EXHIBIT 10.1
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CREDIT AGREEMENT
BETWEEN
SOUTHERN MINERAL CORPORATION
SMC ECUADOR, INC.
SMC PRODUCTION CO.
BEC ENERGY, INC.
AND
SPRUCE HILLS PRODUCTION COMPANY, INC.
AND
BANK ONE, TEXAS, NATIONAL ASSOCIATION,
AS AGENT AND LENDER
AND
THE LENDERS SIGNATORY HERETO
August 23, 2000
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REDUCING REVOLVING LINE OF CREDIT OF UP TO $30,000,000
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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..................... 13
1.4 References............................................... 13
1.5 Articles and Sections.................................... 14
1.6 Number and Gender........................................ 14
1.7 Incorporation of Exhibits................................ 14
ARTICLE II TERMS OF FACILITY
2.1 Revolving Line of Credit................................. 14
2.2 Letter of Credit Facility................................ 15
2.3 Use of Loan Proceeds and Letters of Credit............... 16
2.4 Interest................................................. 17
2.5 Repayment of Loans and Interest.......................... 17
2.6 Outstanding Amounts...................................... 17
2.7 Time, Place, and Method of Payments...................... 17
2.8 Pro Rata Treatment; Adjustments.......................... 18
2.9 Borrowing Base Determinations............................ 18
2.10 Mandatory Prepayments.................................... 19
2.11 Voluntary Prepayments of Loans........................... 20
2.12 Commitment Fee........................................... 20
2.13 Engineering Fee.......................................... 20
2.14 Facility Fee............................................. 20
2.15 Letter of Credit Fee..................................... 20
2.16 Loans to Satisfy Obligations of Borrower................. 21
2.17 Security Interest in Accounts; Right of Offset........... 21
2.18 General Provisions Relating to Interest.................. 21
2.19 Letters in Lieu of Transfer Orders....................... 22
2.20 Power of Attorney........................................ 22
ARTICLE III CONDITIONS
3.1 Receipt of Loan Documents and Other Items................ 23
3.2 Each Loan and Letter of Credit........................... 26
ARTICLE IV REPRESENTATIONS AND WARRANTIES
4.1 Due Authorization........................................ 27
4.2 Corporate Existence...................................... 28
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4.3 Valid and Binding Obligations............................ 28
4.4 Security Instruments..................................... 28
4.5 Title to Assets.......................................... 28
4.6 Scope and Accuracy of Financial Statements............... 28
4.7 No Material Misstatements................................ 28
4.8 Liabilities, Litigation, and Restrictions................ 29
4.9 Authorizations; Consents................................. 29
4.10 Compliance with Laws..................................... 29
4.11 ERISA.................................................... 29
4.12 Environmental Laws....................................... 29
4.13 Compliance with Federal Reserve Regulations.............. 30
4.14 Investment Company Act Compliance........................ 30
4.15 Public Utility Holding Company Act Compliance............ 30
4.16 Proper Filing of Tax Returns; Payment of Taxes Due....... 30
4.17 Refunds.................................................. 30
4.18 Gas Contracts............................................ 30
4.19 Intellectual Property.................................... 31
4.20 Casualties or Taking of Property......................... 31
4.21 Locations of Borrower.................................... 31
4.22 Subsidiaries............................................. 31
4.23 Existing Indebtedness; No Defenses....................... 31
ARTICLE V AFFIRMATIVE COVENANTS
5.1 Maintenance and Access to Records........................ 32
5.2 Quarterly Financial Statements; Compliance Certificates.. 32
5.3 Annual Financial Statements.............................. 32
5.4 Oil and Gas Reserve Reports.............................. 32
5.5 Title Opinions; Title Defects............................ 33
5.6 Notices of Certain Events................................ 33
5.7 Letters in Lieu of Transfer Orders; Division Orders...... 34
5.8 Additional Information................................... 34
5.9 Compliance with Laws..................................... 34
5.10 Payment of Assessments and Charges....................... 35
5.11 Maintenance of Corporate Existence and Good Standing..... 35
5.12 Payment of Notes; Performance of Obligations............. 35
5.13 Further Assurances....................................... 35
5.14 Initial Fees and Expenses of Counsel to Lender........... 35
5.15 Subsequent Fees and Expenses of Lender................... 35
5.16 Operation of Oil and Gas Properties...................... 36
5.17 Maintenance and Inspection of Properties................. 36
5.18 Maintenance of Insurance................................. 36
5.19 INDEMNIFICATION.......................................... 36
5.20 Bank Accounts............................................ 38
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5.21 Hedging.................................................. 38
ARTICLE VI NEGATIVE COVENANTS
6.1 Indebtedness............................................. 38
6.2 Contingent Obligations................................... 38
6.3 Liens.................................................... 38
6.4 Sales of Assets.......................................... 39
6.5 Leasebacks............................................... 39
6.6 Acquisitions............................................. 39
6.7 Loans or Advances........................................ 39
6.8 Investments.............................................. 39
6.9 Dividends and Distributions.............................. 39
6.10 Plan Obligations......................................... 39
6.11 Management............................................... 40
6.12 Change of Board of Directors............................. 40
6.13 Issuance of Stock; Changes in Corporate Structure........ 40
6.14 Transactions with Affiliates............................. 40
6.15 Lines of Business........................................ 40
6.16 Current Ratio............................................ 40
6.17 Tangible Net Worth....................................... 40
6.18 Debt Coverage Ratio...................................... 40
6.19 General and Administrative Expenses...................... 40
ARTICLE VII EVENTS OF DEFAULT
7.1 Enumeration of Events of Default......................... 40
7.2 Remedies................................................. 42
ARTICLE VIII THE AGENT
8.1 Appointment.............................................. 43
8.2 Waivers, Amendments...................................... 43
8.3 Delegation of Duties..................................... 44
8.4 Exculpatory Provisions................................... 44
8.5 Reliance by Agent........................................ 44
8.6 Notice of Default........................................ 45
8.7 Non-Reliance on Agent and Other Lenders.................. 45
8.8 Indemnification.......................................... 46
8.9 Restitution.............................................. 46
8.10 Agent in Its Individual Capacity......................... 47
8.11 Successor Agent.......................................... 47
8.12 Applicable Parties....................................... 47
ARTICLE IX MISCELLANEOUS
9.1 Assignments; Participations.............................. 48
