBO Rate Loan. Interest on all
Floating Rate Loans shall be computed on the basis of a year of 365 or 366 days,
as the case may be, and actual days elapsed (including the first day but
excluding the last day) during the period for which payable. Interest on all
LIBO Rate Loans shall be computed on the basis of a year of 360 days, and actual
days elapsed (including the first day but excluding the last day) during the
period for which payable. Notwithstanding the foregoing, interest on past-due
principal and, to the extent permitted by applicable law, past-due interest,
shall accrue at the Default Rate, computed on the basis of a year of 365 or 366
days, as the case may be, and actual days elapsed (including the first day but
excluding the last day) during the period for which payable, and shall be
payable upon demand by the Lender at any time as to all or any portion of such
interest. In the event that the Borrower and/or the Co-Borrowers fail to select
the duration of any Interest Period for any Fixed Rate Loan within the time
period and otherwise as provided herein, such Loan (if outstanding as a Fixed
Rate Loan) will be automatically converted into a
20
Floating Rate Loan on the last day of the then current Interest Period for such
Loan or (if outstanding as a Floating Rate Loan) will remain as, or (if not then
outstanding) will be made as, a Floating Rate Loan. Interest provided for herein
shall be calculated on unpaid sums actually advanced and outstanding pursuant to
the terms of this Agreement and only for the period from the date or dates of
such advances until repayment.
2.5 REPAYMENT OF LOANS AND INTEREST. Accrued and unpaid interest on
each outstanding Floating Rate Loan shall be due and payable monthly commencing
on the first day of July, 1998, and continuing on the first day of each calendar
month thereafter while any Floating Rate Loan remains outstanding, the payment
in each instance to be the amount of interest which has accrued and remains
unpaid in respect of the relevant Loan. Accrued and unpaid interest on each
outstanding Fixed Rate Loan shall be due and payable on the last day of the
Interest Period for such Fixed Rate Loan and, in the case of any Interest Period
in excess of three months, on the day of the third calendar month following the
commencement of such Interest Period corresponding to the day of the calendar
month on which such Interest Period commenced, the payment in each instance to
be the amount of interest which has accrued and remains unpaid in respect of the
relevant Loan. The Loan Balance, together with all accrued and unpaid interest
thereon, shall be due and payable at Final Maturity. At the time of making each
payment hereunder or under the Notes, the Borrower and the Co-Borrowers shall
specify to the Agent the Loans or other amounts payable by the Borrower and/or
the Co-Borrowers hereunder to which such payment is to be applied. In the event
the Borrower and the Co-Borrowers fail to so specify, or if an Event of Default
has occurred and is continuing, the Agent may apply such payment as it may elect
in its sole discretion.
2.6 OUTSTANDING AMOUNTS. The Loan Balance of the Notes reflected by
the notations by the Lenders on their records shall be deemed rebuttably
presumptive evidence of the Loan Balance. The liability for payment of principal
and interest evidenced by the Notes shall be limited to principal amounts
actually advanced and outstanding pursuant to this Agreement and interest on
such amounts calculated in accordance with this Agreement.
2.7 TIME, PLACE, AND METHOD OF PAYMENTS. All payments required
pursuant to this Agreement or the Notes shall be made in lawful money of the
United States of America and in immediately available funds, shall be deemed
received by the Lenders on the next Business Day following receipt if such
receipt is after 2:00 p.m., Central Standard or Daylight Savings Time, as the
case may be, on any Business Day, and shall be made to the Agent at the
Principal Office. Except as provided to the contrary herein, if the due date of
any payment hereunder or under the Notes would otherwise fall on a day which is
not a Business Day, such date shall be extended to the next succeeding Business
Day, and interest shall be payable for any principal so extended for the period
of such extension.
2.8 PRO RATA TREATMENT; ADJUSTMENTS. (a) Except to the extent
otherwise expressly provided herein, (i) each borrowing made pursuant to this
Agreement shall be from the Lenders pro rata in accordance with their Percentage
Shares, (ii) each payment by the Borrower
21
and/or Co-Borrowers of Commitment Fees shall be made for the account of the
Lenders pro rata in accordance with their respective Percentage Shares, (iii)
Facility Fees and Letter of Credit Fees shall be made for the account of the
Lenders in accordance with each Lender's Percentage Share of any increase in the
Commitment Amount or Letter of Credit issued, (iv) each payment of principal of
Loans shall be made for the account of the Lenders pro rata in accordance with
their respective Percentage Shares of the Loan Balance, and (v) each payment of
interest on Loans shall be made for the account of the Lenders pro rata in
accordance with their Percentage Shares of the aggregate amount of interest due
and payable to the Lenders.
(b) The Agent shall distribute all payments with respect to the
Obligations to the Lenders promptly upon receipt in like funds as received. In
the event that any payments made hereunder by the Borrower and/or Co-Borrowers
at any particular time are insufficient to satisfy in full the Obligations due
and payable at such time, such payments shall be applied (a) first, to fees and
expenses due pursuant to the terms of this Agreement or any other Loan Document,
(b) second, to accrued interest, (c) third, to the Loan Balance, and (d) last,
to any other Obligations.
(c) If any Lender (for purposes of this Section, a "BENEFITTED
LENDER") shall at any time receive any payment of all or part of its portion of
the Obligations, or receive any Collateral in respect thereof (whether
voluntarily or involuntarily, by set-off, pursuant to events or proceedings of
the nature referred to in Sections 7.1(f) or 7.1(g), or otherwise) in an amount
greater than such Lender was entitled to receive pursuant to the terms hereof,
such benefitted Lender shall purchase for cash from the other Lenders such
portion of the Obligations of such other Lenders or shall provide such other
Lenders with the benefits of any such Collateral or the proceeds thereof as
shall be necessary to cause such benefitted Lender to share the excess payment
or benefits of such Collateral or proceeds with each of the Lenders according to
the terms hereof. If all or any portion of such excess payment or benefits is
thereafter recovered from such benefitted Lender, such purchase shall be
rescinded and the purchase price and benefits returned by such Lender, to the
extent of such recovery, but without interest. The Borrower agrees that each
such Lender so purchasing a portion of the Obligations of another Lender may
exercise all rights of payment (including, without limitation, rights of
set-off) with respect to such portion as fully as if such Lender were the direct
holder of such portion. If any Lender ever receives, by voluntary payment,
exercise of rights of set-off or banker's lien, counterclaim, cross-action or
otherwise, any funds of the Borrower to be applied to the Obligations, or
receives any proceeds by realization on or with respect to any Collateral, all
such funds and proceeds shall be immediately forwarded to the Agent for
distribution in accordance with the terms of this Agreement.
2.9 BORROWING BASE DETERMINATIONS. (a) The Borrowing Base as of May
29, 1998, is acknowledged by the Borrower and the Co-Borrowers and the Lenders
to be $45,000,000. Commencing on July 1, 1998, and continuing thereafter on the
first day of each calendar month until the earlier of the date such amount is
redetermined or the Commitment Termination Date, the Scheduled Reduction Amount
shall be $40,000. Upon Lender's receipt of acceptable documentation, the
Borrowing Base shall automatically reduce by (i) $3,000,000 upon
22
the Borrower's sale of its Golden Trend properties, and (ii) an additional
$5,000,000 upon the transfer or sale of the Borrower's Spruce Hill properties.
(b) The Borrowing Base and the Scheduled Reduction Amount shall be
redetermined semi-annually by unanimous consent of the Lenders beginning
December 1, 1998, on the basis of information supplied by the Borrower in
compliance with the provisions of this Agreement, including, without limitation,
Reserve Reports, and all other information available to the Lenders. In
addition, the Lenders shall, in the normal course of business following a
request of the Borrower, redetermine the Borrowing Base; provided, however, the
Lenders shall not be obligated to respond to more than four such requests during
any calendar year, and in no event shall the Lenders be required to redetermine
the Borrowing Base more than once in any three-month period, including, without
limitation, each scheduled semi-annual redetermination provided for above.
Notwithstanding the foregoing, the Lenders may at their discretion and by
unanimous consent redetermine the Borrowing Base and the Scheduled Reduction
Amount at any time and from time to time.
(c) Upon each determination of the Borrowing Base and the Scheduled
Reduction Amount by the Lenders, the Agent shall notify the Borrower orally
(confirming such notice promptly in writing) of such determination, and the
Borrowing Base and the Scheduled Reduction Amount shall become effective upon
such written notification and shall remain in effect until the next subsequent
determination of the Borrowing Base.
(d) The Borrowing Base shall represent the determination by the
Lenders, in accordance with the applicable definitions and provisions herein
contained and their customary lending practices for loans of this nature, of the
value, for loan purposes, of the Mortgaged Properties, plus certain other oil
and gas properties to be determined in sole discretion of the Lenders subject,
in the case of any increase in the Borrowing Base, to the credit approval
process of the Lenders. Furthermore, the Borrower and/or the Co-Borrowers
acknowledge that the determination of the Borrowing Base contains an equity
cushion (market value in excess of loan value), which is acknowledged by the
Borrower and/or the Co-Borrowers to be essential for the adequate protection of
the Lenders. The Borrowing Base shall be determined by using the Lenders' then
current engineering and credit standards.
2.10 MANDATORY PREPAYMENTS. If at any time the sum of the Loan
Balance and the L/C Exposure exceeds the Borrowing Base then in effect, the
Borrower and the Co-Borrowers shall, within 30 days of notice from the Agent of
such occurrence, (a) prepay, or make arrangements acceptable to the Lenders for
the prepayment of, the amount of such excess for application on the Loan
Balance, (b) provide additional Collateral, of character and value satisfactory
to the Lenders in their sole discretion, to secure the amount of such excess by
the execution and delivery to the Lenders of Security Instruments in form and
substance satisfactory to the Lenders, or (c) effect any combination of the
alternatives described in clauses (a) and (b) of this Section and acceptable to
the Lenders in their sole discretion. In the event that a mandatory prepayment
is required under this Section and the Loan Balance is less than the amount
required
23
to be prepaid, the Borrower and the Co-Borrowers shall repay the entire Loan
Balance and, in accordance with the provisions of the relevant Letter of Credit
Applications executed by the Borrower and/or the Co-Borrowers or otherwise to
the satisfaction of the Lenders, deposit with the Agent for the benefit of the
Lenders, as additional collateral securing the Obligations, an amount of cash,
in immediately available funds, equal to the L/C Exposure minus the lesser of
the aggregate Commitment Amounts or the Borrowing Base. The cash deposited with
the Agent for the benefit of the Lenders in satisfaction of the requirement
provided in this Section may be invested, at the sole discretion of the Lenders
and then only at the express direction of the Borrower and/or Co-Borrowers as to
investment vehicle and maturity (which shall be no later than the latest expiry
date of any then outstanding Letter of Credit), for the account of the Borrower
and/or Co-Borrowers in cash or cash equivalent investments offered by or through
the Lenders.
2.11 VOLUNTARY PREPAYMENTS AND CONVERSIONS OF LOANS. Subject to
applicable provisions of this Agreement, the Borrower and/or the Co-Borrowers
shall have the right at any time or from time to time to prepay Loans and to
convert Loans of one type or with one Interest Period into Loans of another type
or with a different Interest Period; provided, however, that (a) the Borrower
and/or the Co-Borrowers shall give the Agent notice of each such prepayment or
conversion of all or any portion of a Fixed Rate Loan no less than two Business
Days prior to prepayment or conversion, (b) any Fixed Rate Loan may be prepaid
or converted only on the last day of an Interest Period for such Loan, (c) the
Borrower and/or the Co-Borrowers shall pay all accrued and unpaid interest on
the amounts prepaid or converted, and (d) no such prepayment or conversion shall
serve to postpone the repayment when due of any Obligation.
2.12 COMMITMENT FEE. In addition to interest on the Notes as
provided herein and other fees payable hereunder and to compensate the Lenders
for maintaining funds available, the Borrower and Co-Borrowers shall pay to the
Agent for the account of the Lenders in immediately available funds, on the
first day of July, 1998, and on the first day of each third calendar month
thereafter during the Commitment Period and on the Commitment Termination Date,
a fee in the amount per annum as set forth below, calculated on the basis of a
year of 365 or 366 days, as the case may be, and actual days elapsed (including
the first day but excluding the last day), on the average daily amount of the
Available Commitment during the preceding quarterly period as follows:
BORROWING BASE
UTILIZATION COMMITMENT FEE
-------------------- ----------------------
1) greater than 50% one-half percent (1/2%)
of Borrowing Base
2) less than or equal to 50% three-eighths percent (3/8%)
of Borrowing Base
The Borrowing Base Utilization and the corresponding Commitment Fee
shall be set at each quarter end for the next quarter.
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2.13 FACILITY FEE. In addition to interest on the Notes as provided
herein and other fees payable hereunder and to compensate the Lenders for the
costs of the extension of credit hereunder, the Borrower and/or the Co-Borrowers
shall pay to the Agent for the account of the Lenders, in immediately available
funds, a facility fee of one-half percent (1/2%) on any future increase in the
Borrowing Base at the time of such increase.
2.14 LETTER OF CREDIT FEE. In addition to interest on the Notes as
provided herein and Commitment Fees and Facility Fees payable hereunder, the
Borrower and/or the Co- Borrowers agree to pay to the Agent for the account of
the Lenders, on the date of issuance or renewal of each Letter of Credit, a fee
equal to the greater of $300 or one percent (1%) per annum, calculated on the
basis of a year of 365 or 366 days, as the case may be, and actual days elapsed
(including the first day but excluding the last day), on the face amount of such
Letter of Credit during the period for which such Letter of Credit is issued or
renewed; provided, however, in the event such Letter of Credit is canceled prior
to its original expiry date or a payment is made by the Agent for the account of
the Lenders with respect to such Letter of Credit, the Agent and the Lenders
shall, within 30 days after such cancellation or the making of such payment,
rebate to the Borrower and/or the Co-Borrowers the unearned portion of such fee.
The Borrower and/or the Co-Borrowers also agree to pay on demand to the Agent
for its own account as the issuer of the Letters of Credit its customary letter
of credit transactional fees, including, without limitation, amendment fees,
payable with respect to each Letter of Credit.
2.15 AGENCY FEE. The Borrower shall pay to the Agent for its own
account all fees owing or which may become owing under the Agency Fee Letter as
provided therein.
2.16 LOANS TO SATISFY OBLIGATIONS OF BORROWER. The Lenders may, by
unanimous consent, but shall not be obligated to, make Loans for the benefit of
the Borrower and/or the Co- Borrowers and apply proceeds thereof to the
satisfaction of any condition, warranty, representation, or covenant of the
Borrower and/or the Co-Borrowers contained in this Agreement or any other Loan
Document. Any such Loan shall be evidenced by the Notes and shall be made as a
Floating Rate Loan.
2.17 SECURITY INTEREST IN ACCOUNTS; RIGHT OF OFFSET. As security for
the payment and performance of the Obligations, the Borrower and the
Co-Borrowers hereby transfer, assign, and pledge to the Agent for the benefit of
the Lenders and grants to the Agent for the benefit of the Lenders a security
interest in all funds of the Borrower and the Co-Borrowers now or hereafter or
from time to time on deposit with the Agent and such Lender, with such interest
of the Lenders to be retransferred, reassigned, and/or released by the Agent and
each Lender, as the case may be, at the expense of the Borrower and the
Co-Borrowers upon payment in full and complete performance by the Borrower and
the Co-Borrowers of all Obligations. All remedies as secured party or assignee
of such funds shall be exercisable by the Agent and each Lender upon the
occurrence of any Event of Default, regardless of whether the exercise of any
such remedy would result in any penalty or loss of interest or profit with
respect to any withdrawal of funds deposited in a time deposit account prior to
the maturity thereof. Furthermore, the Borrower and the Co- Borrowers hereby
grant to the Agent and each Lender the right, exercisable at such time as any
Obligation shall mature, whether by acceleration of maturity or otherwise, of
offset or banker's lien against all funds of the Borrower and the Co-Borrowers
now or hereafter or from time to time on deposit with the Agent and each Lender,
regardless of whether the exercise of any such remedy would result in any
penalty or loss of interest or profit with respect to any withdrawal of funds
deposited in a time deposit account prior to the maturity thereof.
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2.18 GENERAL PROVISIONS RELATING TO INTEREST. Subject to the choice
of law provision Section 9.12 hereof, (a) it is the intention of the parties
hereto to comply strictly with the usury laws of the State of Texas to the
extent applicable to each Lender and the United States of America. In this
connection, there shall never be collected, charged, or received on the sums
advanced hereunder interest in excess of that which would accrue at the Highest
Lawful Rate. To the extent deemed applicable, for purposes of Tex. Fin. Code
Ann. ss. 303.301 (Vernon 1998), the Borrower and the Co-Borrowers agree that the
Highest Lawful Rate shall be the "indicated (weekly) rate ceiling" as defined in
such Article, provided that the Agent and the Lenders may also rely, to the
extent permitted by applicable laws of the State of North Carolina, or if
applicable, the State of Texas or the United States of America, on alternative
maximum rates of interest under other laws of the State of North Carolina, or if
applicable, the State of Texas or other states or the United States of America
applicable to the Agent and/or such Lender, if greater.