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9.2 Survival of Representations, Warranties, and Covenants... 49
9.3 Notices and Other Communications......................... 49
9.4 Parties in Interest...................................... 50
9.5 Rights of Third Parties.................................. 50
9.6 Renewals; Extensions..................................... 50
9.7 No Waiver; Rights Cumulative............................. 50
9.8 Survival Upon Unenforceability........................... 51
9.9 Amendments; Waivers...................................... 51
9.10 Controlling Agreement.................................... 51
9.11 Disposition of Collateral................................ 51
9.12 GOVERNING LAW............................................ 51
9.13 JURISDICTION AND VENUE................................... 51
9.14 WAIVER OF RIGHTS TO JURY TRIAL........................... 52
9.15 ENTIRE AGREEMENT......................................... 52
9.16 Counterparts............................................. 52
9.17 Release by Borrower...................................... 52
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LIST OF EXHIBITS
Exhibit I - Form of Note
Exhibit II - Form of Borrowing Request
Exhibit III - Form of Compliance Certificate
Exhibit IV - Facility Amounts
Exhibit V - Form of Opinion of Counsel
Exhibit VI - Disclosures
Exhibit VII - Form of Assignment Agreement
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CREDIT AGREEMENT
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THIS CREDIT AGREEMENT is made and entered into this 23rd day of
August, 2000, by and among SOUTHERN MINERAL CORPORATION, a Nevada corporation,
SMC PRODUCTION CO., a Texas corporation, SMC ECUADOR, INC., a Delaware
corporation, BEC ENERGY, INC., a Texas corporation and SPRUCE HILLS PRODUCTION
COMPANY, INC., a Delaware corporation (collectively the "Borrower"), each lender
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that is signatory hereto or becomes a signatory hereto as provided in Section
9.1, (individually, together with its successors and assigns, a "Lender", and
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collectively together with their respective successors and assigns, the
"Lenders"), and BANK ONE, TEXAS, NATIONAL ASSOCIATION, a national banking
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association, as agent for the Lenders (in such capacity, together with its
successors in such capacity pursuant to the terms hereof, the "Agent").
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W I T N E S S E T H:
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In consideration of the mutual covenants and agreements herein
contained, the Borrower and the Lenders hereby agree as follows, amending and
restating in its entirety the Amended and Restated Credit Agreement dated as of
June 19, 1998, by and between the Borrower and Compass Bank, as Agent and Lender
and First Union National Bank as a Lender (the "Existing Lenders"), as
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heretofore amended, restated, or supplemented (the "Existing Credit Agreement").
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ARTICLE I
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DEFINITIONS AND INTERPRETATION
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I.1 Terms Defined Above. As used in this Credit Agreement, the terms
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"Agent", "Borrower", "Existing Credit Agreement", "Existing Lenders" and
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"Lender" and "Lenders" shall have the meaning assigned to them hereinabove.
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I.2 Additional Defined Terms. As used in this Credit Agreement, each
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of the following terms shall have the meaning assigned thereto in this Section,
unless the context otherwise requires:
"Affiliate" shall mean any Person directly or indirectly controlling,
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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.
(S) 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.
"Agreement" shall mean this Credit Agreement, as it may be amended,
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supplemented, or restated from time to time.
"Available Commitment" shall mean, at any time, an amount equal to the
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remainder, if any, of (a) the Borrowing Base in effect at such time minus
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(b) the sum of the Loan Balance at such time plus the L/C Exposure at such
time.
"Assignment" shall mean the Assignment of Notes, Liens, Security
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Interests, and Other Rights, in form and substance satisfactory to the
Lenders, executed by the Existing Lenders, assigning to the Agent the
Existing Note, the indebtedness evidenced thereby, the Liens securing the
Existing Note, and the rights of the Existing Lenders under the Existing
Loan Documents, and financing statement changes constituent thereto.
"Bank One Alternate Base Rate" shall mean a fluctuating rate of
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interest equal to the higher of (i) a rate per annum equal to the prime
rate of interest announced by the Agent or its parent (which is not
necessarily the lowest rate charged to any customer) changing when and as
said prime rate changes, and (ii) the sum of the Federal Funds Effective
Rate most recently determined by Bank One, Texas, National Association.
"Borrowing Base" shall mean, at any time, the amount determined by the
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Lenders in accordance with Section 2.9 and then in effect.
"Borrowing Request" shall mean each written request, in substantially
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the form attached hereto as Exhibit II, by the Borrower to the Agent for a
borrowing or prepayment pursuant to Sections 2.1 or 2.11, each of which
shall:
(a) be signed by a Responsible Officer of the Borrower;
(b) specify the amount requested or prepaid and the date of the
borrowing or prepayment (which shall be a Business Day); and
(c) be delivered to the Lenders no later than 11:00 a.m., Central
Standard or Daylight Savings Time, as the case may be, on the Business
Day of the requested borrowing or prepayment.
"Business Day" shall mean a day other than a Saturday, Sunday, legal
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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.
"Closing Date" shall mean the effective date of this Agreement.
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"Collateral" shall mean the Mortgaged Properties and any other
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Property now or at any time used or intended as security for the payment or
performance of all or any portion of the Obligations.
"Commitment" shall mean the obligation of the Lenders, subject to
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applicable provisions of this Agreement, to make Loans to or for the
benefit of the Borrower pursuant to Section 2.1 and to issue Letters of
Credit pursuant to Section 2.2.
"Commitment Amount" shall mean, subject to the applicable provisions
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of this Agreement, at any time, the lesser of (a) the sum of the Facility
Amounts of the Lenders, or (b) the Borrowing Base in effect at such time.
"Commitment Fee" shall mean each fee payable to the Lenders by the
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Borrower pursuant to Section 2.12.
"Commitment Period" shall mean the period from and including the
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Closing Date to but not including the Commitment Termination Date.
"Commitment Termination Date" shall mean August 23, 2003.
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"Commodity Hedge Agreement" shall mean any crude oil, natural gas, or
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other hydrocarbon floor, collar, cap, price protection, or swap agreement,
in form and substance with a Person reasonably acceptable to the Agent.
"Commonly Controlled Entity" shall mean any Person which is under
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common control with the Borrower within the meaning of Section 4001 of
ERISA.
"Compliance Certificate" shall mean each certificate, substantially in
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the form attached hereto as Exhibit III, executed by a Responsible Officer
of the Borrower and furnished to the Lender from time to time in accordance
with Section 5.2.
"Contingent Obligation" shall mean, as to any Person, any obligation
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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
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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) for the
purchase or payment of any primary obligation, or (ii) to maintain working
or equity capital of
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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.
"Current Assets" shall mean all assets which would, in accordance with
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GAAP, be included as current assets on a consolidated balance sheet of the
Borrowers as of the date of calculation including unused availability under
this facility.
"Current Liabilities" shall mean all liabilities which would, in
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accordance with GAAP, be included as current liabilities on a consolidated
balance sheet of the Borrowers as of the date of calculation
"Debt Service" shall mean quarterly Interest Expense plus 1/20th of
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the outstanding principal under this facility and the facility with Bank
One Canada at the end of each quarter.
"Default" shall mean any event or occurrence which with the lapse of
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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 Prime
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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
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States of America.
"EBITDA" shall mean, for any period, Net Income for such period plus
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Interest Expense, federal and state income taxes, depreciation,
amortization, and other non-cash expenses less cash taxes paid for such
period deducted in the determination of Net Income for such period.
"Engineering Fee" shall mean each fee payable to the Agent by the
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Borrower pursuant to Section 2.13.
"Environmental Complaint" shall mean any written or oral complaint,
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order, directive, claim, citation, notice of environmental report or
investigation, or other
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notice by any Governmental Authority or any other Person 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, (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 or the business conducted thereon.
"Environmental Laws" shall mean (a) the following federal laws as they
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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, 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 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 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
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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
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7.1.
"Existing Loan Documents" shall mean the Loan Documents, as such term
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is defined in the Existing Credit Agreement, in existence on the Closing
Date immediately prior to the Assignment.
"Existing Note" shall mean the Note, as such term is defined in the
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Existing Credit Agreement, in existence on the Closing Date immediately
prior to the Assignment.
"Existing Security Instruments" shall mean the Security Instruments,
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as such term is defined in the Existing Credit Agreement, in existence on
the Closing Date immediately prior to the Assignment.
"Facility Amount" shall mean, for each Lender, the amount set forth
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opposite the name of such Lender on Exhibit IV under the caption "Facility
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Amounts," as
5
modified from time to time to reflect assignments permitted by Section 9.1
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or otherwise pursuant to the terms hereof and to give effect to any written
request of the Borrower (any such request being irrevocable, absent written
agreement of the Agent and the Required Lenders, which written agreement
may be expressly conditioned on the payment of a fee (other than with
respect to a reduction) by the Borrower to the Agent, for the account of
the Lenders) to a reduction in the sum of the then existing Facility
Amounts of the Lenders.
"Facility Fee" shall mean the fee payable to the Lenders by the
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Borrower pursuant to Section 2.14.
Federal Funds Effective Rate" shall mean, for any day, an interest
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rate per annum equal to the weighted average of the rates on overnight
federal funds transactions with members of the Federal Reserve System
arranged by federal funds brokers, as published for such day by the Federal
Reserve Bank of New York, or if such rate is not so published for such day,
the average of the quotations for such day on such transactions received by
Bank One, Texas, National Association from three federal funds brokers of
recognized standing selected by Bank One, Texas, National Association.
"Final Maturity" shall mean August 23, 2003.
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"Financial Statements" shall mean statements of the financial
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condition of the Borrower 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 Southern Mineral Corporation, on a consolidated and consolidating basis
with the other Borrowers and, when required by applicable provisions of
this Agreement to be audited, accompanied by the unqualified certification
of a nationally-recognized firm of independent certified public accountants
or other independent certified public accountants acceptable to the Lender
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.
"Floating Rate" shall mean an interest rate per annum equal to the
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Bank One Alternate Base Rate from time to time in effect plus one-half
percent (2%), but in no event exceeding the Highest Lawful Rate.
"GAAP" shall mean generally accepted accounting principles established
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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.
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"Governmental Authority" shall mean any nation, country, commonwealth,
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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.
"Guaranty" shall mean the Unlimited Guaranty of Borrower executed in
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favor of Bank One Canada and securing the Obligations of Neutrino
Resources, Inc. under the Credit Facility evidenced by the Credit Agreement
dated August 23, 2000, between Neutrino Resources, Inc. and Bank One
Canada, as Agent and Lender and the Lenders signatory thereto.
"Hazardous Substances" shall mean flammables, explosives, radioactive
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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
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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 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)
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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, and (d) all 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).
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"Insolvency Proceeding" shall mean application (whether voluntary or
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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 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,
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trademarks, tradenames, copyrights, technology, know-how, and processes.
"Interest Expense" shall mean, for any period, the total interest
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expense (including, without limitation, interest expense attributable to
capitalized leases) of the Borrower on a consolidated basis for such
period, determined in accordance with GAAP.
"Investment" in any Person shall mean any stock, bond, note, or other
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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
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available to be drawn under outstanding Letters of Credit at such time.
"Letter of Credit" shall mean any standby letter of credit issued by
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the Lender for the account of the Borrower pursuant to Section 2.2.
"Letter of Credit Application" shall mean the standard letter of
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credit application employed by the Lender from time to time in connection
with letters of credit.
"Letter of Credit Fee" shall mean each fee payable to the Lender by
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the Borrower pursuant to Section 2.15 upon or in connection with the
issuance of a Letter of Credit.