(b) Notwithstanding anything herein or in the Notes to the contrary,
during any Limitation Period, the interest rate to be charged on amounts
evidenced by the Notes shall be the Highest Lawful Rate, and the obligation, if
any, of the Borrower and the Co-Borrowers for the payment of fees or other
charges deemed to be interest under applicable law shall be suspended. During
any period or periods of time following a Limitation Period, to the extent
permitted by applicable laws of the State of North Carolina, or if applicable,
the State of Texas or other states or the United States of America, the interest
rate to be charged hereunder shall remain at the Highest Lawful Rate until such
time as there has been paid to the Agent for the account of each Lender (i) the
amount of interest in excess of that accruing at the Highest Lawful Rate that
the Agent and the Lenders would have received during the Limitation Period had
the interest rate remained at the otherwise applicable rate, and (ii) all
interest and fees otherwise payable to the Agent and the Lenders but for the
effect of such Limitation Period.
(c) If, under any circumstances, the aggregate amounts paid on the
Notes or under this Agreement or any other Loan Document include amounts which
by law are deemed interest and which would exceed the amount permitted if the
Highest Lawful Rate were in effect, the Borrower and the Co-Borrowers stipulate
that such payment and collection will have been and will be deemed to have been,
to the greatest extent permitted by applicable laws of the State of North
Carolina, or if applicable, the State of Texas any other applicable states' laws
or the United States of America, the result of mathematical error on the part of
the Borrower and the Co-Borrowers and the Agent and the Lenders; and the Agent
and the Lenders shall promptly refund the amount of such excess (to the extent
only of such interest payments in excess of that which would have accrued and
been payable on the basis of the Highest Lawful Rate) upon discovery of such
error
26
by the Agent and the Lenders or notice thereof from the Borrower and the
Co-Borrowers. In the event that the maturity of any Obligation is accelerated,
by reason of an election by the Agent and the Lenders or otherwise, or in the
event of any required or permitted prepayment, then the consideration
constituting interest under applicable laws may never exceed the Highest Lawful
Rate; and excess amounts paid which by law are deemed interest, if any, shall be
credited by the Lenders on the principal amount of the Obligations, or if the
principal amount of the Obligations shall have been paid in full, refunded to
the Borrower and the Co-Borrowers.
(d) All sums paid, or agreed to be paid, to the Agent and the
Lenders for the use, forbearance and detention of the proceeds of any advance
hereunder shall, to the extent permitted by applicable law, be amortized,
prorated, allocated, and spread throughout the full term hereof until paid in
full so that the actual rate of interest is uniform but does not exceed the
Highest Lawful Rate throughout the full term hereof.
2.19 YIELD PROTECTION. (a) Without limiting the effect of the other
provisions of this Section (but without duplication), the Borrower and/or the
Co-Borrowers shall pay to the Agent and each Lender from time to time such
amounts as the Agent and such Lender may determine are necessary to compensate
it for any Additional Costs incurred by the Agent and such Lender.
(b) Without limiting the effect of the other provisions of this
Section (but without duplication), the Borrower and/or the Co-Borrowers shall
pay to each Lender from time to time on request such amounts as each Lender may
determine are necessary to compensate each Lender for any costs attributable to
the maintenance by each Lender (or any Applicable Lending Office), pursuant to
any Regulatory Change, of capital in respect of the Commitment, such
compensation to include, without limitation, an amount equal to any reduction of
the rate of return on assets or equity of each Lender (or any Applicable Lending
Office) to a level below that which each Lender (or any Applicable Lending
Office) could have achieved but for such Regulatory Change.
(c) Without limiting the effect of the other provisions of this
Section (but without duplication), the Borrower and/or the Co-Borrowers shall
pay to each Lender the administrative and re-employment costs customarily
charged by Lenders as a result of:
(i) any payment, prepayment, or conversion by the Borrower and/or the
Co-Borrowers of a Fixed Rate Loan on a date other than the last day of an
Interest Period for such Loan; or
(ii) any failure by the Borrower and/or the Co-Borrowers to borrow a Fixed
Rate Loan from the Lenders on the date for such borrowing specified in the
relevant Borrowing Request;
such compensation to include, without limitation, with respect to any LIBO Rate
Loan, an amount equal to the excess, if any and only to the extent actually
incurred by such Lender, of (A) the
27
amount of interest which would have accrued on the principal amount so paid,
prepaid, converted, or not borrowed for the period from the date of such
payment, prepayment, conversion, or failure to borrow to the last day of the
then current Interest Period for such Loan (or, in the case of a failure to
borrow, the Interest Period for such Loan which would have commenced on the date
of such failure to borrow) at the applicable rate of interest for such Loan
provided for herein over (B) the interest component (as reasonably determined by
the Lenders) of the amount (as reasonably determined by the Agent and such
Lender) the Agent and such Lender would have bid in the London interbank market
for Dollar deposits of amounts comparable to such principal amount and
maturities comparable to such period.
(d) Determinations by the Agent and any Lender for purposes of this
Section of the effect of any Regulatory Change on capital maintained, their
costs or rate of return, maintaining Loans, their obligation to make Loans or on
amounts receivable by it in respect of Loans or such obligations, and the
additional amounts required to compensate the Agent and the Lenders under this
Section shall be conclusive, absent manifest error, provided that such
determinations are made on a reasonable basis. The Agent and such Lender shall
furnish the Borrower with a certificate setting forth in reasonable detail the
basis and amount of increased costs incurred or reduced amounts receivable as a
result of any such event, and the statements set forth therein shall be
conclusive, absent manifest error. The Agent and such Lender shall (i) notify
the Borrower, as promptly as practicable after the Lenders obtain knowledge of
any Additional Costs or other sums payable pursuant to this Section and
determine to request compensation therefor, of any event occurring after the
Closing Date which will entitle the Agent and such Lender to compensation
pursuant to this Section; provided that the Borrower shall not be obligated for
the payment of any Additional Costs or other sums payable pursuant to this
Section to the extent such Additional Costs or other sums accrued more than 30
days prior to the date upon which the Borrower was given such notice; and (ii)
designate a different Applicable Lending Office for the Loans of the Lenders
affected by such event if such designation will avoid the need for or reduce the
amount of such compensation. If the Agent or any Lender requests compensation
from the Borrower and/or the Co-Borrowers under this Section, the Borrower
and/or the Co-Borrowers may, by notice to the Agent and any Lender, require that
the Loans by the Lenders of the type with respect to which such compensation is
requested be converted into Floating Rate Loans in accordance with Section 2.11.
Any compensation requested by the Lenders pursuant to this Section shall be due
and payable to the Lenders within five days of delivery of any such notice by
the Lenders to the Borrower.
(e) Each Lender agrees that it shall not request, and the Borrower
and/or the Co- Borrowers shall not be obligated to pay, any Additional Costs or
other sums payable pursuant to this Section unless similar additional costs and
other sums payable are also generally assessed by the Lenders against other
customers of such Lenders similarly situated where such customers are subject to
documents providing for such assessment.
2.20 LIMITATION ON TYPES OF LOANS. Anything herein to the contrary
notwithstanding, no more than 6 separate Loans shall be outstanding at any one
time, with, for
28
purposes of this Section, all Floating Rate Loans constituting one Loan and all
LIBO Rate Loans for the same Interest Period constituting one Loan. Anything
herein to the contrary notwithstanding, if, on or prior to the determination of
any interest rate for any LIBO Rate Loan for any Interest Period therefor:
(a) the Agent determines (which determination shall be conclusive)
that quotations of interest rates for the deposits referred to in the
definition of "LIBO Rate" in Section 1.2 are not being provided in the
relevant amounts or for the relevant maturities for purposes of
determining the rate of interest for such Loan as provided in this
Agreement; or
(b) the Agent determines (which determination shall be conclusive)
that the rates of interest referred to in the definition of "LIBO Rate" in
Section 1.2 upon the basis of which the rate of interest for such Loan for
such Interest Period is to be determined do not accurately reflect the
cost to the Lender of making or maintaining such Loan for such Interest
Period,
then the Agent shall give the Borrower and/or the Co-Borrowers prompt notice
thereof; and so long as such condition remains in effect, the Lenders shall be
under no obligation to make LIBO Rate Loans or to convert Loans of any other
type into LIBO Rate Loans, and the Borrower and/or the Co-Borrowers shall, on
the last day of the then current Interest Period for each outstanding LIBO Rate
Loan, either prepay such LIBO Rate Loan or convert such Loan into another type
of Loan in accordance with Section 2.11. Before giving such notice pursuant to
this Section, the Agent will designate a different available Applicable Lending
Office for LIBO Rate Loans or take such other action as the Borrower and/or the
Co-Borrowers may request if such designation or action will avoid the need to
suspend the obligation of the Lenders to make LIBO Rate Loans hereunder and will
not, in the unanimous opinion of the Lenders, be disadvantageous to the Lenders.
2.21 ILLEGALITY. Notwithstanding any other provision of this
Agreement, in the event that it becomes unlawful for any Lender or its
Applicable Lending Office to (a) honor its obligation to make any type of Fixed
Rate Loans hereunder, or (b) maintain any type of Fixed Rate Loans hereunder,
then such Lender shall promptly notify the Agent and the Borrower and the
Co-Borrowers thereof; and the obligation of such Lender hereunder to make such
type of Fixed Rate Loans and to convert other types of Loans into Fixed Rate
Loans of such type shall be suspended until such time as such Lender may again
make and maintain Fixed Rate Loans of such type, and the outstanding Fixed Rate
Loans of such type shall be converted into Floating Rate Loans in accordance
with Section 2.11. Before giving such notice pursuant to this Section, such
Lender will designate a different available Applicable Lending Office for Fixed
Rate Loans or take such other action as the Borrower and the Co-Borrowers may
request if such designation or action will avoid the need to suspend the
obligation of the Lenders to make Fixed Rate Loans and will not, in the opinion
of any Lender, be disadvantageous to the Lenders.
29
2.22 REGULATORY CHANGE. In the event that by reason of any
Regulatory Change, any Lender (a) incurs Additional Costs based on or measured
by the excess above a specified level of the amount of a category of deposits or
other liabilities of such Lender which includes deposits by reference to which
the interest rate on any Fixed Rate Loan is determined as provided in this
Agreement or a category of extensions of credit or other assets of such Lender
which includes any Fixed Rate Loan, or (b) becomes subject to restrictions on
the amount of such a category of liabilities or assets which it may hold, then,
at the election of such Lender with notice to the Agent and the Borrower and the
Co-Borrowers, the obligation of the Lender to make such Fixed Rate Loans and to
convert Floating Rate Loans into such Fixed Rate Loans shall be suspended until
such time as such Regulatory Change ceases to be in effect, and all such
outstanding Fixed Rate Loans shall be converted into Floating Rate Loans in
accordance with Section 2.11.
2.23 LIMITATIONS ON INTEREST PERIODS. Each Interest Period selected
by the Borrower and/or the Co-Borrowers (a) which commences on the last Business
Day of a calendar month (or, with respect to any LIBO Rate Loan, any day for
which there is no numerically corresponding day in the appropriate subsequent
calendar month) shall end on the last Business Day of the appropriate subsequent
calendar month, (b) which would otherwise end on a day which is not a Business
Day shall end on the next succeeding Business Day (or, if such next succeeding
Business Day falls in the next succeeding calendar month, on the next preceding
Business Day), (c) which would otherwise commence before and end after Final
Maturity shall end on Final Maturity, and (d) shall have a duration of not less
than one month, as to any LIBO Rate Loan, and, if any Interest Period would
otherwise be a shorter period, the relevant Loan shall be a Floating Rate Loan
during such period.
2.24 LETTERS IN LIEU OF TRANSFER ORDERS. The Agent agrees that none
of the letters in lieu of transfer or division orders provided by the Borrower
and/or the Co-Borrowers pursuant to Section 3.1(f)(iii) or Section 5.7 will be
sent to the addressees thereof prior to the occurrence of an Event of Default,
at which time the Agent may, at its option and in addition to the exercise of
any of its other rights and remedies, send any or all of such letters.
2.25 POWER OF ATTORNEY. The Borrower and the Co-Borrowers hereby
designate the Agent as their agent and attorney-in-fact, to act in their name,
place, and stead for the purpose of completing and, upon the occurrence of an
Event of Default, delivering any and all of the letters in lieu of transfer
orders delivered by the Borrower and/or the Co-Borrowers to the Agent pursuant
to Section 3.1(f)(iii) or Section 5.7, including, without limitation, completing
any blanks contained in such letters and attaching exhibits thereto describing
the relevant Collateral. The Borrower and the Co-Borrowers hereby ratify and
confirm all that the Agent shall lawfully do or cause to be done by virtue of
this power of attorney and the rights granted with respect to such power of
attorney. This power of attorney is coupled with the interests of the Agent in
the Collateral, shall commence and be in full force and effect as of the Closing
Date and shall remain in full force and effect and shall be irrevocable so long
as any Obligation remains outstanding or unpaid or any Commitment exists. The
powers conferred on the Agent by this appointment are solely to protect the
interests of the Agent and the Lenders under the Loan Documents and shall
30
not impose any duty upon the Agent to exercise any such powers. The Agent shall
be accountable only for amounts that it actually receives as a result of the
exercise of such powers and shall not be responsible to the Borrower and the
Co-Borrowers or any other Person for any act or failure to act with respect to
such powers, except for gross negligence or willful misconduct.
ARTICLE III
CONDITIONS
The obligations of the Lenders to enter into this Agreement and to
make Loans are subject to the satisfaction of the following conditions
precedent:
3.1 RECEIPT OF LOAN DOCUMENTS AND OTHER ITEMS. The Lenders shall
have no obligation under this Agreement unless and until all matters incident to
the consummation of the transactions contemplated herein, including, without
limitation, the review by the Agent or its counsel of the title of the Borrower
and/or the Co-Borrowers shall be satisfactory to the Agent, and the Agent shall
have received, reviewed, and approved the following documents and other items,
appropriately executed when necessary and, where applicable, acknowledged by one
or more authorized officers of the Borrower and/or the Co-Borrowers all in form
and substance satisfactory to the Agent and dated, where applicable, of even
date herewith or a date prior thereto and acceptable to the Agent:
(a) multiple counterparts of this Agreement as requested by the
Lenders;
(b) the Notes;
(c) copies of the Articles of Incorporation or Certificate of
Incorporation and all amendments thereto and the bylaws and all amendments
thereto of the Borrower and the Co-Borrowers accompanied by a certificate
issued by the secretary or an assistant secretary of the Borrower and the
Co-Borrowers as the case may be, to the effect that each such copy is
correct and complete;
(d) certificates of incumbency and signatures of all officers of the
Borrower and the Co-Borrowers who are authorized to execute Loan Documents
on behalf of the Borrower and the Co-Borrowers, each such certificate
being executed by the secretary or an assistant secretary of the Borrower
and the Co-Borrowers;
(e) copies of corporate resolutions approving the Loan Documents and
authorizing the transactions contemplated herein and therein, duly adopted
by the boards of directors of the Borrower and the Co-Borrowers
accompanied by certificates of the secretary or an assistant secretary of
the Borrower and the Co- Borrowers to the effect that such copies are true
and correct copies of resolutions
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duly adopted at a meeting or by unanimous consent of the board of
directors of the Borrower and the Co-Borrowers and that such resolutions
constitute all the resolutions adopted with respect to such transactions,
have not been amended, modified, or revoked in any respect, and are in
full force and effect as of the date of such certificate;
(f) multiple counterparts, as requested by the Lenders, of the
following Security Instruments creating, evidencing, perfecting, and
otherwise establishing Liens in favor of the Agent for the benefit of the
Lenders in and to the Collateral:
(i) Ratification and Amendment to Mortgage, Deed of Trust, Indenture,
Security Agreement, Assignment of Production, and Financing Statement from the
Borrower and SMC Production Co., Amerac Energy Corporation, and BEC Energy, Inc.
covering all Oil and Gas Properties of the Borrower and SMC Production Co.,
Amerac Energy Corporation, and BEC Energy, Inc. and all improvements, personal
property, and fixtures related thereto;
(ii) Financing Statements from the Borrower and SMC Production Co., Amerac
Energy Corporation, and BEC Energy, Inc., as debtor, constituent to the
instrument described in clause (i) above;
(iii) Assignment of Notes and Liens from Compass to Agent for the benefit of
the Lenders as consented to and acknowledged by Borrower and Financing Statement
Assignment from Compass to Agent for the benefit of the Lenders;
(iv) undated letters, in form and substance satisfactory to the Agent, from
the Borrower and SMC Production Co., Amerac Energy Corporation, and BEC Energy,
Inc. to each purchaser of production and disburser of the proceeds of production
from or attributable to the Mortgaged Properties, together with additional
letters with the addressees left blank, authorizing and directing the addressees
to make future payments attributable to production from the Mortgaged Properties
directly to the Agent;
(v) Security Agreement (Stock Pledge) by Borrower of
Stock of SMC Production Co., SMC Ecuador, Inc., BEC Energy,
Inc., Amerac Energy Corporation and 779776 Alberta, Ltd. and/or
Neutrino Resources, Inc.;
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(vi) Financing Statement to be filed electronically in Alberta, Canada;
(vii) Security Agreement from Borrower and Co- Borrowers pledging all
personal property;
(viii) Financing Statement
(g) unaudited Financial Statements of the Borrower and Co-Borrowers
as of March 31, 1998;
(h) certificates dated as of a recent date from the Secretary of
State or other appropriate Governmental Authority evidencing the existence
or qualification and good standing of the Borrower and Co-Borrowers in
their respective jurisdictions of incorporation and in any other
jurisdictions where any of them does business;
(i) results of searches of the UCC Records of the Secretary of State
of the States of Alabama, Arkansas, Louisiana, Michigan, Mississippi,
Oklahoma, Texas and Wyoming from a source acceptable to the Lender and
reflecting no Liens other than Permitted Liens against any of the
Collateral as to which perfection of a Lien is accomplished by the filing
of a financing statement other than in favor of the
Agent or Compass;
(j) confirmation, acceptable to the Agent, of the title of the
Borrower and/or Co-Borrowers to the Mortgaged Properties, free and clear
of Liens other than Permitted Liens;
(k) all operating, lease, sublease, royalty, sales, exchange,
processing, farmout, bidding, pooling, unitization, communitization, and
other agreements relating to the Mortgaged Properties requested by the
Agent;
(l) engineering reports covering the Mortgaged Properties;
(m) the opinion of Akin, Gump, Strauss, Hauer, & Feld, counsel to
the Borrower and Co-Borrowers, in the form attached hereto as Exhibit III,
with such changes thereto as may be approved by the Agent and Lenders;
(n) certificates evidencing the insurance coverage required pursuant
to Section 5.18; and
(o) such other agreements, documents, instruments, opinions,
certificates, waivers, consents, and evidence as the Agent or Lenders may
reasonably request.