"Lien" shall mean any interest in Property securing an obligation owed
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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,
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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 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
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owing on the Notes and interest on such amount, calculated at the
applicable interest rate, 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
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the Borrower pursuant to this Agreement and any payment made by the Lender
under a Letter of Credit.
"Loan Balance" shall mean, at any time, the outstanding principal
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balance of the Notes at such time.
"Loan Documents" shall mean this Agreement, the Assignment, the Notes,
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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
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on the business, operations, properties, condition (financial or
otherwise), or prospects of the Borrower taken as a whole, which materially
increases the risk that any of the Obligations will not be repaid as and
when due, or (b) any material adverse effect upon the Collateral, taken as
a whole.
"Mortgaged Properties" shall mean all Oil and Gas Properties of the
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Borrower subject to a perfected first-priority Lien in favor of the Lender,
subject only to Permitted Liens, as security for the Obligations.
"Net Income" shall mean, for any period, the net income (or loss) of
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the Borrower on a consolidated basis for such period, determined in
accordance with GAAP.
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"Notes" shall mean, collectively, each of the promissory notes of the
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Borrower payable to a Lender in the amount of the Facility Amount of such
Lender in the form attached hereto as Exhibit I with all blanks in such
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form completed appropriately, together with all renewals, extensions for
any period, increases, and rearrangements thereof.
"Obligations" shall mean, without duplication, (a) all Indebtedness
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evidenced by the Notes, (b) the undrawn, unexpired amount of all
outstanding Letters of Credit, (c) the obligation of the Borrower for the
payment of Commitment Fees, Facility Fees, Letter of Credit Fees, and
Engineering Fees, (d) all obligations and liabilities whether now existing
or hereafter arising of the Borrower to the Lender in connection with any
Commodity Hedge Agreement or Rate Management Transaction, and (e) all other
obligations and liabilities of the Borrower to the Lender, 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 Facility Amount constitutes of the sum of the Facility Amounts of
all Lenders.
"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 outstanding at any one time during the term of this Agreement, (e)
the Guaranty, and (f) Indebtedness existing by virtue of the requirements
of GAAP or any changes in the requirements of GAAP.
"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
10
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, 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 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 or materially detract from the value or use of the Property
to which they apply, (g) Liens created under the Guaranty, and (h) Liens in
favor of the Agent for the benefit of the Lenders and other Liens expressly
created or 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 910 Travis Street, Houston, Texas
77002-5860.
"Property" shall mean any interest of the Borrower in any kind of
--------
property or asset, whether real, personal or mixed, tangible or intangible.
11
"Rate Management Transaction" shall mean any transaction (including an
---------------------------
agreement with respect thereto) now existing or hereafter entered into
between Borrower and the Agent and/or Lenders which is a rate swap, basis
swap, forward rate transaction, commodity swap, commodity option, equity or
equity index swap, equity or equity index option, bond option, interest
rate option, foreign exchange transaction, cap transaction, floor
transaction, collar transaction, forward transaction, currency swap
transaction, cross-currency rate swap transaction, currency option or any
other similar transaction (including any option with respect to any of
these transactions) or any combination thereof, whether linked to on or
more interest rates, foreign currencies, commodity prices, equity prices or
other financial measures.
"Regulation D" shall mean Regulation D of the Board of Governors of
------------
the Federal Reserve System, as the same may be amended or supplemented from
time to time.
"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 (whether or not having the force of law) 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 the Lender.
"Reimbursement Obligation" shall mean the obligation of the Borrower
------------------------
to provide to the Lenders or reimburse the Lenders for any amounts payable,
paid, or incurred by the Lender with respect to Letters of Credit.
"Release of Hazardous Substances" shall mean any emission, spill,
-------------------------------
release, disposal, or discharge, except in accordance with 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.
"Reorganization Plan" shall mean the Second Amended Plan of
-------------------
Reorganization of the Borrowers (except Spruce Hills Production Company,
Inc.) filed May 2, 2000, as modified from time to time, by the U.S.
Bankruptcy Court for the Southern District of Texas in jointly administered
Case No. 99-60359-V2-11 and approved by order entered July 21, 2000, and by
supplemental order entered August 8, 2000.
"Required Lenders" shall mean, Lenders (including the Agent) holding
----------------
more than 66 2/3% of the then Loan Balance, or, if there is no Loan
Balance, Lenders
12
(including the Agent) having more than 66 2/3% 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
--------------
pursuant to Section 5.4.
"Responsible Officer" shall mean, as to any Person, its President,
-------------------
Chief Executive Officer or any Vice President.
"Security Instruments" shall mean the Existing Security Instruments
--------------------
and the security instruments executed and delivered in satisfaction of the
condition set forth in Section 3.1(g), and all other 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.
13
"Transferee" shall mean any Person to which the Lender has sold,
----------
assigned, transferred, or granted a participation in any of the
Obligations, as authorized pursuant to Section 9.1, and any Person
acquiring, by purchase, assignment, transfer, or participation, from any
such purchaser, assignee, transferee, or participant, any part of such
Obligations.
"UCC" shall mean the Uniform Commercial Code as from time to time in
---
effect in the State of Texas.
I.3 Undefined Financial Accounting Terms. Undefined financial
------------------------------------
accounting trms used in this Agreement shall be drfined according to GAAP at the
time in effect.
I.4 References. References in this Agreement 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.
I.5 Articles and Sections. This Agreement, for 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.
I.6 Number and Gender. Whenever the context 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.
I.7 Incorporation of Exhibits. The Exhibits attached to this herein
-------------------------
and shall be considered a part of this Agreement for all purposes.
ARTICLE II
----------
TERMS OF FACILITY
-----------------
II.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
14
immediately available funds at the Principal Office, to or for the benefit of
the Borrower, from time to time on any Business Day designated by the Borrower
following receipt by the Lenders of a Borrowing Request; provided, however, no
Loan shall exceed the then existing Available Commitment.
(b) Subject to the terms of this Agreement, during the Commitment
Period, the Borrower may borrow, repay, and reborrow such funds. Except for
prepayments made pursuant to Section 2.10, each borrowing and prepayment of
principal of Loans shall be in an amount at least equal to $100,000. Each
borrowing or prepayment shall be deemed a separate borrowing or prepayment for
purposes of the foregoing.