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3.2 EACH LOAN. In addition to the conditions precedent stated
elsewhere herein, the Lenders shall not be obligated to make any Loan unless:
(a) the Borrower and/or the Co-Borrowers shall have delivered to the Agent
a Borrowing Request at least the requisite time prior to the requested date for
the relevant Loan, and each statement or certification made in such Borrowing
Request shall be true and correct in all material respects on the requested date
for such Loan;
(b) no Event of Default or Default shall exist or will occur as a result
of the making of the requested Loan;
(c) if requested by the Agent or any Lender, the Borrower and/or the
Co-Borrowers shall have delivered evidence satisfactory to the Agent or such
Lender substantiating any of the matters contained in this Agreement which are
necessary to enable the Borrower and/or the Co-Borrowers to qualify for such
Loan;
(d) the Agent shall have received, reviewed, and approved such additional
documents and items as described in Section 3.1 as may be requested by any
Lender with respect to such Loan;
(e) no event shall have occurred which, in the reasonable opinion of the
Lenders, could have a Material Adverse Effect;
(f) each of the representations and warranties contained in this Agreement
shall be true and correct and shall be deemed to be repeated by the Borrower
and/or the Co-Borrowers as if made on the requested date for such Loan;
(g) the Security Instruments shall be in full force and effect and provide
to the Lenders the security intended thereby;
(h) neither the consummation of the transactions contemplated hereby nor
the making of such Loan shall contravene, violate, or conflict with any
Requirement of Law;
(i) the Borrower and/or Co-Borrowers shall hold full legal title to the
Collateral pledged by such entities and be the sole beneficial owners thereof;
(j) the Agent and/or each Lender shall have received the payment of all
Facility Fees, Letter of Credit Fees, and other fees payable to the Agent and/or
each Lender hereunder and reimbursement from the Borrower and/or the
Co-Borrowers, or special legal counsel for the Agent shall have received payment
from the Borrower and/or the Co-Borrowers, for (i) all reasonable fees and
expenses of counsel to the Agent for which the Borrower and/or the Co-Borrowers
are responsible pursuant to applicable provisions of this Agreement and for
which invoices have been presented as of or prior to the date of the relevant
Loan, and (ii) estimated fees charged by filing officers and other public
officials incurred or to be incurred in connection with the filing and
34
recordation of any Security Instruments, for which invoices have been presented
as of or prior to the date of the requested Loan; and
(k) all matters incident to the consummation of the transactions hereby
contemplated shall be satisfactory to the Agent and each Lender.
3.3 EACH LETTER OF CREDIT. The obligation of the Agent, as the
issuer of the Letters of Credit, to issue, renew, or extend any Letter of Credit
is subject to the satisfaction of the following additional conditions precedent:
(a) the Borrower shall have delivered to the Agent a written (or
oral, confirmed promptly in writing) request for the issuance, renewal, or
extension of a Letter of Credit at least two Business Days prior to the
requested issuance, renewal, or extension date and a Letter of Credit
Application at least two Business Days prior to the requested issuance
date; and each statement or certification made in such Letter of Credit
Application shall be true and correct in all material respects on the
requested date for the issuance of such Letter of Credit;
(b) no Default or Event of Default shall exist or will occur as a
result of the issuance, renewal, or extension of such Letter of Credit;
and
(c) the terms, provisions, and beneficiary of the Letter of Credit
or such renewal or extension shall be satisfactory to the Agent, as the
issuer of the Letters of Credit, in its sole discretion.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
To induce the Agent and the Lenders to enter into this Agreement and
to make the Loans, the Borrower and each Co-Borrower, respectively, represent
and warrant to the Agent and the Lenders (which representations and warranties
shall survive the delivery of the Notes) that:
4.1 DUE AUTHORIZATION. The execution and delivery by the Borrower
and Co- Borrowers of this Agreement and the borrowings hereunder, the execution
and delivery by the Borrower and Co-Borrowers of the Notes, the repayment of the
Notes and interest and fees provided for in the Notes and this Agreement, the
execution and delivery of the Security Instruments by the Borrower and
Co-Borrowers and the performance of all obligations of the Borrower and
Co-Borrowers under the Loan Documents are within the power of the Borrower and
Co-Borrowers, have been duly authorized by all necessary corporate action by the
Borrower and Co-Borrowers, and do not and will not to our knowledge, (a) require
the consent of any Governmental Authority, (b) contravene or conflict with any
Requirement of Law, (c) contravene
35
or conflict with any indenture, instrument, or other agreement to which the
Borrower and Co- Borrowers are a party or by which any Property of the Borrower
and Co-Borrowers may be presently bound or encumbered, or (d) result in or
require the creation or imposition of any Lien in, upon or of any Property of
the Borrower and Co-Borrowers under any such indenture, instrument, or other
agreement, other than the Loan Documents.
4.2 CORPORATE EXISTENCE. The Borrower and Co-Borrowers are
corporations duly organized, legally existing, and in good standing under the
laws of their states of incorporation and are duly qualified as foreign
corporations and are in good standing in all jurisdictions wherein the ownership
of Property or the operation of their business necessitates same, other than
those jurisdictions wherein the failure to so qualify will not have a Material
Adverse Effect.
4.3 VALID AND BINDING OBLIGATIONS. All Loan Documents, when duly
executed and delivered by the Borrower and/or the Co-Borrowers, as applicable,
will be the legal, valid, and binding obligations of the Borrower and/or the
Co-Borrowers, enforceable against the Borrower and/or the Co-Borrowers, as
applicable, in accordance with their respective terms.
4.4 SECURITY INSTRUMENTS. The provisions of each Security Instrument
are effective to create in favor of the Agent for the benefit of the Lenders, a
legal, valid, and enforceable Lien in all right, title, and interest of the
Borrower and/or the Co-Borrowers in the Collateral described therein, which
Liens, assuming the accomplishment of recording and filing in accordance with
applicable laws prior to the intervention of rights of other Persons, shall
constitute fully perfected first-priority Liens on all right, title, and
interest of the Borrower and/or the Co-Borrowers in the Collateral described
therein. Existing Liens as assigned by Compass to Agent for the benefit of the
Lenders continue to constitute good and valid liens as of the original date of
recordation thereof.
4.5 TITLE TO ASSETS. The Borrower and/or the Co-Borrowers have good
and defensible title to all of their respective Properties, free and clear of
all Liens except Permitted Liens.
4.6 SCOPE AND ACCURACY OF FINANCIAL STATEMENTS. The Financial
Statements of the Borrower and Co-Borrowers as of March 31, 1998, present fairly
the financial position and results of operations and cash flows of the Borrower
and Co-Borrowers in accordance with GAAP as at the relevant point in time or for
the period indicated, as applicable. No event or circumstance has occurred since
March 31, 1998, which could reasonably be expected to have a Material Adverse
Effect.
4.7 NO MATERIAL MISSTATEMENTS. To our knowledge, no information,
exhibit, statement, or report furnished to the Lenders by or at the direction of
the Borrower and the Co- Borrowers in connection with this Agreement contains
any material misstatement of fact or omits
36
to state a material fact or any fact necessary to make the statements contained
therein not misleading as of the date made or deemed made.
4.8 LIABILITIES, LITIGATION, AND RESTRICTIONS. Other than as listed
under the heading "Liabilities" on Exhibit VI attached hereto, the Borrower
and/or the Co-Borrowers have no liabilities, direct, or contingent, which may
materially and adversely affect its business or operations or its ownership of
the Collateral. Except as set forth under the heading "Litigation" on Exhibit VI
hereto, no litigation or other action of any nature affecting the Borrower
and/or the Co-Borrowers is pending before any Governmental Authority or, to the
best knowledge of the Borrower and/or the Co-Borrowers, threatened against or
affecting the Borrower and/or the Co- Borrowers which might reasonably be
expected to result in any impairment of its ownership of any Collateral or have
a Material Adverse Effect. No unusual or unduly burdensome restriction,
restraint or hazard exists by contract, Requirement of Law, or otherwise
relative to the business or operations of the Borrower and/or the Co-Borrowers
or the ownership and operation of the Collateral other than such as relate
generally to Persons engaged in business activities similar to those conducted
by the Borrower and/or the Co-Borrowers.
4.9 COMPLIANCE WITH LAWS. The Borrower and/or the Co-Borrowers and
their Property, including, without limitation, the Mortgaged Property, are in
compliance with all applicable Requirements of Law, including, without
limitation, Environmental Laws, the Natural Gas Policy Act of 1978, as amended,
and ERISA, except to the extent non-compliance with any such Requirements of Law
could not reasonably be expected to have a Material Adverse Effect.
4.10 ERISA. Except as set out on Exhibit VI, the Borrower and the
Co- Borrowers do not maintain nor have they maintained any Plan. The Borrower
and the Co- Borrowers do not currently contribute to or have any obligation to
contribute to or otherwise have any liability with respect to any Plan.
4.11 ENVIRONMENTAL LAWS. To the best knowledge and belief of the
Borrower and/or the Co-Borrowers, except as would not have a Material Adverse
Effect, or as described on Exhibit VI under the heading "Environmental Matters:"
(a) no Property of the Borrower and/or the Co-Borrowers is currently
on or has ever been on, or is adjacent to any Property which is on or has
ever been on, any federal or state list of Superfund Sites;
(b) no Hazardous Substances have been generated, transported, and/or
disposed of by the Borrower and/or the Co-Borrowers at a site which was,
at the time of such generation, transportation, and/or disposal, or has
since become, a Superfund Site;
(c) except in accordance with applicable Requirements of Law or the
terms of a valid permit, license, certificate, or approval of the relevant
Governmental
37
Authority, no Release of Hazardous Substances by the Borrower and/or the
Co- Borrowers or from, affecting, or related to any Property of the
Borrower and/or the Co-Borrowers or adjacent to any Property of the
Borrower and/or the Co- Borrowers has occurred; and
(d) no Environmental Complaint has been received by the Borrower
and/or the Co-Borrowers.
4.12 COMPLIANCE WITH FEDERAL RESERVE REGULATIONS. No transaction
contemplated by the Loan Documents is in violation of any regulations
promulgated by the Board of Governors of the Federal Reserve System, including,
without limitation, Regulations G, T, U, or X.
4.13 INVESTMENT COMPANY ACT COMPLIANCE. The Borrower and/or the Co-
Borrowers are not, nor are the Borrower and/or the Co-Borrowers directly or
indirectly controlled by or acting on behalf of any Person which is, an
"investment company" or an "affiliated person" of an "investment company" within
the meaning of the Investment Company Act of 1940, as amended.
4.14 PUBLIC UTILITY HOLDING COMPANY ACT COMPLIANCE. The Borrower
and/or the Co-Borrowers are not a "holding company," or an "affiliate" of a
"holding company" or of a "subsidiary company" of a "holding company," within
the meaning of the Public Utility Holding Company Act of 1935, as amended.
4.15 PROPER FILING OF TAX RETURNS; PAYMENT OF TAXES DUE. The
Borrower and the Co-Borrowers have duly and properly filed a United States
income tax return and all other tax returns which are required to be filed and
have paid all taxes due except such as are being contested in good faith and as
to which adequate provisions and disclosures have been made. The respective
charges and reserves on the books of the Borrower and the Co-Borrowers with
respect to taxes and other governmental charges are adequate.
4.16 REFUNDS. Except as described on Exhibit VI under the heading
"Refunds," no orders of, proceedings pending before, or other requirements of
the Minerals Management Service, Bureau of Land Management, the Federal Energy
Regulatory Commission, the Texas Railroad Commission, or any Governmental
Authority exist which could result in the Borrower and/or the Co-Borrowers being
required to refund any material portion of the proceeds received or to be
received from the sale of hydrocarbons constituting part of the Mortgaged
Property.
4.17 GAS CONTRACTS. Except as described on Exhibit VI under the
heading "Gas Contracts," the Borrower and/or the Co-Borrowers (a) are not
obligated in any material respect by virtue of any prepayment made under any
contract containing a "take-or-pay" or "prepayment" provision or under any
similar agreement to deliver hydrocarbons produced from or allocated to any of
the Mortgaged Property at some future date without receiving full payment
therefor within 90 days of delivery, and (b) have not produced gas, in any
material amount, subject to, and neither
38
the Borrower and/or the Co-Borrowers nor any of the Mortgaged Properties are
subject to, balancing rights of third parties or subject to balancing duties
under governmental requirements or joint operating agreements, except as to such
matters for which the Borrower and/or the Co- Borrowers have established
monetary reserves adequate in amount to satisfy such obligations and have
segregated such reserves from other accounts.
4.18 INTELLECTUAL PROPERTY. The Borrower and/or the Co-Borrowers own
or are licensed to use all Intellectual Property necessary to conduct all
business material to their condition (financial or otherwise), business, or
operations as such business is currently conducted. No claim has been asserted
or is pending by any Person with respect to the use of any such Intellectual
Property or challenging or questioning the validity or effectiveness of any such
Intellectual Property; and the Borrower and/or the Co-Borrowers knows of no
valid basis for any such claim. The use of such Intellectual Property by the
Borrower and/or the Co-Borrowers does not infringe on the rights of any Person,
except for such claims and infringements as do not, in the aggregate, give rise
to any material liability on the part of the Borrower and/or the Co-Borrowers.
4.19 CASUALTIES OR TAKING OF PROPERTY. Except as disclosed on
Exhibit VI under the heading "Casualties," since March 31, 1998, neither the
business nor any Property of the Borrower and/or the Co-Borrowers have been
materially adversely affected 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 Governmental Authority, riot, activities of armed forces, or
acts of God.
4.20 LOCATIONS OF BORROWER. The principal place of business and
chief executive office of the Borrower and the Co-Borrowers is located at the
address of the Borrower set forth in Section 9.3 or at such other location as
the Borrower and the Co-Borrowers may have, by proper written notice hereunder,
advised the Lenders, provided that such other location is within a state in
which appropriate financing statements from the Borrower in favor of the Lenders
have been filed.
4.21 SUBSIDIARIES. The Borrower has no Subsidiaries other than the
Co- Borrowers and those listed on Exhibit VI.
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ARTICLE V
AFFIRMATIVE COVENANTS
So long as any Obligation remains outstanding or unpaid or any
Commitment exists, the Borrower and/or the Co-Borrowers shall:
5.1 MAINTENANCE AND ACCESS TO RECORDS. Keep adequate records, in
accordance with GAAP, of all its transactions so that at any time, and from time
to time, its true and complete financial condition may be readily determined,
and within 2 Business Days following the reasonable request of the Agent or any
Lender, make such records available for inspection by the Agent or any Lender
and, at the expense of the Borrower and/or the Co-Borrowers, allow the Agent or
any Lender to make and take away copies thereof.
5.2 QUARTERLY FINANCIAL STATEMENTS; COMPLIANCE CERTIFICATES. Deliver
to the Agent and each Lender, (a) on or before the 45th day after the close of
each of the first three quarterly periods of each fiscal year of the Borrower
and the Co-Borrowers, a copy of the unaudited consolidated and consolidating
Financial Statements of the Borrower and the Co- Borrowers as at the close of
such quarterly period and from the beginning of such fiscal year to the end of
such period, such Financial Statements to be certified by Responsible Officers
of the Borrower and the Co-Borrowers as having been prepared in accordance with
GAAP consistently applied and as a fair presentation of the condition of the
Borrower and the Co-Borrowers, subject to changes resulting from normal year-end
audit adjustments, and (b) on or before the 45th day after the close of each
fiscal quarter and on or before the 120th day after the close of the fiscal
year, a Compliance Certificate.
5.3 ANNUAL FINANCIAL STATEMENTS. Deliver to the Agent and each
Lender, on or before the 120th day after the close of each fiscal year of the
Borrower and the Co-Borrowers, a copy of the annual audited consolidated and
unaudited consolidating Financial Statements of the Borrower and the
Co-Borrowers.