(c) The Loans shall be made and maintained at the Principal Office and
shall be evidenced by the Notes.
(d) Not later than 2:00 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
by the end of that Business Day. All Loans by each Lender shall be maintained
at the Principal Office of such Lender and shall be evidenced by the Notes 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.
II.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 following the receipt, not less than three Business Days prior to the
requested date for issuance of the relevant Letter of Credit, on behalf of the
Lenders in their respective Percentage Shares Letters of Credit for the account
of the Borrower and/or the benefit of any Subsidiary of the 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 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 a Letter of Credit Application. Letters of Credit
shall be issued in such amounts as the Borrower may request; provided, however,
that (i) no Letter of Credit shall have an expiration date which is
15
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 then existing Available Commitment, or
(B) after giving effect to the issuance thereof, (x) the L/C Exposure, when
added to the Loan Balance then outstanding, would exceed the Commitment Amount,
or (y) the L/C Exposure would exceed $500,000, other than with respect to
required Commodity Hedge Agreements and Rate Management Transactions.
(b) Prior to any 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.
(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 WITHOUT LIMITING THE OBLIGATION OF THE BORROWER 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
16
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 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.
II.3 Use of Loan Proceeds and Letters of Credit. (a) As of the date
------------------------------------------
hereof, of CreditII.3 Letters of Credit indebtedness in the amount of under the
Existing Notes. The Agent shall use proceeds of the initial Loan to purchase
such indebtedness. Such indebtedness shall be renewed, extended, and rearranged
pursuant to the terms of this Agreement, the Notes, and the relevant Borrowing
Request and shall for all purposes be deemed a borrowing hereunder. Proceeds of
all subsequent Loans shall be used solely to finance exploration, development
and acquisition of oil and gas properties, certain bankruptcy related expenses
and for general corporate purposes.
(b) Letters of Credit shall be used solely for general corporate
purposes.
II.4 Interest. Subject to the terms of this limitation, Section
--------
2.18), interest on the Loans shall accrue and be payable at a rate per annum
equal to the Floating Rate. Interest on all 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 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.
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.
II.5 Repayment of Loans and Interest. Accrued and unpaid interest on
-------------------------------
monthly commencing on the first day of September, 2000, and continuing on the
first day of each calendar month thereafter while any amount of the Loan Balance
remains outstanding, the payment in each instance to be the amount of interest
which has accrued and remains unpaid in respect of the Loan Balance. The Loan
Balance, together with all accrued and unpaid interest thereon, shall be due and
payable at Final Maturity.
17
II.6 Outstanding Amounts. The Loan Balance of the Notes 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.
II.7 Time, Place, and Method of payments. All payments required
-----------------------------------
pursuant PaymentsII.7 Payments to this Agreement or the Notes the United States
of America and in immediately available funds, shall be deemed received by the
Agent 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 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.
II.8 Pro Rata Treatment; Adjustments. (a) Except to the extent
-------------------------------
Adjustments otherwise expressly provided pursuant to this Agreement shall be
made from the Lenders pro rata in accordance with their respective Percentage
Shares, (ii) each reduction of the sum of the Facility Amounts of the Lenders at
the request of the Borrower, as well as any subsequent increase in the sum of
the Facility Amounts of the Lenders at the request of the Borrower and with
written agreement of the Agent and the Required Lenders shall serve to adjust
the Facility Amounts of the Lenders pro rata in accordance with the Facility
Amounts of the Lenders in effect immediately prior to any such adjustment, (iii)
each payment by the Borrower of fees shall be made for the account of the
Lenders pro rata in accordance with their respective Percentage Shares, (iv)
each payment of principal of Loans shall be made for the account of the Lenders
pro rata in accordance with their respective 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 respective 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 at any particular
time are insufficient to satisfy in full the Obligations due and payable at such
time, such payments shall be applied (i) first, to fees and expenses due
pursuant to the terms of this Agreement or any other Loan Document, (ii) second,
to accrued interest, (iii) third, to the Loan Balance, and (iv) 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 Section 7.1(f) or Section 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
18
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
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 forwarded immediately to the Agent for
distribution in accordance with the terms of this Agreement.
II.9 Borrowing Base Determinations. (a) The Borrowing Base as of
-----------------------------
August 1, 2000, is acknowledged by the Borrower and the Lenders to be
$18,725,000. Commencing on September 1, 2000, and continuing thereafter on the
first day of each calendar month through the Commitment Termination Date, the
amount of the Borrowing Base shall be reduced by $275,000 (subject to Adjustment
in accordance with Section 2.9(b).
(b) The Borrowing Base and monthly reduction in the Borrowing Base
shall be redetermined semi-annually by unanimous consent of the Lenders
beginning December 1, 2000, 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 Lender 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 amount by which the
Borrowing Base shall be reduced each calendar month as set forth in Section 2.9
(a) at any time and from time to time.
(c) Upon each determination of the Borrowing Base 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 amount by which
the Borrowing Base shall be reduced so communicated to the Borrower shall become
effective upon such written notification and shall remain in effect until the
next subsequent determination of the Borrowing Base and the amount by which the
Borrowing Base shall be reduced.
(d) The Borrowing Base shall represent the determination by the
Lenders, in accordance with the applicable definitions and provisions herein
contained, their then current
19
engineering standards and their then current and customary lending standards for
loans of this nature, of the value, for loan purposes, of the Mortgaged
Properties, subject, in the case of any increase in the Borrowing Base, to the
credit approval process of the Lenders. Furthermore, the Borrower acknowledges
that the determination of the Borrowing Base contains an equity cushion (market
value in excess of loan value), which is acknowledged by the Borrower to be
essential for the adequate protection of the Lenders.