5.4 OIL AND GAS RESERVE REPORTS. (a) Deliver to the Agent and each
Lender, no later than April 1 of each year during the term of this Agreement,
engineering reports in form and substance satisfactory to the Agent and the
Lenders, certified by any nationally- or regionally- recognized independent
consulting petroleum engineers acceptable to the Agent and the Lenders as fairly
and accurately setting forth (i) the proven and producing, shut-in, behind-pipe,
and undeveloped oil and gas reserves (separately classified as such)
attributable to the Mortgaged Properties, plus certain other oil and gas
properties, including, but not limited to, oil and gas properties situated in
Canada, to be determined in sole discretion of the Agent and the Lenders, as of
January 1 of the year for which such reserve reports are furnished, (ii) the
aggregate present value of the future net income with respect to such Mortgaged
Properties, plus certain other oil and gas properties to be determined in sole
discretion of the Agent and the Lenders, discounted at a stated per annum
discount rate of proven and producing reserves, (iii) projections of the annual
rate of production, gross income, and net income with respect to such proven and
producing reserves, and (iv) information with respect to the "take-or-pay,"
"prepayment," and gas- balancing liabilities of the Borrower and/or the
Co-Borrowers.
40
(b) Deliver to the Agent and each Lender no later than October 1 of
each year during the term of this Agreement, engineering reports in form and
substance satisfactory to the Agent and the Lenders prepared by or under the
supervision of the chief petroleum engineer of the Borrower and/or the
Co-Borrowers evaluating the Mortgaged Properties, plus certain other oil and gas
properties to be determined in sole discretion of the Agent and the Lenders, as
of July 1 of the year for which such reserve reports are furnished and updating
the information provided in the reports pursuant to Section 5.4(a).
(c) Each of the reports provided pursuant to this Section shall be
submitted to the Agent and each Lender together with additional data concerning
pricing, quantities of production from the Mortgaged Properties, plus certain
other oil and gas properties to be determined in sole discretion of the Agent
and the Lenders, volumes of production sold, purchasers of production, gross
revenues, expenses, and such other information and engineering and geological
data with respect thereto as the Agent and the Lenders may reasonably request.
5.5 TITLE OPINIONS; TITLE DEFECTS. Promptly upon the request of the
Lenders, furnish to the Agent title opinions, in form and substance and by
counsel satisfactory to the Agent, or other confirmation of title acceptable to
the Lenders, covering not less than a percentage of the present value, agreed
upon by the Lenders, and determined by the Agent and the Lenders in their sole
discretion, of the Oil and Gas Properties, and promptly, but in any event within
60 days after notice by the Agent of any defect, material in the opinion of the
Agent and the Lenders in value, in the title of the Borrower and/or the
Co-Borrowers to any of their Oil and Gas Properties, clear such title defects,
and, in the event any such title defects are not cured in a timely manner, pay
all related costs and fees incurred by the Agent to do so. Provided, however, to
the extent it is determined by the Lenders that such title defects cannot be
cured or Borrower and/or Co- Borrowers so notify the Lenders, the Lenders may
reduce the Borrowing Base by the amount equal to the value of the oil and gas
lease affected by such title defect.
5.6 NOTICES OF CERTAIN EVENTS. Deliver to the Agent and each Lender,
immediately upon having knowledge of the occurrence of any of the following
events or circumstances, a written statement with respect thereto, signed by a
Responsible Officer of the Borrower and/or the Co-Borrowers and setting forth
the relevant event or circumstance and the steps being taken by the Borrower
and/or the Co-Borrowers with respect to such event or circumstance:
(a) any Default or Event of Default;
(b) any default or event of default under any contractual obligation
of the Borrower and/or the Co-Borrowers, or any litigation, investigation,
or proceeding between the Borrower and/or the Co-Borrowers and any
Governmental Authority which, in either case, if not cured or if adversely
determined, as the case may be, could reasonably be expected to have a
Material Adverse Effect;
(c) any litigation or proceeding involving the Borrower and/or the
Co- Borrowers as a defendant or in which any Property of the Borrower
and/or the Co- Borrowers are subject to a claim and in which the amount
involved is $100,000 or more and which is not covered by insurance or in
which injunctive or similar relief is sought;
41
(d) the receipt by the Borrower and/or the Co-Borrowers of any
Environmental Complaint;
(e) any actual, proposed, or threatened testing or other
investigation by any Governmental Authority or other Person concerning the
environmental condition of, or relating to, any Property of the Borrower
and/or the Co-Borrowers or adjacent to any Property of the Borrower and/or
the Co-Borrowers following any allegation of a violation of any
Requirement of Law;
(f) any Release of Hazardous Substances by the Borrower and/or the
Co- Borrowers or from, affecting, or related to any Property of the
Borrower and/or the Co-Borrowers or adjacent to any Property of the
Borrower and/or the Co- Borrowers except in accordance with applicable
Requirements of Law or the terms of a valid permit, license, certificate,
or approval of the relevant Governmental Authority, or the violation of
any Environmental Law, or the revocation, suspension, or forfeiture of or
failure to renew, any permit, license, registration, approval, or
authorization which could reasonably be expected to have a Material
Adverse Effect;
(g) the change in identity or address of any Person remitting to the
Borrower and/or the Co-Borrowers proceeds from the sale of hydrocarbon
production from or attributable to any Mortgaged Property;
(h) any change in the senior management of the Borrower;
(i) any change in the terms of the National Bank of Canada facility
with 779776 Alberta, Ltd. and/or Neutrino Resources, Inc., and
(j) any other event or condition which could reasonably be expected
to have a Material Adverse Effect.
5.7 LETTERS IN LIEU OF TRANSFER ORDERS; DIVISION ORDERS. Promptly
upon request by the Agent at any time and from time to time, execute such
letters in lieu of transfer orders, in addition to the letters signed by the
Borrower and/or the Co-Borrowers and delivered to the Agent in satisfaction of
the condition set forth in Section 3.1 (f)(iii) and/or division and/or transfer
orders as are necessary or appropriate to transfer and deliver to the Agent
proceeds from or attributable to any Mortgaged Property.
5.8 ADDITIONAL INFORMATION. Furnish to the Agent and each Lender,
promptly upon the request of the Agent or any Lender, such additional financial
or other information concerning the assets, liabilities, operations, and
transactions of the Borrower and/or the Co- Borrowers as the Agent or any Lender
may from time to time request; and notify the Agent and each Lender not less
than ten Business Days prior to the occurrence of any condition or event that
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may change the proper location for the filing of any financing statement or
other public notice or recording for the purpose of perfecting a Lien in any
Collateral, including, without limitation, any change in its name or the
location of its principal place of business or chief executive office; and upon
the request of the Agent or any Lender, execute such additional Security
Instruments as may be necessary or appropriate in connection therewith.
5.9 COMPLIANCE WITH LAWS. Comply with all applicable Requirements of
Law, including, without limitation, (a) the Natural Gas Policy Act of 1978, as
amended, (b) ERISA, (c) Environmental Laws, and (d) all permits, licenses,
registrations, approvals, and authorizations issued to it or of which it has
knowledge (i) related to any natural or environmental resource or media located
on, above, within, in the vicinity of, related to or affected by any Property of
the Borrower and/or the Co-Borrowers, (ii) required for the performance of the
operations of the Borrower and/or the Co-Borrowers, or (iii) applicable to the
use, generation, handling, storage, treatment, transport, or disposal of any
Hazardous Substances; and instruct all employees, crew members, agents,
contractors, subcontractors, and future lessees (pursuant to appropriate lease
provisions) of the Borrower and/or the Co-Borrowers, while such Persons are
acting within the scope of their relationship with the Borrower and/or the
Co-Borrowers, to comply with all such Requirements of Law as may be necessary or
appropriate to enable the Borrower and/or the Co- Borrowers to so comply.
5.10 PAYMENT OF ASSESSMENTS AND CHARGES. Pay all taxes, assessments,
governmental charges, rent, and other Indebtedness which, if unpaid, might
become a Lien against the Property of the Borrower and/or the Co-Borrowers,
except any of the foregoing being contested in good faith and as to which
adequate reserve in accordance with GAAP has been established or unless failure
to pay would not have a Material Adverse Effect.
5.11 MAINTENANCE OF CORPORATE EXISTENCE AND GOOD STANDING. Maintain
their corporate existence or qualification and good standing in its
jurisdictions of incorporation and in all jurisdictions wherein the Property now
owned or hereafter acquired or business now or hereafter conducted necessitates
same, unless the failure to do so would not have a Material Adverse Effect.
5.12 PAYMENT OF NOTES; PERFORMANCE OF OBLIGATIONS. Pay the Notes
according to the reading, tenor, and effect thereof, as modified hereby, and do
and perform every act and discharge all of its other Obligations.
5.13 FURTHER ASSURANCES. Upon the Agent's written request, promptly
cure any defects in the execution and delivery of any of the Loan Documents and
all agreements contemplated thereby, and execute, acknowledge, and deliver such
other assurances and instruments as shall, in the opinion of the Agent, be
necessary to fulfill the terms of the Loan Documents.
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5.14 INITIAL FEES AND EXPENSES OF COUNSEL TO AGENT. Upon request by
the Agent, promptly reimburse the Agent for all reasonable fees and expenses of
Jackson Walker L.L.P., special counsel to the Agent, in connection with the
preparation of this Agreement and all documentation contemplated hereby, the
satisfaction of the conditions precedent set forth herein, the filing and
recordation of Security Instruments, and the consummation of the transactions
contemplated in this Agreement.
5.15 SUBSEQUENT FEES AND EXPENSES OF AGENT AND LENDERS. Upon request
by the Agent, promptly reimburse the Agent (to the fullest extent permitted by
law) for all amounts reasonably expended, advanced, or incurred by or on behalf
of the Agent to ratify, amend, restate, or prepare additional Loan Documents, as
the case may be; for the filing and recordation of Security Instruments.
Promptly reimburse the Agent and each Lender to satisfy any obligation of the
Borrower and/or the Co-Borrowers under any of the Loan Documents; to collect the
Obligations; to enforce the rights of the Agent and each Lender under any of the
Loan Documents; and to protect the Properties or business of the Borrower and/or
the Co-Borrowers, including, without limitation, the Collateral, which amounts
shall be deemed compensatory in nature and liquidated as to amount upon notice
to the Borrower and/or the Co-Borrowers by the Agent and each Lender and which
amounts shall include, but not be limited to (a) all court costs, (b) reasonable
attorneys' fees, (c) reasonable fees and expenses of auditors and accountants
incurred to protect the interests of the Agent and each Lender, (d) fees and
expenses incurred in connection with the participation by the Agent and each
Lender as a member of the creditors' committee in a case commenced under any
Insolvency Proceeding, (e) fees and expenses incurred in connection with lifting
the automatic stay prescribed in ss.362 Title 11 of the United States Code, and
(f) fees and expenses incurred in connection with any action pursuant to ss.1129
Title 11 of the United States Code all reasonably incurred by the Agent and each
Lender in connection with the collection of any sums due under the Loan
Documents, together with interest at the per annum interest rate equal to the
Floating Rate, calculated on a basis of a calendar year of 365 or 366 days, as
the case may be, counting the actual number of days elapsed, on each such amount
from the date of notification that the same was expended, advanced, or incurred
by the Agent and each Lender until the date it is repaid to the Agent and each
Lender, with the obligations under this Section surviving the non-assumption of
this Agreement in a case commenced under any Insolvency Proceeding and being
binding upon the Borrower and/or the Co-Borrowers and/or a trustee, receiver,
custodian, or liquidator of the Borrower and/or the Co-Borrowers appointed in
any such case.
5.16 OPERATION OF OIL AND GAS PROPERTIES. Develop, maintain, and
operate their Oil and Gas Properties in a prudent and workmanlike manner in
accordance with industry standards.
5.17 MAINTENANCE AND INSPECTION OF PROPERTIES. Maintain all of their
tangible Properties in good repair and condition, ordinary wear and tear
excepted; make all necessary replacements thereof and operate such Properties in
a good and workmanlike manner; and permit on 2 Business Days prior notice any
authorized representative of the Agent or any Lender to visit and inspect, any
tangible Property of the Borrower and/or the Co-Borrowers.
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5.18 MAINTENANCE OF INSURANCE. Maintain insurance with respect to
their Properties and businesses against such liabilities, casualties, risks, and
contingencies as is customary in the relevant industry and sufficient to prevent
a Material Adverse Effect, all such insurance to be in amounts and from insurers
acceptable to the Lenders and, within 60 days of the Closing Date for property
damage insurance covering Collateral and business interruption insurance, if
any, maintained by Borrower and/or the Co-Borrowers, naming the Agent as loss
payee, and, upon any renewal of any such insurance and at other times upon
request by the Agent or any Lender, furnish to the Agent or any Lender evidence,
satisfactory to the Agent and each Lender of the maintenance of such insurance.
The Agent shall have the right to collect, and the Borrower and/or the
Co-Borrowers hereby assigns to the Agent for the benefit of the Lenders, any and
all monies that may become payable under any policies of insurance relating to
business interruption or by reason of damage, loss, or destruction of any of the
Collateral. In the event of any damage, loss, or destruction for which insurance
proceeds relating to business interruption or Collateral exceed $100,000, the
Agent for the benefit of the Lenders may, at its option, apply all such sums or
any part thereof received by it toward the payment of the Obligations, whether
matured or unmatured, application to be made first to interest and then to
principal, and shall deliver to the Borrower and/or the Co-Borrowers the
balance, if any, after such application has been made. In the event of any such
damage, loss, or destruction for which insurance proceeds are $100,000 or less,
provided that no Default or Event of Default has occurred and is continuing, the
Agent shall deliver any such proceeds received by it to the Borrower and/or the
Co-Borrowers. In the event the Agent receives insurance proceeds not
attributable to Collateral or business interruption, the Agent shall deliver any
such proceeds to the Borrower and/or the Co-Borrowers.
5.19 INDEMNIFICATION. INDEMNIFY AND HOLD THE AGENT AND EACH LENDER
AND THEIR SHAREHOLDERS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS,
ATTORNEYS-IN-FACT, AND AFFILIATES AND EACH TRUSTEE FOR THE BENEFIT OF THE AGENT
AND EACH LENDER UNDER ANY SECURITY INSTRUMENT HARMLESS FROM AND AGAINST ANY AND
ALL CLAIMS, LOSSES, DAMAGES, LIABILITIES, FINES, PENALTIES, CHARGES,
ADMINISTRATIVE AND JUDICIAL PROCEEDINGS AND ORDERS, JUDGMENTS, REMEDIAL ACTIONS,
REQUIREMENTS AND ENFORCEMENT ACTIONS OF ANY KIND, AND ALL COSTS AND EXPENSES
INCURRED IN CONNECTION THEREWITH (INCLUDING, WITHOUT LIMITATION, ATTORNEYS' FEES
AND EXPENSES), ARISING DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, FROM (A) THE
PRESENCE OF ANY HAZARDOUS SUBSTANCES ON, UNDER, OR FROM ANY PROPERTY OF THE
BORROWER AND/OR THE CO- BORROWERS, WHETHER PRIOR TO OR DURING THE TERM HEREOF,
(B) ANY ACTIVITY CARRIED ON OR UNDERTAKEN ON OR OFF ANY PROPERTY OF THE BORROWER
AND/OR THE CO-BORROWERS , WHETHER PRIOR TO OR DURING THE TERM HEREOF, AND
WHETHER BY THE BORROWER AND/OR THE CO-BORROWERS OR ANY PREDECESSOR IN TITLE,
EMPLOYEE, AGENT, CONTRACTOR, OR SUBCONTRACTOR OF THE BORROWER AND/OR THE
CO-BORROWERS OR ANY OTHER PERSON AT ANY TIME OCCUPYING OR PRESENT ON SUCH
PROPERTY, IN CONNECTION WITH THE HANDLING, TREATMENT, REMOVAL, STORAGE,
45
DECONTAMINATION, CLEANUP, TRANSPORTATION, OR DISPOSAL OF ANY HAZARDOUS
SUBSTANCES AT ANY TIME LOCATED OR PRESENT ON OR UNDER SUCH PROPERTY, (C) ANY
RESIDUAL CONTAMINATION ON OR UNDER ANY PROPERTY OF THE BORROWER AND/OR THE
CO-BORROWERS, (D) ANY CONTAMINATION OF ANY PROPERTY OR NATURAL RESOURCES ARISING
IN CONNECTION WITH THE GENERATION, USE, HANDLING, STORAGE, TRANSPORTATION OR
DISPOSAL OF ANY HAZARDOUS SUBSTANCES BY THE BORROWER AND/OR THE CO-BORROWERS OR
ANY EMPLOYEE, AGENT, CONTRACTOR, OR SUBCONTRACTOR OF THE BORROWER AND/OR THE CO-
BORROWERS WHILE SUCH PERSONS ARE ACTING WITHIN THE SCOPE OF THEIR RELATIONSHIP
WITH THE BORROWER AND/OR THE CO-BORROWERS, IRRESPECTIVE OF WHETHER ANY OF SUCH
ACTIVITIES WERE OR WILL BE UNDERTAKEN IN ACCORDANCE WITH APPLICABLE REQUIREMENTS
OF LAW, OR (E) THE PERFORMANCE OF ANY LOAN DOCUMENT, ANY ALLEGATION BY ANY
BENEFICIARY OF A LETTER OF CREDIT OF A WRONGFUL DISHONOR BY THE AGENT OR ANY
LENDER OF A CLAIM OR DRAFT PRESENTED THEREUNDER, OR ANY OTHER ACT OR OMISSION IN
CONNECTION WITH OR RELATED TO ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED
THEREBY, INCLUDING, WITHOUT LIMITATION, ANY OF THE FOREGOING IN THIS SECTION
ARISING FROM NEGLIGENCE, OTHER THAN GROSS NEGLIGENCE, WHETHER SOLE OR
CONCURRENT, ON THE PART OF THE AGENT OR ANY LENDER OR ANY OF THEIR SHAREHOLDERS,
OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN- FACT, OR AFFILIATES OR ANY
TRUSTEE FOR THE BENEFIT OF THE AGENT OR ANY LENDER UNDER ANY SECURITY
INSTRUMENT; WITH THE FOREGOING INDEMNITY SURVIVING SATISFACTION OF ALL
OBLIGATIONS AND THE TERMINATION OF THIS AGREEMENT, UNLESS ALL SUCH OBLIGATIONS
HAVE BEEN SATISFIED WHOLLY IN CASH FROM THE BORROWER AND NOT BY WAY OF
REALIZATION AGAINST ANY COLLATERAL OR THE CONVEYANCE OF ANY PROPERTY IN LIEU
THEREOF, PROVIDED THAT SUCH INDEMNITY SHALL NOT EXTEND TO ANY ACT OR OMISSION BY
THE AGENT OR ANY LENDER WITH RESPECT TO ANY PROPERTY SUBSEQUENT TO THE AGENT OR
ANY LENDER BECOMING THE OWNER OF SUCH PROPERTY AND WITH RESPECT TO WHICH
PROPERTY SUCH CLAIM, LOSS, DAMAGE, LIABILITY, FINE, PENALTY, CHARGE, PROCEEDING,
ORDER, JUDGMENT, ACTION, OR REQUIREMENT ARISES SUBSEQUENT TO THE ACQUISITION OF
TITLE THERETO BY THE AGENT OR ANY LENDER.
5.20 YEAR 2000 COMPLIANCE. On or prior to September 30, 1999,
Borrower shall have taken all action necessary to ensure that the automated
systems used by Borrower and Co- Borrowers that are material to their operations
shall operate properly and process data accurately, including dates before, as
of and after December 31, 1999, (collectively "Year 2000 Compliance"). Borrower
and Co-Borrowers agree that upon the reasonable request of Lender, Borrower and
Co- Borrowers will make their employees, consultants, premises, records and
documentation available to Lender with respect to Borrower's and Co-Borrowers'
Year 2000 Compliance efforts.
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5.21 TRANSFER OF CERTAIN OIL AND GAS PROPERTIES. Borrower will
transfer certain Oil and Gas Properties situated in the Yoakum Field, Lavaca and
DeWitt Counties, Texas, Lake Raccourci Field, Lafourche Parish, Louisiana, and
Brushy Creek Field, Lavaca and DeWitt Counties, Texas, within 120 days of
Closing Date to a Co-Borrower or a newly formed Subsidiary of Borrower which
will be a Co-Borrower or a guarantor.
ARTICLE VI
NEGATIVE COVENANTS
So long as any Obligation remains outstanding or unpaid or any
Commitment exists, the Borrower and/or the Co-Borrowers will not:
6.1 INDEBTEDNESS. Create, incur, assume, or suffer to exist any
Indebtedness, whether by way of loan or otherwise; provided, however, the
foregoing restriction shall not apply to (a) the Obligations, (b) Permitted
Indebtedness, and (c) unsecured accounts payable incurred in the ordinary course
of business, which are not unpaid in excess of 75 days beyond invoice date or
are being contested in good faith and as to which such reserve as is required by
GAAP has been made, and (d) crude oil, natural gas, or other hydrocarbon floor,
collar, cap, price protection, or swap agreements, in form and substance and
with a Person acceptable to the Lenders, (which shall include Koch Industries,
Inc., and/or any of its Subsidiaries and Enron Capital and Trade Resources
Corporation and/or any of its Subsidiaries) provided that (i) such agreements
shall not be entered into with respect to Mortgaged Properties constituting more
than 75% of the monthly production of proven producing reserves as forecast in
Lenders' most recent engineering evaluation, (ii) that the strike prices in
connection with option and swap agreements are not less than the prices used by
the Lenders in their most recent Borrowing Base determination, (iii) the
counterparty shall be approved by Lenders, (iv) Borrowers and/or Co-Borrowers
shall notify Lenders within five days of executing a hedge transaction of the
strike price and the volume of production, as well as the duration of the
transaction, (v) Borrowers and/or Co-Borrowers shall only enter into hedge
transactions with durations of eighteen months or less, (vi) Borrower and/or
Co-Borrowers shall pay any liabilities created under the hedge transactions as
they become due and in any event no later than 60 days from the date such
liability was incurred; and (vii) the Lenders shall receive a security interest
in the hedging contracts.
6.2 CONTINGENT OBLIGATIONS. Create, incur, assume, or suffer to
exist any Contingent Obligation; provided, however, the foregoing restriction
shall not apply to (a) performance guarantees and performance surety or other
bonds provided in the ordinary course of business, or (b) trade credit incurred
or operating leases entered into in the ordinary course of business.
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6.3 LIENS. Create, incur, assume, or suffer to exist any Lien on any
of its Oil and Gas Properties or any other Property, whether now owned or
hereafter acquired; provided, however, the foregoing restrictions shall not
apply to Permitted Liens.
6.4 SALES OF ASSETS. Without the prior written consent of the Agent
and the Lenders, Borrower and/or Co-Borrowers shall not sell, transfer, or
otherwise dispose of any assets, if such assets are material to the operations
of Borrower and/or the Co-Borrowers when taken as a whole, other than (a) sales
of inventory in the ordinary course of business, (b) occasional sales, leases or
other dispositions of immaterial assets for consideration not less than fair
market value, (c) sales, leases or other dispositions of assets that are
obsolete or have negligible fair market value, and (d) sales of equipment for
fair and adequate consideration. Between any two scheduled Borrowing Base
reviews the Agent and the Lenders will consent to sales of assets representing
up to 10% in the aggregate of the net present value of the Oil and Gas
Properties which comprise the Borrowing Base, as calculated by the Agent and the
Lenders pursuant to the terms of this Agreement, provided that the Borrowing
Base shall be reduced, and if necessary, proceeds from such sale shall be
applied to amounts outstanding in an amount equal to the loan value attributable
to such assets sold.
6.5 LEASEBACKS. Enter into any agreement to sell or transfer any
Property and thereafter rent or lease as lessee such Property or other Property
intended for the same use or purpose as the Property sold or transferred.
6.6 LOANS OR ADVANCES. Make or agree to make or allow to remain
outstanding any loans or advances to any Person other than Borrower and/or
Co-Borrowers in excess of $100,000; provided, however, the foregoing
restrictions shall not apply to (a) advances or extensions of credit in the form
of accounts receivable incurred in the ordinary course of business and upon
terms common in the industry for such accounts receivable, or (b) advances to
employees of the Borrower and/or the Co-Borrowers for the payment of expenses in
the ordinary course of business.
6.7 INVESTMENTS. Acquire Investments in, or purchase or otherwise
acquire all or substantially all of the assets of, any Person. This restriction
shall not apply to the following investments:
(a) marketable obligations issued or unconditionally guaranteed by
the United States Government or issued by any of its agencies
and backed by the full faith and credit of the United States
of America,
(b) short-term investment grade domestic or Eurodollar
certificates of deposit or time deposits that are fully
insured by the Federal Deposit Insurance Corporation,
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(c) commercial paper and similar obligations rated "P-1" or better
by Moody's Investors Services, Inc. or "A-1" or better by
Standard & Poors Corporation,
(d) intercompany loans to, advances to or investments in, wholly
owned Subsidiaries, as long as there is no Default or Event of
Default or such loans, advances or investments would not
result in a Default or Event of Default,
(e) readily marketable tax-free municipal bonds of a domestic
issuer or rated "aaa" or better by Moody's Investors Services,
Inc. or "AAA" by Standard & Poors Corporation, and
(f) demand deposit accounts maintained in the ordinary course of
business.
6.8 DIVIDENDS AND DISTRIBUTIONS. The Borrower shall not declare,
pay, or make, any cash dividend or distribution on, or purchase, redeem, or
otherwise acquire for value, any share of any class of its capital stock.
Subsidiaries of the Borrower can make distributions to the Borrower as long as
there is no Default or Event of Default or such distribution would not result in
a Default or Event of Default.
6.9 ISSUANCE OF STOCK; CHANGES IN CORPORATE STRUCTURE. Issue or
agree to issue additional shares of capital stock other than for cash, in one or
any series of transactions except to officers, directors or employees of
Borrower or any Co-Borrower as part of their compensation; enter into any
transaction of consolidation, merger, or amalgamation; liquidate, wind up, or
dissolve (or suffer any liquidation or dissolution).
6.10 TRANSACTIONS WITH AFFILIATES. Directly or indirectly, enter
into any transaction (including the sale, lease, or exchange of Property or the
rendering of service) with any of their Affiliates, other than upon fair and
reasonable terms no less favorable than could be obtained in an arm's length
transaction with a Person which was not an Affiliate.
6.11 LINES OF BUSINESS. Expand, on their own or through any
Subsidiary, into any line of business other than those in which the Borrower
and/or the Co-Borrowers are engaged as of the date hereof.
6.12 PLAN OBLIGATIONS. Except as disclosed in Exhibit VI, assume or
otherwise become subject to an obligation to contribute to or maintain any Plan
or acquire any Person which has at any time had an obligation to contribute to
or maintain any Plan.
6.13 NEW SUBSIDIARIES. Form any new Subsidiaries without the prior
written consent of the Lenders. The Lenders have approved the formation of
779776 Alberta, Ltd. and Neutrino Resources, Inc.
49
6.14 TANGIBLE NET WORTH. Permit Tangible Net Worth as of the close
of any fiscal quarter to be less than $14,500,000 plus 50% of positive Net
Income and 75% of other increases in equity for all fiscal quarters ending
subsequent to December 31, 1997.
6.15 CASH FLOW COVERAGE. Permit as of the close of any fiscal
quarter, the ratio of Cash Flow to Debt Service to be less than 1.25 to 1.00.
6.16 CHANGES IN TERMS OF LOAN FROM NATIONAL BANK OF CANADA. Permit
any change in the provisions of the Credit Agreement by and between 779776
Alberta, Ltd. and/or Neutrino Resources, Inc. and National Bank of Canada in
regard to allowed or prohibited loans, distributions or dividends.
ARTICLE VII
EVENTS OF DEFAULT
7.1 ENUMERATION OF EVENTS OF DEFAULT. Any of the following events
shall constitute an Event of Default:
(a) default shall be made in the payment when due of any installment
of principal or interest under this Agreement or the Notes or in the
payment when due of any fee or other sum payable under any Loan Document,
or the Borrower and/or the Co-Borrowers fail to observe, perform or comply
with any covenant contained in Article VI;
(b) default shall be made by the Borrower and/or the Co-Borrowers in
the due observance or performance of any of their respective obligations
under the Loan Documents, excluding Article VI, and such default shall
continue for 30 days after the earlier of notice thereof to the Borrower
by the Agent or actual knowledge thereof by the Borrower and/or the
Co-Borrowers;
(c) any representation or warranty made by the Borrower and/or the
Co- Borrowers in any of the Loan Documents proves to have been untrue in
any material respect or any representation, statement (including Financial
Statements), certificate, or data furnished or made to the Agent and/or
the Lenders in connection herewith proves to have been untrue in any
material respect as of the date the facts therein set forth were stated or
certified;
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(d) default shall be made by the Borrower and/or the Co-Borrowers
(as principal or guarantor or other surety) in the payment or performance
of any Indebtedness, including, but not limited to 779776 Alberta, Ltd.
and/or Neutrino Resources, Inc. facility with National Bank of Canada, and
such default shall remain unremedied for in excess of the period of grace,
if any, with respect thereto;
(e) the Borrower and/or the Co-Borrowers shall be unable to satisfy
any condition or cure any circumstance specified in Article III, the
satisfaction or curing of which is precedent to the right of the Borrower
and/or the Co-Borrowers to obtain a Loan or for the issuance of a Letter
of Credit, and such inability shall continue for a period in excess of 30
days;
(f) the Borrower and/or the Co-Borrowers shall (i) apply for or
consent to the appointment of a receiver, trustee, or liquidator of their
or all or a substantial part of their assets, (ii) file a voluntary
petition commencing an Insolvency Proceeding, (iii) make a general
assignment for the benefit of creditors, (iv) be unable, or admit in
writing its inability, to pay its debts generally as they become due, or
(v) file an answer admitting the material allegations of a petition filed
against it in any Insolvency Proceeding;
(g) an order, judgment, or decree shall be entered against either
the Borrower and/or the Co-Borrowers by any court of competent
jurisdiction or by any other duly authorized authority, on the petition of
a creditor or otherwise, granting relief in any Insolvency Proceeding or
approving a petition seeking reorganization or an arrangement of their
debts or appointing a receiver, trustee, conservator, custodian, or
liquidator of their or all or any substantial part of their assets, and
such order, judgment, or decree shall not be dismissed or stayed within 90
days;
(h) the levy against any significant portion of the Property of the
Borrower and/or the Co-Borrowers or any execution, garnishment,
attachment, sequestration, or other writ or similar proceeding which is
not permanently dismissed or discharged within 30 days after the levy;
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(i) a final and non-appealable order, judgment, or decree shall be
entered against the Borrower and/or the Co-Borrowers for money damages
and/or Indebtedness due in an amount in excess of $250,000, and such
order, judgment, or decree shall not be dismissed or stayed within 30
days;
(j) any charges are filed or any other action or proceeding is
instituted by any Governmental Authority against the Borrower and/or the
Co-Borrowers under the Racketeering Influence and Corrupt Organizations
Statute (18 U.S.C. ss.1961 ET SEQ.), the result of which could be the
forfeiture or transfer of any material Property of the Borrower and/or the
Co-Borrowers subject to a Lien in favor of the Agent for the benefit of
the Lenders without (i) satisfaction or provision for satisfaction of such
Lien, or (ii) such forfeiture or transfer of such Property being expressly
made subject to such Lien;
(k) the Borrower and/or the Co-Borrowers shall have (i) concealed,
removed, or diverted, or permitted to be concealed, removed, or diverted,
any part of their Property, with intent to hinder, delay, or defraud their
creditors or any of them, (ii) made or suffered a transfer of any of their
Property which may be fraudulent under any bankruptcy, fraudulent
conveyance, or similar law, or (iii) shall have suffered or permitted,
while insolvent, any creditor to obtain a Lien upon any of their Property
through legal proceedings or distraint which is not vacated within 30 days
from the date thereof;
(l) any Security Instrument shall for any reason (other than Agent
or Lender's fault or negligence) not, or cease to, create valid and
perfected first-priority Liens against the Collateral purportedly covered
thereby;
(m) the occurrence of a Material Adverse Effect and the same shall
remain unremedied for in excess of 30 days after notice given by the
Agent.
7.2 REMEDIES. (a) Upon the occurrence of an Event of Default
specified in Sections 7.1(f) or 7.1(g), immediately and without notice, (i) all
Obligations shall automatically become immediately due and payable, without
presentment, demand, protest, notice of protest, default, or dishonor, notice of
intent to accelerate maturity, notice of acceleration of maturity, or other
notice of any kind, except as may be provided to the contrary elsewhere herein,
all of which are hereby expressly waived by the Borrower and the Co-Borrowers;
(ii) the Commitment shall immediately cease and terminate unless and until
reinstated by the Agent and the Lenders in writing; and (iii) to the extent
permitted by and in compliance with applicable law, the Agent and the Lenders
may set-off and apply any and all deposits (general or special, time or demand,
provisional or final) held by the Agent and the Lenders and any and all other
indebtedness at any time owing by the Agent and the Lenders to or for the credit
or account of the Borrower and the Co-Borrowers against any and all of the
Obligations although such Obligations may be unmatured.
52
(b) Upon the occurrence of any Event of Default other than those
specified in Sections 7.1(f) or 7.1(g), (i) the Agent and the Lenders may, by
notice to the Borrower and the Co-Borrowers, declare all Obligations immediately
due and payable, without presentment, demand, protest, notice of protest,
default, or dishonor, notice of intent to accelerate maturity, notice of
acceleration of maturity, or other notice of any kind, except as may be provided
to the contrary elsewhere herein, all of which are hereby expressly waived by
the Borrower and the Co- Borrowers; (ii) the Commitments shall immediately cease
and terminate unless and until reinstated by the Agent and the Lenders in
writing; and (iii) to the extent permitted by and in compliance with applicable
law, the Agent and the Lenders may set-off and apply any and all deposits
(general or special, time or demand, provisional or final) held by the Agent and
the Lenders and any and all other indebtedness at any time owing by the Agent
and the Lenders to or for the credit or account of the Borrower and the
Co-Borrowers against any and all of the Obligations although such Obligations
may be unmatured.
(c) Upon the occurrence of any Event of Default, the Agent and the
Lenders may, in addition to the foregoing in this Section, exercise any or all
of their rights and remedies provided by law or pursuant to the Loan Documents.
ARTICLE VIII
THE AGENT
8.1 APPOINTMENT. Each Lender hereby designates and appoints the Agent
as the agent of such Lender under this Agreement and the other Loan Documents.
Each Lender authorizes the Agent, as the agent for such Lender, to take such
action on behalf of such Lender under the provisions of this Agreement and the
other Loan Documents and to exercise such powers and perform such duties as are
expressly delegated to the Agent by the terms of this Agreement and the other
Loan Documents, together with such other powers as are reasonably incidental
thereto. Notwithstanding any provision to the contrary elsewhere in this
Agreement or in any other Loan Document, the Agent shall not have any duties or
responsibilities except those expressly set forth herein or in any other Loan
Document or any fiduciary relationship with any Lender; and no implied
covenants, functions, responsibilities, duties, obligations, or liabilities on
the part of the Agent shall be read into this Agreement or any other Loan
Document or otherwise exist against the Agent.