II.10 Mandatory Prepayments. If at any time the sum of the Loan
---------------------
Balance and in effect, the Borrower 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 to be prepaid, the Borrower shall repay the entire Loan
Balance and, in accordance with the provisions of the relevant Letter of Credit
Applications executed by the Borrower or otherwise to the satisfaction of the
Lenders, deposit with the Lenders, as additional collateral securing the
Obligations, an amount of cash, in immediately available funds, equal to the L/C
Exposure minus the Borrowing Base. The cash deposited with 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 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 in cash or cash equivalent investments offered by or through the
Lenders.
II.11 Voluntary Prepayments of Loans. Subject to applicable LoansII.11
------------------------------
of Loans provisions of this Borrower shall have the right at any time or from
time to time to prepay Loans without prepayment penalty provided, however, (a)
the Borrower shall pay all accrued and unpaid interest on the amounts prepaid,
and (b) no such prepayment shall serve to postpone the repayment when due of any
Obligation.
II.12 Commitment Fee. In addition to interest on the Notes as provided
--------------
herein and all other fees paid hereunder and to compensate the Lender for
maintaining funds available, the Borrower shall pay to the Lender, in
immediately available funds, on the first day of October, 2000, and on the first
day of each third calendar month thereafter during the Commitment Period, a fee
in the amount of one-half percent (2%) 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 average daily amount of the
Available Commitment during the preceding quarterly period.
II.13 Engineering Fee. In addition to interest on the Notes as and to
---------------
compensate the Agent for the costs of evaluating the Mortgaged Properties and
reviewing the Reserve Reports, the Borrower shall pay to the Agent, in
immediately
20
available funds, on the date of each semi-annual or Borrower requested
redetermination of the Borrowing Base in accordance with Section 2.9(b), an
engineering fee in the amount of $10,000.
II.14 Facility Fee. In addition to interest on the Notes as and to
------------
compensate the Lenders for the costs of the extension of credit hereunder, the
Borrower shall pay to the Lenders on the Closing Date, in immediately available
funds, a facility fee in the amount of $93,625, $23,750 of which has been
previously paid leaving a balance of $69,875 due on the Closing Date. A facility
fee of one-half percent (2%) of any future incremental increase in the Borrowing
Base shall be paid to the Lenders on the date the Agent notifies the Borrower of
such increase.
II.15 Letter of Credit Fee. In addition to interest on the Notes as
--------------------
hereunder, the Borrower agrees to pay to the Lenders, on the date of issuance of
each Letter of Credit, a fee equal to the greater of $500.00 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; provided, however, in the event such Letter of
Credit is canceled prior to its original expiry date or a payment is made by the
Lender with respect to such Letter of Credit, the Lender shall, within 30 days
after such cancellation or the making of such payment, rebate to the Borrower
the unearned portion of such fee. The Borrower also agrees to pay to the Lender
on demand its customary letter of credit transactional fees, including, without
limitation, amendment fees, payable with respect to each Letter of Credit.
II.16 Loans to Satisfy Obligations of Borrower. The Lenders may, but
----------------------------------------
Obligations of Obligations of shall not be obligated BorrowerII.16 Borrower to,
make Loans for the and apply proceeds thereof to the satisfaction of any
condition, warranty, representation, or covenant of the Borrower contained in
this Agreement or any other Loan Document. Any such Loan shall be evidenced by
the Notes and shall be made at the Floating Rate.
II.17 Security Interest in Accounts; Right of Offset. As security for
----------------------------------------------
the payment and performance of the Obligations, the transfers, assigns, and
pledges 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 now
or hereafter or from time to time on deposit with the Agent and such Lender,
with such interest of the Lender to be retransferred, reassigned, and/or
released by the Agent and each Lender, as the case may be, at the expense of the
Borrower upon payment in full and complete performance by the Borrower of all
Obligations. All remedies as secured party or assignee of such funds shall be
exercisable by the Lender during the existence of 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 hereby grants 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 now or hereafter or from time to time on deposit with the Agent and
each Lender, regardless of whether
21
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.
II.18 General Provisions Relating to Interest. (a) It is the intention
---------------------------------------
of the parties hereto to comply strictly with the usury laws of the State of
Texas 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. For purposes of
Chapter 10 of Subtitle 1 of Title 79, Texas Revised Civil Statutes, the Borrower
agrees that the Highest Lawful Rate shall be the "weekly ceiling" as defined in
such Section, provided that the Lenders may also rely, to the extent permitted
by applicable laws of the State of Texas or the United States of America, on
alternative maximum rates of interest under other laws of the State of Texas or
the United States of America applicable to the Lenders, 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 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 Texas 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 Lenders (i) the amount of interest in excess of that
accruing at the Highest Lawful Rate that 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 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 stipulates that such payment
and collection will have been and will be deemed to have been, to the extent
permitted by applicable laws of the State of Texas or the United States of
America, the result of mathematical error on the part of the Borrower and the
Lenders; 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 by the Lenders or notice thereof from the Borrower. In the event that the
maturity of any Obligation is accelerated, by reason of an election by 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.
(d) All sums paid, or agreed to be paid, to 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
22
the actual rate of interest is uniform but does not exceed the Highest Lawful
Rate throughout the full term hereof.
II.19 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
pursuant to Section 3.1(g)(iv) or Section 5.7 will be sent to the addressees
thereof prior to the occurrence of an Event of Default, at which time the Lender
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.
II.20 Power of Attorney. The Borrower hereby designates the Agent as
-----------------
its agent and attorney-in-fact, to act in its 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 to the Agent pursuant to Section 3.1(g)(iv) or Section 5.7,
including, without limitation, completing any blanks contained in such letters
and attaching exhibits thereto describing the relevant Collateral. The Borrower
hereby ratifies and confirms 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 under the Loan Documents and shall
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 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 and issue Letters of Credit are subject to the satisfaction of the
following conditions precedent:
III.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
to its Oil and Gas Properties, 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, 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:
23
(a) multiple counterparts of this Agreement and the Assignment, as
requested by the Agent;
(b) the Existing Notes, endorsed payable to the Agent;
(c) the Notes,
(d) copies of the Articles of Incorporation or Certificate of
Incorporation and all amendments thereto and the bylaws and all amendments
thereto of all Borrowers, accompanied by a certificate issued by the
secretary or an assistant secretary of the Borrowers, to the effect that
each such copy is correct and complete;
(e) certificates of incumbency and signatures of all officers of all
Borrowers who are authorized to execute Loan Documents on behalf of the
Borrowers, each such certificate being executed by the secretary or an
assistant secretary of the Borrowers;
(f) 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, accompanied by certificates of
the secretary or an assistant secretary of the Borrowers, to the effect
that such copies are true and correct copies of resolutions duly adopted at
a meeting or by unanimous consent of the board of directors of the
Borrower, 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;
(g) the following documents ratifying, amending, and/or restating the
Existing Security Instruments and otherwise establishing Liens in favor of
the Agent in and to the Collateral:
(i) Ratification and Amendment to Mortgage, Deed of Trust,
Indenture, Security Agreement, Assignment of Production, and Financing
Statement from Southern Mineral Corporation and BEC Energy, Inc.