8.2 WAIVERS, AMENDMENTS. The provisions of this Agreement and of each
other Loan Document may from time to time be amended, modified or waived, if
such amendment, modification, or waiver is in writing and consented to by the
Borrower and the Co-Borrowers and the Required Lenders; provided, however, that
no such amendment, modification or waiver would: (a) modify any requirement
hereunder that any particular action be taken by all of the Lenders or by the
Required Lenders unless consented to by each Lender; (b) modify this Section
8.2, change the definition of "Required Lenders", or change the Commitment
Amount or Percentage Share of any Lender, reduce the fees described in Article
II, extend the Commitment Termination Date or Final Maturity, release any
Security Instrument or Lien, or initiate any foreclosure, enforcement or
collection procedure without the consent of each Lender; (c) extend the due date
for, (or reduce the amount of any scheduled repayment or prepayment of principal
of or interest on any Loan) without the consent of the holder of that Note
evidencing such Loan; (d) affect, adversely the interests, rights, or
obligations of the Agent without the consent of the Agent; or (e) to modify the
Borrowing Base or modify the Scheduled Reduction Amount.
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8.3 DELEGATION OF DUTIES. The Agent may execute any of its duties
under this Agreement and the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected by it with
reasonable care.
8.4 EXCULPATORY PROVISIONS. Neither the Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or affiliates shall be
(a) required to initiate or conduct any litigation or collection proceedings
hereunder, except with the concurrence of the Lenders and contribution by each
Lender of its Percentage Share of costs reasonably expected by the Agent to be
incurred in connection therewith, (b) liable for any action lawfully taken or
omitted to be taken by it or such Person under or in connection with this
Agreement or any other Loan Document (except for gross negligence or willful
misconduct of the Agent or such Person), or (c) responsible in any manner to any
Lender for any recitals, statements, representations or warranties made by the
Borrower or any officer thereof contained in this Agreement or any other Loan
Document or in any certificate, report, statement or other document referred to
or provided for in, or received by the Agent under or in connection with, this
Agreement or any other Loan Document, or for the sufficiency, accuracy, or
completeness of any materials provided by the Agent, or the failure of the Agent
to provide any materials or disclose any matter to any Lender except as may be
expressly required herein, or for the value, validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any other Loan
Document or for any failure of the Borrower to perform its obligations hereunder
or thereunder. The Agent shall not be under any obligation to any Lender to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of the Borrower.
8.5 RELIANCE BY AGENT. The Agent shall be entitled to rely, and shall
be fully protected in relying, upon any Note, writing, resolution, notice,
consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or
teletype message, statement, order or other document or conversation believed by
it to be genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel (including,
without limitation, counsel to the Borrower and/or the Co-Borrowers),
independent accountants and other experts selected by the Agent. The Agent may
deem and treat the payee of any Note as the owner thereof for all purposes
unless and until an executed Lender Assignment Agreement shall have been
received by the Agent. The Agent shall be fully justified in failing or refusing
to take any action under this Agreement or any other Loan Document unless it
shall first receive such advice or concurrence of the Lenders as it deems
appropriate and contribution by each Lender of its Percentage Share of costs
reasonably expected by the Agent to be incurred in connection therewith. The
Agent shall in all cases be fully protected in acting, or in refraining from
acting, under this Agreement and the other Loan Documents in accordance with a
request of the Lenders. Such request and any action taken or failure to act
pursuant thereto shall be binding upon the Lenders and all future holders of the
Notes. In no event shall the Agent be required to take any action that exposes
the Agent to personal liability or that is contrary to any Loan Document or
applicable Requirement of Law.
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8.6 NOTICE OF DEFAULT. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default unless
the Agent has received notice from a Lender or the Borrower and/or the
Co-Borrowers referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default." In the event that
the Agent receives such a notice, the Agent shall promptly give written notice
thereof to the Lenders. The Agent shall take such action with respect to such
Default or Event of Default as shall be reasonably directed by the Lenders;
provided that unless and until the Agent shall have received such directions,
subject to the provisions of Section 7.2, the Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem advisable in the best
interests of the Lenders. In the event that the officer of the Agent primarily
responsible for the lending relationship with the Borrower and/or the
Co-Borrowers or the officer of any Lender primarily responsible for the lending
relationship with the Borrower and/or the Co-Borrowers becomes aware that a
Default or Event of Default has occurred and is continuing, the Agent or such
Lender, as the case may be, shall use its good faith efforts to inform the other
Lenders and/or the Agent, as the case may be, promptly of such occurrence.
Notwithstanding the preceding sentence, failure to comply with the preceding
sentence shall not result in any liability to the Agent or any Lender.
8.7 NON-RELIANCE ON AGENT AND OTHER LENDERS. Each Lender expressly
acknowledges that neither the Agent nor any other Lender nor any of their
respective officers, directors, employees, agents, attorneys-in-fact or
affiliates has made any representation or warranty to such Lender and that no
act by the Agent or any other Lender hereafter taken, including any review of
the affairs of the Borrower and/or the Co-Borrowers, shall be deemed to
constitute any representation or warranty by the Agent or any Lender to any
other Lender. Each Lender represents to the Agent that it has, independently and
without reliance upon the Agent or any other Lender, and based on such documents
and information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, condition (financial and
otherwise) and creditworthiness of the Borrower and/or the Co-Borrowers and the
value of the Collateral and other Properties of the Borrower and/or the
Co-Borrowers and has made its own decision to enter into this Agreement. Each
Lender also represents that it will, independently and without reliance upon the
Agent or any other Lender and based on such documents and information as it
shall deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other Loan Documents, and to make such investigation as it deems necessary
to inform itself as to the business, operations, property, condition (financial
and otherwise) and creditworthiness of the Borrower and/or the Co-Borrowers and
the value of the Collateral and other Properties of the Borrower and/or the
Co-Borrowers. Except for notices, reports and other documents expressly required
to be furnished to the Lenders by the Agent hereunder, the Agent shall not have
any duty or responsibility to provide any Lender with any credit or other
information concerning the business, operations, property, condition (financial
and otherwise), or creditworthiness of the Borrower and/or the Co-Borrowers or
the value of the Collateral or other Properties of the Borrower and/or the
Co-Borrowers which may come into the possession of the Agent or any of its
officers, directors, employees, agents, attorneys-in-fact or affiliates.
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8.8 INDEMNIFICATION. EACH LENDER AGREES TO SEVERALLY INDEMNIFY THE
AGENT AND ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT AND
AFFILIATES (TO THE EXTENT NOT REIMBURSED BY THE BORROWER AND THE CO-BORROWERS
AND WITHOUT LIMITING THE OBLIGATION OF THE BORROWER AND THE CO-BORROWERS TO DO
SO), RATABLY AND ACCORDING TO THE PERCENTAGE SHARE OF SUCH LENDER, FROM AND
AGAINST ANY AND ALL LIABILITIES, CLAIMS, OBLIGATIONS, LOSSES, DAMAGES,
PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES AND DISBURSEMENTS OF ANY
KIND WHATSOEVER WHICH MAY AT ANY TIME (INCLUDING, WITHOUT LIMITATION, ANY TIME
FOLLOWING THE PAYMENT AND PERFORMANCE OF ALL OBLIGATIONS AND THE TERMINATION OF
THIS AGREEMENT) BE IMPOSED ON, INCURRED BY OR ASSERTED AGAINST THE AGENT OR ANY
OF ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT OR AFFILIATES
IN ANY WAY RELATING TO OR ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT, OR ANY OTHER DOCUMENT CONTEMPLATED OR REFERRED TO HEREIN OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR ANY ACTION TAKEN OR OMITTED BY THE AGENT OR
ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN- FACT OR
AFFILIATES UNDER OR IN CONNECTION WITH ANY OF THE FOREGOING, INCLUDING, WITHOUT
LIMITATION, ANY LIABILITIES, CLAIMS, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES,
ACTIONS, JUDGMENTS, SUITS, COSTS, EXPENSES AND DISBURSEMENTS IMPOSED, INCURRED
OR ASSERTED AS A RESULT OF THE NEGLIGENCE, WHETHER SOLE OR CONCURRENT, OF THE
AGENT OR ANY OF ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT OR
AFFILIATES; PROVIDED THAT NO LENDER SHALL BE LIABLE FOR THE PAYMENT OF ANY
PORTION OF SUCH LIABILITIES, OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS,
JUDGMENTS, SUITS, COSTS, EXPENSES OR DISBURSEMENTS RESULTING FROM THE GROSS
NEGLIGENCE, SOLE OR CONCURRENT OR WILLFUL MISCONDUCT OF THE AGENT OR ANY OF ITS
OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT OR AFFILIATES. THE
AGREEMENTS IN THIS SECTION SHALL SURVIVE THE PAYMENT AND PERFORMANCE OF ALL
OBLIGATIONS AND THE TERMINATION OF THIS AGREEMENT.
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8.9 RESTITUTION. Should the right of the Agent or any Lender to
realize funds with respect to the Obligations be challenged and any application
of such funds to the Obligations be reversed, whether by Governmental Authority
or otherwise, or should the Borrower and/or the Co- Borrowers otherwise be
entitled to a refund or return of funds distributed to the Lenders in connection
with the Obligations, the Agent or such Lender, as the case may be, shall
promptly notify the Lenders of such fact. Not later than Noon, Central Standard
or Daylight Savings Time, as the case may be, of the Business Day following such
notice, each Lender shall pay to the Agent an amount equal to the ratable share
of such Lender of the funds required to be returned to the Borrower and/or the
Co-Borrowers. The ratable share of each Lender shall be determined on the basis
of the percentage of the payment all or a portion of which is required to be
refunded originally distributed to such Lender, if such percentage can be
determined, or, if such percentage cannot be determined, on the basis of the
Percentage Share of such Lender. The Agent shall forward such funds to the
Borrower and/or the Co-Borrowers or to the Lender required to return such funds.
If any such amount due to the Agent is made available by any Lender after Noon,
Central Standard or Daylight Savings Time, as the case may be, of the Business
Day following such notice, such Lender shall pay to the Agent (or the Lender
required to return funds to the Borrower and/or the Co-Borrowers, as the case
may be) for its own account interest on such amount at a rate equal to the
Federal Funds Rate for the period from and including the date on which
restitution to the Borrower and/or the Co- Borrowers is made by the Agent (or
the Lender required to return funds to the Borrower and/or the Co-Borrowers, as
the case may be) to but not including the date on which such Lender failing to
timely forward its share of funds required to be returned to the Borrower and/or
the Co-Borrowers shall have made its ratable share of such funds available.
8.10 AGENT IN ITS INDIVIDUAL CAPACITY. The Agent and its affiliates
may make loans to, accept deposits from and generally engage in any kind of
business with the Borrower and/or the Co-Borrowers as though the Agent were not
the agent hereunder. With respect to any Note issued to the Lender serving as
the Agent, the Agent shall have the same rights and powers under this Agreement
as a Lender and may exercise such rights and powers as though it were not the
Agent. The terms "Lender" and "Lenders" shall include the Agent in its
individual capacity.
8.11 SUCCESSOR AGENT. The Agent may resign as Agent upon thirty days'
notice to the Lenders and the Borrower and Co-Borrowers. If the Agent shall
resign as Agent under this Agreement and the other Loan Documents, or if the
Agent shall assign all of its obligations, then the Lenders shall appoint from
among the Lenders a successor agent for the Lenders, whereupon such successor
agent shall succeed to the rights, powers and duties of the Agent. The term
"Agent" shall mean such successor agent effective upon its appointment. The
rights, powers, and duties of the former Agent as Agent shall be terminated,
without any other or further act or deed on the part of such former Agent or any
of the parties to this Agreement or any holders of the Notes. After the removal
or resignation of any Agent hereunder as Agent, the provisions of this Article
VIII and Sections 5.16 and 5.19, shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent under this Agreement and
the other Loan Documents.
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8.12 APPLICABLE PARTIES. The provisions of this Article are solely
for the benefit of the Agent and the Lenders, and the Borrower and Co-Borrowers
shall not have any rights as a third party beneficiary or otherwise under any of
the provisions of this Article. In performing functions and duties hereunder and
under the other Loan Documents, the Agent shall act solely as the agent of the
Lenders and does not assume, nor shall it be deemed to have assumed, any
obligation or relationship of trust or agency with or for the Borrower and
Co-Borrowers or any legal representative, successor, and assign of the Borrower
and Co-Borrowers.
ARTICLE IX
MISCELLANEOUS
9.1 ASSIGNMENTS; PARTICIPATIONS. Each Lender may assign or sell
participations in its Loans and Commitments to one or more other Persons in
accordance with this Section 9.1.
(a) ASSIGNMENTS. Any Lender,
(i) with the written consent of the Borrower and Co-Borrowers (in
their sole discretion) and the Agent (which consent shall not be
unreasonably delayed or withheld), may at any time, assign and
delegate to one or more commercial banks or other financial
institutions, and
(ii) with notice to the Borrower and Co-Borrowers and the Agent, but
without the consent of the Borrower and Co-Borrowers or the Agent,
may assign and delegate to any of its Affiliates or to any other
Lender
(each Person described in (i) or (ii) above as being the Person to
whom such assignment and delegation is to be made, being hereinafter referred to
as an "ASSIGNEE LENDER"), all or any fraction of such Lender's total Loans and
Commitments (which assignment and delegation shall be of a constant, and not a
varying percentage, of all the assigning Lender's Loans and Commitments), in a
minimum aggregate amount of $1,000,000 of such Lender's Percentage Share of the
Maximum Commitment Amount, if less; provided, however, that such Assignee Lender
will comply with all the provisions of this Agreement, and further, provided,
however, that the Borrower, Co-Borrowers and Agent shall be entitled to continue
to deal solely and directly with such assigning Lender in connection with the
interests so assigned and delegated to an Assignee Lender until:
(iii) written notice of such assignment and delegation together with
payment instructions, addresses and related information with respect
to such Assignee Lender, shall have been given to the Borrower,
Co-Borrowers and the Agent by such Lender and such Assignee Lender,
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(iv) such Assignee Lender shall have executed and delivered to the
Borrower, Co-Borrowers and the Agent a Lender Assignment Agreement,
accepted by the Borrower, Co-Borrower and the Agent
and attached hereto as Exhibit VII, and
(v) the processing fees described below shall have been paid.
From and after the date that the Borrower, Co-Borrowers and the
Agent accept such Lender Assignment Agreement, (a) the Assignee Lender
thereunder shall be deemed automatically to have become a party hereto and to
the extent that rights and obligations hereunder have been assigned and
delegated to such Assignee Lender in connection with such Lender Assignment
Agreement, shall have the rights and obligations of a Lender hereunder and under
the other Loan Documents, and (b) the Assignor Lender, to the extent that rights
and obligations hereunder have been assigned and delegated by it in connection
with such Lender Assignment Agreement, shall be released from its obligations
hereunder and under the other Loan Documents. Within five Business Days after
its receipt of notice that the Agent has received an executed Lender Assignment
Agreement, the Borrower shall execute and deliver to the Agent (for delivery to
the relevant Assignee Lender) new Notes evidencing such Assignee Lender's
assigned Loans and Commitments and, if the assignor Lender has retained Loans
and Commitments hereunder, replacement Notes in the principal amount of the
Loans and Commitments retained by the assignor Lender hereunder (such Notes to
be in exchange for, but not in payment of, those Notes then held by such
assignor Lender). Each such Note shall be dated the date of the predecessor
Notes. The assignor Lender shall mark the predecessor Notes "exchanged" and
deliver them to the Borrower and Co-Borrowers. Accrued interest on that part of
the predecessor Notes evidenced by the new Notes, and accrued fees, shall be
paid as provided in the Lender Assignment Agreement. Accrued interest on that
part of the predecessor Notes evidenced by the replacement Notes shall be paid
to the assignor Lender. Accrued interest and accrued fees shall be paid at the
same time or times provided in the predecessor Notes and in this Agreement. Such
assignor Lender or such assignee Lender must also pay a processing fee to the
Agent upon delivery of any Lender Assignment Agreement in the amount of $3,000.
Any attempted assignment and delegation not made in accordance with this Section
9.1 shall be null and void.
(b) PARTICIPATIONS. Any Lender, with the prior written consent of
the Borrower and Co-Borrowers in their sole discretion, may at any time sell to
one or more commercial banks (each of such commercial banks being herein called
a "PARTICIPANT") participating interests in any of the Loans, Commitments, or
other interests of such Lender hereunder; provided, however, that (a) no
participation contemplated in this Section 9.1 shall relieve such Lender from
its Commitments or its other obligations hereunder or under any other Loan
Document, (b) such Lender shall remain solely responsible for the performance of
its Commitments and such other obligations, (c) the Borrower and Co-Borrowers
and the Agent shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement and
each of the other Loan Documents, (d) no Participant shall be entitled to
require such Lender to take or refrain from taking any action hereunder or under
any other Loan Document.
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9.2 SURVIVAL OF REPRESENTATIONS, WARRANTIES, AND COVENANTS. All
representations and warranties of the Borrower and/or the Co-Borrowers and all
covenants and agreements herein made shall survive the execution and delivery of
the Notes and the Security Instruments and shall remain in force and effect so
long as any Obligation is outstanding or any Commitment exists.