covering all Oil and Gas Properties of Southern Mineral Corporation
and BEC Energy, Inc. and all improvements, personal property, and
fixtures related thereto;
(ii) Financing Statements from Southern Mineral Corporation and
BEC Energy, Inc., as debtor, constituent to the instrument described
in clause (i) above;
24
(iii) Assignment of Notes and Liens from Compass Bank, Agent and
as a Lender and First Union National Bank to Agent for the benefit of
the Lenders as consented to and acknowledged by Borrower and Financing
Statement Assignment from Compass Bank and First Union National Bank
to Agent for the benefit of the Lenders;
(iv) undated letters, in form and substance satisfactory to the
Agent, from Southern Mineral Corporation, SMC Production Co., Spruce
Hills Production Company, Inc., SMC Ecuador, Inc. 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 Southern Mineral
Corporation of Stock of SMC Production Co., SMC Ecuador, Inc., BEC
Energy, Inc., and Spruce Hills Production Company, Inc.;
(vi) Security Agreement (Stock Pledge) by Spruce Hills
Production Company, Inc. of the common stock of Neutrino Resources,
Inc.;
(vii) Security Agreement from all Borrowers pledging all
personal property;
(viii) Financing Statements for all Borrowers, as debtor,
constituent to the instrument described in clause (viii) above;
(h) audited Financial Statements of the Borrower as of December 31,
1999, and unaudited Financial Statements of the Borrower as of June 30,
2000.
(i) 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 in their respective
jurisdictions of incorporation and in any other jurisdictions any of them
do business;
(j) 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
25
is accomplished by the filing of a financing statement other than in favor
of the Agent;
(k) confirmation, acceptable to the Agent, of the title of the
Borrower to the Mortgaged Properties, free and clear of Liens other than
Permitted Liens;
(l) all operating, lease, sublease, royalty, sales, exchange,
processing, farmout, bidding, pooling, unitization, communitization, and
other agreements relating to the Mortgaged Properties requested by the
Lender;
(m) engineering reports covering the Mortgaged Properties;
(n) the opinion of Akin, Gump, Strauss, Hauer & Feld, counsel to the
Borrower, in the form attached hereto as Exhibit V, with such changes
thereto as may be approved by the Lender;
(o) certificates evidencing the insurance coverage required pursuant
to Section 5.18;
(p) certified copy of a final and non-appealable order entered July
21, 2000, and the supplemental order entered August 8, 2000, confirming the
Reorganization Plan;
(q) Agent shall have reviewed and become satisfied with the changes
in the compilation of Southern Mineral Corporation's Board of Directors and
senior management;
(r) enter into a Commodity Hedge Agreement acceptable to the Lenders
of a minimum of 50% of its reasonably projected production from its Oil and
Gas Properties during the 24 month period following the Closing Date within
three days of Closing;
(s) Notice of Final Agreement; and
(t) such other agreements, documents, instruments, opinions,
certificates, waivers, consents, and evidence as the Lender may reasonably
request.
III.2 Each Loan and Letter of Credit. In addition to the conditions
------------------------------
precedent stated elsewhere herein, the Lender shall not be obligated to make any
Loan or issue any Letter of Credit unless:
(a) the Borrower shall have delivered to the Agent a Borrowing
Request at least the requisite time prior to the requested date for the
relevant Loan, or a Letter of Credit Application at least three Business
Days prior to the requested issuance date
26
for the relevant Letter of Credit; and each statement or certification made
in such Borrowing Request or Letter of Credit Application, as the case may
be, shall be true and correct in all material respects on the requested
date for such Loan or the issuance of such Letter of Credit;
(b) no Event of Default or Default shall exist or will occur as a
result of the making of the requested Loan or the issuance of the requested
Letter of Credit;
(c) if requested by the Agent, the Borrower shall have delivered
evidence satisfactory to the Agent substantiating any of the matters
contained in this Agreement which are necessary to enable the Borrower to
qualify for such Loan or the issuance of such Letter of Credit;
(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 the Lender with respect to such Loan or Letter of Credit;
(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 as if made on the requested date for such Loan or the issuance
of such Letter of Credit except to the extent such representation or
warranty is expressly limited to a certain date;
(g) all of 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 or the issuance of such Letter of Credit shall
contravene, violate, or conflict with any Requirement of Law;
(i) the Borrower shall hold full legal title to the Collateral
pledged by such entity and be the sole beneficial owner thereof, subject
only to Permitted Liens;
(j) the Agent and the Lenders shall have received the payment of all
Engineering Fees, Facility Fees, Letter of Credit Fees, and other fees
payable to the Agent and the Lenders hereunder and reimbursement from the
Borrower, or special legal counsel for the Agent shall have received
payment from the Borrower, for (i) all reasonable fees and expenses of
counsel to the Lender for which the Borrower is 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 or Letter
27
of Credit Application, and (ii) estimated fees charged by filing officers
and other public officials incurred or to be incurred in connection with
the filing and recordation of any Security Instruments, for which invoices
have been presented as of or prior to the date of the requested Loan or
Letter of Credit Application; and
(k) all matters incident to the consummation of the transactions
hereby contemplated shall be satisfactory to the Lender.