9.3 NOTICES AND OTHER COMMUNICATIONS. Except as to oral notices
expressly authorized herein, which oral notices shall be confirmed in writing,
all notices, requests, and communications hereunder shall be in writing
(including by telecopy). Unless otherwise expressly provided herein, any such
notice, request, demand, or other communication shall be deemed to have been
duly given or made when delivered by hand, or, in the case of delivery by mail,
when deposited in the mail if concurrent telecopy notice is also given, or, if
no concurrent telecopy notice is given, three Business Days after deposited in
the mail, certified mail, return receipt requested, postage prepaid, or, in the
case of telecopy notice, when receipt thereof is acknowledged orally or by
written confirmation report, addressed as follows:
(a) if to the Agent and Lender:
Compass Bank
24 Greenway Plaza, 14th Floor
Houston, Texas 77046
Attention: Energy Lending Group
Telecopy: (713) 968-8292
(b) if to the Lender:
First Union National Bank
c/o First Union Capital Markets
1001 Fannin, Suite 2255
Houston, Texas 77002
Attention: Jay Chernosky
Telecopy: (713) 650-6354
(c) if to the Borrower or Co-Borrowers, to:
Southern Mineral Corporation
1201 Louisiana, Suite 3350
Houston, Texas 77002-5609
Attention: James H. Price
Telecopy: (713) 658-0016
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Any party may, by proper written notice hereunder to the others,
change the individuals or addresses to which such notices to it shall thereafter
be sent.
9.4 PARTIES IN INTEREST. Subject to the restrictions on changes in
corporate structure set forth in Section 6.9 and other applicable restrictions
contained herein, all covenants and agreements herein contained by or on behalf
of the Borrower and the Co-Borrowers or the Agent and each Lender shall be
binding upon and inure to the benefit of the Borrower and the Co- Borrowers or
the Agent and each Lender, as the case may be, and their respective legal
representatives, successors, and assigns.
9.5 RIGHTS OF THIRD PARTIES. All provisions herein are imposed
solely and exclusively for the benefit of the Agent and each Lender and the
Borrower and the Co-Borrowers. No other Person shall have any right, benefit,
priority, or interest hereunder or as a result hereof or have standing to
require satisfaction of provisions hereof in accordance with their terms, and
any or all of such provisions may be freely waived in whole or in part by the
Agent or the Lenders at any time if in their sole discretion they deem it
advisable to do so.
9.6 RENEWALS; EXTENSIONS. All provisions of this Agreement relating
to the Notes shall apply with equal force and effect to each promissory note
hereafter executed which in whole or in part represents a renewal or extension
of any part of the Indebtedness of the Borrower and the Co-Borrowers under this
Agreement, the Notes, or any other Loan Document.
9.7 NO WAIVER; RIGHTS CUMULATIVE. No course of dealing on the part
of the Agent or the Lenders, their officers or employees, nor any failure or
delay by the Agent or the Lenders with respect to exercising any of their rights
under any Loan Document shall operate as a waiver thereof. The rights of the
Agent and each Lender under the Loan Documents shall be cumulative and the
exercise or partial exercise of any such right shall not preclude the exercise
of any other right. The making of any Loan shall not constitute a waiver of any
of the covenants, warranties, or conditions of the Borrower and the Co-Borrowers
contained herein. In the event the Borrower and/or the Co-Borrowers are unable
to satisfy any such covenant, warranty, or condition, the making of any Loan
shall not have the effect of precluding the Agent and each Lender from
thereafter declaring such inability to be an Event of Default as hereinabove
provided.
9.8 SURVIVAL UPON UNENFORCEABILITY. In the event any one or more of
the provisions contained in any of the Loan Documents or in any other instrument
referred to herein or executed in connection with the Obligations shall, for any
reason, be held to be invalid, illegal, or unenforceable in any respect, such
invalidity, illegality, or unenforceability shall not affect any other provision
of any Loan Document or of any other instrument referred to herein or executed
in connection with such Obligations.
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9.9 AMENDMENTS; WAIVERS. Neither this Agreement nor any provision
hereof may be amended, waived, discharged, or terminated orally, but only by an
instrument in writing signed by the party against whom enforcement of the
amendment, waiver, discharge, or termination is sought.
9.10 CONTROLLING AGREEMENT. In the event of a conflict between the
provisions of this Agreement and those of any other Loan Document, the
provisions of this Agreement shall control.
9.11 DISPOSITION OF COLLATERAL. Notwithstanding any term or
provision, express or implied, in any of the Security Instruments, the
realization, liquidation, foreclosure, or any other disposition on or of any or
all of the Collateral shall be in the order and manner and determined in the
sole discretion of the Agent and the Lenders; provided, however, that in no
event shall the Agent or any Lender violate applicable law or exercise rights
and remedies other than those provided in such Security Instruments or otherwise
existing at law or in equity.
9.12 GOVERNING LAW. THIS AGREEMENT AND THE NOTE SHALL BE DEEMED TO
BE CONTRACTS MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED
BY THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF
RELATING TO CONFLICTS OF LAW; PROVIDED, HOWEVER, THAT TEX. FIN. CODE ANN. SS.
303.301 (VERNON 1998) (WHICH REGULATES CERTAIN REVOLVING CREDIT LOAN ACCOUNTS
AND REVOLVING TRIPARTY ACCOUNTS) SHALL NOT APPLY; AND PROVIDED FURTHER, THE
PARTIES AGREE THAT THE LAWS OF NORTH CAROLINA SHALL GOVERN AND CONTROL THE
LAWFULNESS OF THE AMOUNT OR RATE OF INTEREST CONTRACTED FOR, CHARGED OR RECEIVED
UNDER THE LOAN DOCUMENTS.
9.13 JURISDICTION AND VENUE. ALL ACTIONS OR PROCEEDINGS WITH RESPECT
TO, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO, OR
FROM THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE LITIGATED, AT THE SOLE
DISCRETION AND ELECTION OF THE LENDERS, IN COURTS HAVING SITUS IN HOUSTON,
HARRIS COUNTY, TEXAS. THE BORROWER AND THE CO-BORROWERS HEREBY SUBMIT TO THE
JURISDICTION OF ANY LOCAL, STATE, OR FEDERAL COURT LOCATED IN HOUSTON, HARRIS
COUNTY, TEXAS, AND HEREBY WAIVE ANY RIGHTS THEY MAY HAVE TO TRANSFER OR CHANGE
THE JURISDICTION OR VENUE OF ANY LITIGATION BROUGHT AGAINST THEM BY THE LENDERS
IN ACCORDANCE WITH THIS SECTION.
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9.14 WAIVER OF RIGHTS TO JURY TRIAL. THE BORROWER, THE CO-BORROWERS
AND THE AGENT AND THE LENDERS HEREBY KNOWINGLY, VOLUNTARILY, INTENTIONALLY,
IRREVOCABLY, AND UNCONDITIONALLY WAIVE ALL RIGHTS TO TRIAL BY JURY IN ANY
ACTION, SUIT, PROCEEDING, COUNTERCLAIM, OR OTHER LITIGATION THAT RELATES TO OR
ARISES OUT OF ANY OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE ACTS OR
OMISSIONS OF THE AGENT OR ANY LENDER IN THE ENFORCEMENT OF ANY OF THE TERMS OR
PROVISIONS OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR OTHERWISE WITH
RESPECT THERETO. THE PROVISIONS OF THIS SECTION ARE A MATERIAL INDUCEMENT FOR
THE AGENT AND THE LENDERS ENTERING INTO THIS AGREEMENT.
9.15 ENTIRE AGREEMENT. THIS AGREEMENT CONSTITUTES THE ENTIRE
AGREEMENT BETWEEN THE PARTIES HERETO WITH RESPECT TO THE SUBJECT HEREOF AND
SHALL SUPERSEDE ANY PRIOR AGREEMENT BETWEEN THE PARTIES HERETO, WHETHER WRITTEN
OR ORAL, RELATING TO THE SUBJECT HEREOF. FURTHERMORE, IN THIS REGARD, THIS
AGREEMENT AND THE OTHER WRITTEN LOAN DOCUMENTS REPRESENT, COLLECTIVELY, THE
FINAL AGREEMENT AMONG THE PARTIES THERETO AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF SUCH
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG SUCH PARTIES.
9.16 COUNTERPARTS. For the convenience of the parties, this
Agreement may be executed in multiple counterparts, each of which for all
purposes shall be deemed to be an original, and all such counterparts shall
together constitute but one and the same Agreement.
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IN WITNESS WHEREOF, this Agreement is deemed executed effective as
of the date first above written.
BORROWER:
SOUTHERN MINERAL CORPORATION
By: __________________________
James H. Price
Vice President-Finance
CO-BORROWERS:
SMC ECUADOR, INC.
SMC PRODUCTION CO.
BEC ENERGY, INC.
AMERAC ENERGY CORPORATION
By: _________________________
James H. Price
Vice President-Finance
LENDER AND AGENT:
COMPASS BANK
By: _________________________
Allison Hammer
Vice-President
LENDER:
FIRST UNION NATIONAL BANK
By: _________________________
Jay M. Chernosky
Senior Vice-President
64
EXHIBIT I
[FORM OF NOTE]
PROMISSORY NOTE
$130,000,000 Houston, Texas June 19, 1998
FOR VALUE RECEIVED and WITHOUT GRACE, the undersigned ("MAKER")
promises to pay to the order of COMPASS BANK ("PAYEE"), at its banking quarters
in Houston, Harris County, Texas, the sum of ONE HUNDRED THIRTY MILLION DOLLARS
($130,000,000), or so much thereof as may be advanced against this Note pursuant
to the Amended and Restated Credit Agreement dated of even date herewith by and
between Maker and Payee and others (as amended, restated, or supplemented from
time to time, the "CREDIT AGREEMENT"), together with interest at the rates and
calculated as provided in the Credit Agreement.
Reference is hereby made to the Credit Agreement for matters
governed thereby, including, without limitation, certain events which will
entitle the holder hereof to accelerate the maturity of all amounts due
hereunder. Capitalized terms used but not defined in this Note shall have the
meanings assigned to such terms in the Credit Agreement.
This Note is issued pursuant to, is the "Note" under, and is payable
as provided in the Credit Agreement. Subject to compliance with applicable
provisions of the Credit Agreement, Maker may at any time pay the full amount or
any part of this Note without the payment of any premium or fee, but such
payment shall not, until this Note is fully paid and satisfied, excuse the
payment as it becomes due of any payment on this Note provided for in the Credit
Agreement.
Without being limited thereto or thereby, this Note is secured by
the Security Instruments.
This Note is given in partial renewal, extension, modification, but
not in discharge or novation of Note dated January 28, 1998 from Maker to
Compass Bank and is secured by the Security Documents.
THIS NOTE SHALL BE GOVERNED AND CONTROLLED BY THE LAWS OF THE STATE
OF TEXAS WITHOUT GIVING EFFECT TO PRINCIPLES THEREOF RELATING TO CONFLICTS OF
LAW; PROVIDED, HOWEVER, THE LAWS OF NORTH CAROLINA SHALL GOVERN AND CONTROL THE
LAWFULNESS OF THE AMOUNT OR RATE OF INTEREST CONTRACTED FOR, CHARGED OR RECEIVED
UNDER THE LOAN DOCUMENTS.
I - i
MAKER:
SOUTHERN MINERAL CORPORATION
By: ___________________________
James H. Price
Vice President-Finance
SMC ECUADOR, INC.
SMC PRODUCTION CO.
BEC ENERGY, INC.
AMERAC ENERGY CORPORATION
By: __________________________
James H. Price
Vice President-Finance
I - ii
EXHIBIT I
[FORM OF NOTE]
PROMISSORY NOTE
$70,000,000 Houston, Texas June 19, 1998
FOR VALUE RECEIVED and WITHOUT GRACE, the undersigned ("MAKER")
promises to pay to the order of FIRST UNION NATIONAL BANK ("PAYEE"), at its
banking quarters in Charlotte, Mecklenburg County, North Carolina, the sum of
SEVENTY MILLION DOLLARS ($70,000,000), or so much thereof as may be advanced
against this Note pursuant to the Credit Agreement dated of even date herewith
by and between Maker and Payee and Compass Bank (as amended, restated, or
supplemented from time to time, the "CREDIT AGREEMENT"), together with interest
at the rates and calculated as provided in the Credit Agreement.
Reference is hereby made to the Credit Agreement for matters
governed thereby, including, without limitation, certain events which will
entitle the holder hereof to accelerate the maturity of all amounts due
hereunder. Capitalized terms used but not defined in this Note shall have the
meanings assigned to such terms in the Credit Agreement.
This Note is issued pursuant to, is the "Note" under, and is
payable as provided in the Credit Agreement. Subject to compliance with
applicable provisions of the Credit Agreement, Maker may at any time pay the
full amount or any part of this Note without the payment of any premium or fee,
but such payment shall not, until this Note is fully paid and satisfied, excuse
the payment as it becomes due of any payment on this Note provided for in the
Credit Agreement.
Without being limited thereto or thereby, this Note is secured by
the Security Instruments.
This Note is given in partial renewal, extension, modification, but
not in discharge or novation of Note dated January 28, 1998 from Maker to
Compass Bank and is secured by the Security Documents.
THIS NOTE SHALL BE GOVERNED AND CONTROLLED BY THE LAWS
OF THE STATE OF NORTH CAROLINA WITHOUT GIVING EFFECT TO PRINCIPLES
THEREOF RELATING TO CONFLICTS OF LAW.
I - i
MAKER:
SOUTHERN MINERAL CORPORATION
By: ____________________________
James H. Price
Vice President-Finance
SMC ECUADOR, INC.
SMC PRODUCTION CO.
BEC ENERGY, INC.
AMERAC ENERGY CORPORATION
By: ___________________________
James H. Price
Vice President-Finance
I - ii
EXHIBIT II
[FORM OF BORROWING REQUEST]
Compass Bank
24 Greenway Plaza, 14th Floor
Houston, Texas 77046
Attention: Energy Lending Group
Re: Amended and Restated Credit Agreement dated as of June 19, 1998, by
and between Compass Bank, First Union National Bank and Southern
Mineral Corporation, SMC Ecuador, Inc., SMC Production Company, BEC
Energy, Inc. and Amerac Energy Corporation (as amended, restated, or
supplemented from time to time, the "CREDIT AGREEMENT")
Ladies and Gentlemen:
Pursuant to the Credit Agreement, the Borrower and Co-Borrowers
hereby make the requests indicated below:
1. Loans
(a) Amount of new Loan: $_____________
(b) Requested funding date: ______________, 19___
(c) $________________ of such Loan is to be a Floating Rate Loan;
$________________ of such Loan is to be a LIBO Rate Loan.
(d) Requested Interest Period for LIBO Rate Loan: ____ months.
2. Continuation or conversion of LIBO Rate Loan maturing on ______:
(a) Amount to be continued as a LIBO Rate Loan is $ ___________________,
with an Interest Period of _______ months;
(b) Amount to be converted to a Floating Rate Loan is $ _______________;
and
3. Conversion of Floating Rate Loan:
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(a) Requested conversion date: _________________, 19___.
(b) Amount to be converted to a LIBO Rate Loan is $______________, with
an Interest Period of _____ months.
The undersigned certifies that [s]he is the [ ] of the Borrower, has
obtained all consents necessary, and as such [s]he is authorized to execute this
request on behalf of the Borrower. The undersigned further certifies,
represents, and warrants on behalf of the Borrower that the Borrower is entitled
to receive the requested borrowing, continuation, or conversion under the terms
and conditions of the Credit Agreement.
Each capitalized term used but not defined herein shall have the
meaning assigned to such term in the Credit Agreement.
Very truly yours,
SOUTHERN MINERAL CORPORATION
By: ___________________________
James H. Price
Vice President-Finance
SMC ECUADOR, INC.
SMC PRODUCTION CO.
BEC ENERGY, INC.
AMERAC ENERGY CORPORATION
By: __________________________
James H. Price
Vice President-Finance
II - ii
EXHIBIT III
[FORM OF OPINION OF COUNSEL]
[Closing Date]
Compass Bank
24 Greenway Plaza, 14th Floor
Houston, Texas 77046
Attention: Energy Lending Group
Re: Amended and Restated Credit Agreement dated as of June 19, 1998, by
and between Compass Bank, First Union National Bank and Southern
Mineral Corporation, SMC Ecuador, Inc., SMC Production Company, BEC
Energy, Inc. and Amerac Energy Corporation (as amended, restated, or
supplemented from time to time, the "CREDIT AGREEMENT")
Ladies and Gentlemen:
We have acted as counsel to Southern Mineral Corporation (the
"BORROWER"), SMC Ecuador, Inc., SMC Production Company, BEC Energy, Inc. and
Amerac Energy Corporation ("Co-Borrowers") in connection with the transactions
contemplated in the Credit Agreement. This Opinion is delivered pursuant to
Section 3.1(m) of the Credit Agreement, and the Agent and each Lender is hereby
authorized to rely upon this Opinion in connection with the transactions
contemplated in the Credit Agreement. Each capitalized term used but not defined
herein shall have the meaning assigned to such term in the Credit Agreement.
In our representation of the Borrower and Co-Borrowers, we have
examined an executed counterpart of each of the following (the "LOAN
DOCUMENTS"):
(a) the Credit Agreement;
(b) the Notes;
(c) Assignment of Notes and Liens from Compass to Agent for the
benefit of the Lenders assigning the Existing Liens in favor of Compass
securing the existing Obligations to Agent for the benefit of Lenders
securing the new Obligations under the Credit Agreement (the
"ASSIGNMENT");
(d) Ratification and Amendment to Mortgage, Deed of Trust,
Indenture, Security Agreement, Assignment of Production, and Financing
Statement dated of
III - i
even date herewith from the Borrower and Co-Borrowers in favor of the
Agent for the benefit of the Lenders (the "MORTGAGE"); and
(e) Financing Statements from the Borrower and Co-Borrowers, as
debtors, constituent to the Mortgage (the "FINANCING STATEMENT").
(f) Security Agreement (Stock Pledge) by Borrower of Stock of SMC
Production Co., , SMC Ecuador, Inc., BEC Energy, Inc. and Amerac Energy
Corporation;
(g) Security Agreement from Borrower and Co-Borrowers pledging all
personal property.
We have also examined the originals, or copies certified to our
satisfaction, of such other records of the Borrower and Co-Borrowers
certificates of public officials and officers of the Borrower and Co-Borrowers
agreements, instruments, and documents as we have deemed necessary as a basis
for the opinions hereinafter expressed.
In making such examinations, we have, with your permission, assumed:
(a) the genuineness of all signatures to the Loan Documents other
than those of the Borrower and Co-Borrowers;
(b) the authenticity of all documents submitted to us as originals
and the conformity with the originals of all documents submitted to us as
copies;
(c) the Lenders are authorized and have the power to enter into and
perform their obligations under the Credit Agreement;
(d) the due authorization, execution, and delivery of all Loan
Documents by each party thereto other than the Borrower and Co-Borrowers;
and
(e) the Borrower and Co-Borrowers have title to all Property covered
or affected by the Mortgage.
Based upon the foregoing and subject to the qualifications set forth
herein, we are of the opinion that:
1. The Borrower and Co-Borrowers are corporations duly organized,
legally existing, and in good standing under the laws of their respective
states of incorporation and are duly qualified as foreign corporations and
are in good standing all jurisdictions wherein the ownership of their
respective Property or the operation of their respective businesses
necessitates same.
III - ii
2. The execution and delivery by the Borrower and Co-Borrowers of
the Credit Agreement and the borrowings thereunder, the execution and
delivery by the Borrower and Co-Borrowers of the other Loan Documents to
which the Borrower and Co-Borrowers are a party, and the payment and
performance of all Obligations of the Borrower and Co-Borrowers thereunder
are within the power of the Borrower and Co-Borrowers, have been duly
authorized by all necessary corporate action, and do not (a) require the
consent of any Governmental Authority, (b) contravene or conflict with any
Requirement of Law, (c) to our knowledge after due inquiry, contravene or
conflict with any indenture, instrument, or other agreement to which the
Borrower and Co-Borrowers are a party or by which any Property of the
Borrower and Co-Borrowers may be presently bound or encumbered, or (d)
result in or require the creation or imposition of any Lien upon any
Property of the Borrower and Co-Borrowers other than as contemplated by
the Loan Documents.
3. The Loan Documents to which the Borrower and Co-Borrowers are a
party constitute legal, valid, and binding obligations of the Borrower and
Co- Borrowers, enforceable against the Borrower in accordance with their
respective terms.
4. The forms of the Assignment, Mortgage, and the Security Agreement
(Stock Pledge) and the financing statements and the description of the
Mortgaged Property (as such term is defined in the Mortgage and so used
herein) situated in the State of Texas (the "STATE") satisfy all
applicable Requirements of Law of the State and are legally sufficient
under the laws of the State to enable the Agent and the Lenders to realize
the practical benefits purported to be afforded by the Mortgage.
5. The Mortgage creates a valid lien upon and security interest in
all Mortgaged Property situated in the State to secure the Indebtedness
(as such term is defined in the Mortgage and so used herein).
6. The Assignment validly assigns the notes and liens described
there from Compass Bank to Agent for the benefit of the Lenders. The
Mortgage and Assignment and the financing statements are in satisfactory
form for filing and recording in the offices described below.
7. The filing and/or recording, as the case may be, of (a) the
Mortgage and Assignment in the office of the county clerk of each county
in the State in which any portion of the Mortgaged Property is located,
and as a financing statement and utility security instrument in the office
of the Secretary of State of the State, and (b) the Financing Statement in
the Uniform Commercial Code records in each county in the State in which
any portion of the Mortgaged Property
III - iii
is located are the only recordings or filings in the State necessary to
perfect the liens and security interests in the Mortgaged Property created
by the Mortgage or to permit the Agent to enforce in the State its rights
under the Mortgage. No subsequent filing, re-filing, recording, or
re-recording will be required in the State in order to continue the
perfection of the liens and security interests created by the Mortgage
except that (a) a continuation statement must be filed with respect to the
Mortgage filed as a financing statement in the office of the Secretary of
State of the State and with respect to the Financing Statement in the
Uniform Commercial Code records in each county in the State in which any
portion of the Mortgaged Property is located, each within six months prior
to the expiration of five years from the date of the relevant initial
financing statement filing, (b) a subsequent continuation statement must
be filed within six months prior to the expiration of each subsequent
five-year period from the date of each initial financing statement filing,
and (c) amendments or supplements to the Mortgage filed as a financing
statement and the Financing Statement and/or additional financing
statements may be required to be filed in the event of a change in the
name, identity, or structure of the Borrower and/or the Co-Borrowers or in
the event the financing statement filing otherwise becomes inaccurate or
incomplete.
8. To our knowledge after due inquiry, except as disclosed in
Exhibit VI to the Credit Agreement, no litigation or other action of any
nature affecting the Borrower and Co-Borrowers is pending before any
Governmental Authority or threatened against the Borrower and
Co-Borrowers. To our knowledge after due inquiry, no unusual or unduly
burdensome restriction, restraint, or hazard exists by contract,
Requirement of Law, or otherwise relative to the business or operations of
the Borrower and Co-Borrowers or ownership and operation of any Properties
of the Borrower and Co-Borrowers other than such as relate generally to
Persons engaged in business activities similar to those conducted by the
Borrower and Co-Borrowers.
9. No authorization, consent, approval, exemption, franchise, permit
or license of, or filing (other than filing of Security Instruments in
appropriate filing offices) with, any Governmental Authority or any other
Person is required to authorize or is otherwise required in connection
with the valid execution and delivery by the Borrower and Co-Borrowers of
the Loan Documents or any instrument contemplated thereby, or the payment
performance by the Borrower and Co-Borrowers of the Obligations.
10. No transaction contemplated by the Loan Documents is in
violation of any regulations promulgated by the Board of Governors of the
Federal Reserve System, including, without limitation, Regulations G, T,
U, or X.
III - iv
11. The Borrower and Co-Borrowers are not, nor are the Borrower and
Co-Borrowers directly or indirectly controlled by or acting on behalf of
any Person which is, an "investment company" or an "affiliated person" of
an "investment company" within the meaning of the Investment Company Act
of 1940, as amended.
12. The Borrower and Co-Borrowers are not a "holding company," or an
"affiliate" of a "holding company" or of a "subsidiary company" of a
"holding company," within the meaning of the Public Utility Holding
Company Act of 1935, as amended.
The opinions expressed herein are subject to the following
qualifications and limitations:
A. We are licensed to practice law only in the State and other
jurisdictions whose laws are not applicable to the opinions expressed
herein; accordingly, the foregoing opinions are limited solely to the laws
of the State, applicable United States federal law, and the corporation
laws of the State of Delaware.
B. The validity, binding effect, and enforceability of the Loan
Documents may be limited or affected by bankruptcy, insolvency,
moratorium, reorganization, or other similar laws affecting rights of
creditors generally, including, without limitation, statutes or rules of
law which limit the effect of waivers of rights by a debtor or grantor;
provided, however, that the limitations and other effects of such statutes
or rules of law upon the validity and binding effect of the Loan Documents
should not differ materially from the limitations and other effects of
such statutes or rules of law upon the validity and binding effect of
credit agreements, promissory notes and security instruments generally.
C. The enforceability of the respective obligations of the Borrower
and Co-Borrowers under the Loan Documents is subject to general principles
of equity (whether such enforceability is considered in a suit in equity
or at law).
This Opinion is furnished by us solely for the benefit of the Agent
and the Lenders in connection with the transactions contemplated by the Loan
Documents and is not to be quoted in whole or in part or otherwise referred to
or disclosed in any other transaction.
Very truly yours,
III - v
EXHIBIT IV
[FORM OF COMPLIANCE CERTIFICATE]
_____________ , 19____
Compass Bank
24 Greenway Plaza, 14th Floor
Houston, Texas 77046
Attention: Energy Lending Group
Re: Amended and Restated Credit Agreement dated as of June 19, 1998, by
and between Compass Bank, First Union National Bank and Southern
Mineral Corporation, SMC Ecuador, Inc., SMC Production Company, BEC
Energy, Inc. and Amerac Energy Corporation (as amended, restated, or
supplemented from time to time, the "CREDIT AGREEMENT")
Ladies and Gentlemen:
Pursuant to applicable requirements of the Credit Agreement, the
undersigned, as a Responsible Officer of the Borrower and Co-Borrowers, hereby
certifies to you the following information as true and correct as of the date
hereof or for the period indicated, as the case may be:
[1. To the best of the knowledge of the undersigned, no Default or Event
of Default exists as of the date hereof or has occurred since the date of
our previous certification to you, if any.]
[1. To the best of the knowledge of the undersigned, the following
Defaults or Events of Default exist as of the date hereof or have occurred
since the date of our previous certification to you, if any, and the
actions set forth below are being taken to remedy such circumstances:]
2. The compliance of the Borrower and Co-Borrowers with the financial
covenants of the Credit Agreement, as of the close of business on , is
evidenced by the following:
(a) Section 6.14: TANGIBLE NET WORTH. Permit Tangible Net Worth as of the
close of any fiscal quarter to be less than $14,500,000, plus 50% of
positive Net Income and 75% of other increases in equity for all fiscal
quarters ending subsequent to December 31, 1997.
IV - i
REQUIRED ACTUAL
Required as of the last quarter,
plus 75% of equity raised,
plus 50% of Net Income equals
current Required Tangible
Net Worth
(b) Section 6:15: CASH FLOW COVERAGE. Permit as of the close of any fiscal
quarter, the ratio of Cash Flow to Debt Service to be less than 1.25 to
1.00.
ACTUAL
3. No Material Adverse Effect has occurred since the date of the Financial
Statements dated as of ________________.
Each capitalized term used but not defined herein shall have the
meaning assigned to such term in the Credit Agreement.
Very truly yours,
SOUTHERN MINERAL CORPORATION
By: _______________________
James H. Price
Vice President-Finance
SMC ECUADOR, INC.
SMC PRODUCTION CO.
BEC ENERGY, INC.
AMERAC ENERGY CORPORATION
By: _______________________
James H. Price
Vice President-Finance
IV - ii
EXHIBIT V
[FORM OF BORROWING BASE UTILIZATION]
Compass Bank
24 Greenway Plaza, 14th Floor
Houston, Texas 77046
Attention: Energy Lending
Re: Amended and Restated Credit Agreement dated as of June 19, 1998, by
and between Compass Bank, First Union National Bank and Southern
Mineral Corporation, SMC Ecuador, Inc., SMC Production Company, BEC
Energy, Inc. and Amerac Energy Corporation (as amended, restated, or
supplemented from time to time, the "CREDIT AGREEMENT")
Ladies and Gentlemen:
Pursuant to applicable requirements of the Credit Agreement, the
undersigned, as Responsible Officers of the Borrower and the Co-Borrowers hereby
certify to you the following information as true and correct as of the date
hereof or for the period indicated, as the case may be:
To the best knowledge of the undersigned, the Borrowing Base Utilization
as described in the definition of Applicable Margin for the quarter ending
__________, 19__, was as follows, and the LIBO Rate Loan Applicable Margin for
the following quarter is as follows:
BORROWING BASE LIBO RATE LOAN
UTILIZATION APPLICABLE MARGIN
--------------- ---------------------
[1) greater than 66-2/3% two percent (2%)
of Borrowing Base
2) less than or equal to 66-2/3% one and three-fourths
and greater than 33-1/3% percent (1-3/4%)
of Borrowing Base
3) less than or equal to one and one-half
33-1/3% of Borrowing Base percent (1-1/2%)
To the best knowledge of the undersigned, the Borrowing Base Utilization
for the quarter ending __________, 19__, was as follows and the Commitment Fee
as described in Section 2.10
V - i
for the following quarter is as follows:
BORROWING BASE
UTILIZATION COMMITMENT FEE
----------------- -----------------------
[1) greater than 50% one-half percent (1/2%)
of Borrowing Base
2) less than or equal to 50% three-eighths percent (3/8%)
of Borrowing Base]
Each capitalized term used but not defined herein shall have the meaning
assigned to such term in the Credit Agreement.
Very truly yours,
SOUTHERN MINERAL CORPORATION
By: _________________________
James H. Price
Vice President-Finance
SMC ECUADOR, INC.
SMC PRODUCTION CO.
BEC ENERGY, INC.
AMERAC ENERGY CORPORATION
By: _________________________
James H. Price
Vice President-Finance
V - ii
EXHIBIT VI
DISCLOSURES
Section 4.8 LIABILITIES
LITIGATION
Section 4.11 ENVIRONMENTAL MATTERS
Section 4.17 REFUNDS
Section 4.18 GAS CONTRACTS
Section 4.20 CASUALTIES
Section 4.22 SUBSIDIARIES
779776 Alberta, Ltd.
Neutrino Resources, Inc.
VI - i
EXHIBIT VII
[FORM OF LENDER ASSIGNMENT AGREEMENT]
______________, 19__
To: Southern Mineral Corporation
SMC Ecuador, Inc.
SMC Production Co.
BEC Energy, Inc.
Amerac Energy Corporation
To: Compass Bank,
as the Agent
Gentlemen and Ladies:
We refer to clause (iv) of Section 9.1 of the Amended and Restated Credit
Agreement, dated as of June 19, 1998, (together with all amendments and other
modifications, if any, from time to time thereafter made thereto, the "CREDIT
AGREEMENT"), among Southern Mineral Corporation, SMC Ecuador, Inc., SMC
Production Company, BEC Energy, Inc. and Amerac Energy Corporation ("BORROWER"),
the various financial institutions (the "LENDERS") as are, or shall from time to
time become, parties thereto, and Compass Bank, as agent (the "AGENT") for the
Lenders. Unless otherwise defined herein or the context otherwise requires,
terms used herein have the meanings provided in the Credit Agreement.
This Agreement is delivered to you pursuant to clause (iv) of Section 9.1
of the Credit Agreement and also constitutes notice to each of you, pursuant to
clause (iv) of Section 9.1 of the Credit Agreement, of the assignment and
delegation to _____________ (the "ASSIGNEE") of ___% of the Loans and
Commitments of _____________ (the "ASSIGNOR") outstanding under the Credit
Agreement on the date hereof. After giving effect to the foregoing assignment
and delegation, the Assignor's and the Assignee's Percentage Shares for the
purposes of the Credit Agreement are set forth opposite such Person's name on
the signature pages hereof.
[Add paragraph dealing with accrued interest and fees with respect to
Loans assigned.]
The Assignee hereby acknowledges and confirms that it has received a copy
of the Credit Agreement and the exhibits related thereto, together with copies
of the documents which were required to be delivered under the Credit Agreement
as a condition to the making of the Loans thereunder. The Assignee further
confirms and agrees that in becoming a Lender and in making
VII - i
its Commitments and Loans under the Credit Agreement, such actions have and will
be made without recourse to, or representation or warranty by the Agent.
Except as otherwise provided in the Credit Agreement, effective as of the
date of acceptance hereof by the Agent
(a) the Assignee
(i) shall be deemed automatically to have become a party to the
Credit Agreement, have all the rights and obligations of a "Lender" under
the Credit Agreement and the other Loan Documents as if it were an
original signatory thereto to the extent specified in the second paragraph
hereof; and
(ii) agrees to be bound by the terms and conditions set forth in the
Credit Agreement and the other Loan Documents as if it were an original
signatory thereto; and
(b) the Assignor shall be released from its obligations under the Credit
Agreement and the other Loan Documents to the extent specified in the second
paragraph hereof.
The Assignor and the Assignee hereby agree that the (Assignor) (Assignee)
will pay to the Agent the processing fee referred to in Section 9.1 of the
Credit Agreement upon the delivery hereof.
The Assignee hereby advises each of you of the following administrative
details with respect to the assigned Loans and Commitments and requests the
Agent to acknowledge receipt of this document:
(A) Address for Notices:
Institution Name:
Attention:
Address:
Telephone:
Facsimile:
(B) Payment Instructions:
VII - ii
This Agreement may be executed by the Assignor and Assignee in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute one and the same
agreement.
ASSIGNOR ADJUSTED PERCENTAGE ASSIGNOR:
Revolving Loan Commitment
and
Revolving Loans ____% By: _____________________
Printed Name: ___________
Title: __________________
ASSIGNEE PERCENTAGE ASSIGNEE:
Revolving Loan Commitment
and
Revolving Loans ____% By: _____________________
Printed Name: ___________
Title: __________________
Accepted and Acknowledged this _____ day of _________, 1998.
COMPASS BANK
By: _____________________________
Title: __________________________
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