ARTICLE IV
----------
REPRESENTATIONS AND WARRANTIES
------------------------------
To induce the Agent and the Lenders to enter into this Agreement and
to make the Loans and issue Letters of Credit, the Borrower represents and
warrants to the Agent and the Lenders (which representations and warranties
shall survive the delivery of the Notes) that:
IV.1 Due Authorization. The execution and delivery by the Borrower of
-----------------
this Agreement and the borrowings hereunder, the execution and delivery by the
Borrower 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 the performance of all obligations of the
Borrower under the Loan Documents are within the power of the Borrower, have
been duly authorized by all necessary corporate action by the Borrower, 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 or conflict with any indenture, instrument, or other agreement to
which the Borrower is a party or by which any Property of the Borrower 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 under any
such indenture, instrument, or other agreement, other than the Loan Documents.
IV.2 Corporate Existence. The Borrowers are corporations duly
-------------------
organized, legally existing, and in good standing under the laws of their state
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.
IV.3 Valid and Binding. All Loan Documents, when duly executed and
-----------------
delivered by the Borrower, will be the legal, valid, and binding obligations of
the Borrower, enforceable against the Borrower in accordance with their
respective terms.
IV.4 Security Instruments. The provisions of each Security Instrument
--------------------
are effective to create in favor of the Lenders, a legal, valid, and enforceable
Lien in all right, title, and interest of the Borrower in the Collateral
described therein, which Liens, assuming the accomplishment of recording and
filing in accordance with applicable laws prior to the intervention
28
of rights of other Persons, shall, except for Permitted Liens, constitute fully
perfected first-priority Liens on all right, title, and interest of the Borrower
in the Collateral described therein.
IV.5 Title to Assets. Each Borrower has good and defensible title to
---------------
all of its respective Properties, free and clear of all Liens except Permitted
Liens.
IV.6 Scope and Accuracy of Financial Statements. The Financial
------------------------------------------
Statements of each Borrower as of June 30, 2000, present fairly the financial
position and results of operations and cash flows of such Borrower 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 June 30, 2000, which
could reasonably be expected to have a Material Adverse Effect.
IV.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 in connection with this Agreement contains any material
misstatement of fact or omits 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.
IV.8 Liabilities, Litigation, and Restrictions. Other than as listed
-----------------------------------------
under the heading "Liabilities" on Exhibit VII attached hereto and included or
disclosed on the Financial Statements as of June 30, 2000, the Borrower has 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 VII hereto, no litigation or
other action of any nature affecting the Borrower is pending before any
Governmental Authority or, to the best knowledge of the Borrower, threatened
against or affecting the Borrower which might reasonably be expected to result
in any impairment of its ownership of any Collateral or have a Material Adverse
Effect. To the best knowledge of the Borrower, 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 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.
IV.9 Authorizations; Consents. Except as expressly contemplated by
------------------------
this Agreement, no authorization, consent, approval, exemption, franchise,
permit, or license of, or filing 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 of the Loan Documents or any
instrument contemplated hereby, the repayment by the Borrower of the Notes and
interest and fees provided in the Notes and this Agreement, or the performance
by the Borrower of the Obligations.
IV.10 Compliance with Laws. The Borrower and its 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,
29
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.
IV.11 ERISA. The Borrower does not maintain, nor has it maintained,
-----
any Plan. The Borrower does not currently contribute to or have any liability
with respect to any Plan.
IV.12 Environmental Laws. To the best knowledge and belief of the
------------------
Borrower, except as would not have a Material Adverse Effect, or as described on
Exhibit VII under the heading "Environmental Matters:"
(a) no Property of the Borrower 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 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 Authority, no Release of Hazardous Substances by the Borrower
or from, affecting, or related to any Property of the Borrower or adjacent
to any Property of the Borrower has occurred; and
(d) no Environmental Complaint has been received by the Borrower
except as noted on Exhibit VI.
IV.13 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.
IV.14 Investment Company Act Compliance. The Borrower is not, nor is
---------------------------------
the Borrower 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.
IV.15 Public Utility Holding Company Act Compliance. The Borrower is
---------------------------------------------
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.
IV.16 Proper Filing of Tax Returns; Payment of Taxes Due. The Borrower
--------------------------------------------------
has duly and properly filed or requested an extension as allowed by law of its
United States income tax return and all other tax returns which are required to
be filed and has paid all taxes due except such as are
30
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 with respect to taxes and other governmental charges are adequate.
IV.17 Refunds. Except as described on Exhibit VII under the heading
-------
"Refunds," no orders of, proceedings pending before, or other requirements of,
the Federal Energy Regulatory Commission, the Texas Railroad Commission, or any
Governmental Authority exist which could result in the Borrower 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.
IV.18 Gas Contracts. Except as described on Exhibit VII under the
-------------
heading "Gas Contracts," the Borrower (a) is 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) has not produced gas, in any material amount, subject to, and neither
the Borrower nor any of the Mortgaged Properties is subject to, balancing rights
of third parties or subject to balancing duties under governmental requirements,
except as to such matters for which the Borrower has established monetary
reserves adequate in amount to satisfy such obligations and has segregated such
reserves from other accounts.
IV.19 Intellectual Property. The Borrower owns or is licensed to use
---------------------
all Intellectual Property necessary to conduct all business material to its
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
the 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 knows of no valid basis for any such claim. The use of such
Intellectual Property by the Borrower 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.
IV.20 Casualties or Taking of Property. Except as disclosed on Exhibit
--------------------------------
VII under the heading "Casualties," since June 30, 2000, neither the business
nor any Property of the Borrower has 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.
IV.21 Locations of Borrower. The principal place of business and chief
---------------------
executive office of the Borrower is located at the address of the Borrower set
forth in Section 9.3 or at such other location as the Borrower may have, by
proper written notice hereunder, advised the Lender, provided that such other
location is within a state in which appropriate financing statements from the
Borrower in favor of the Lender have been filed.
31
IV.22 Subsidiaries. Southern Mineral Corporation has no Subsidiaries
------------
except the other Borrowers and those listed on Exhibit VI.
IV.23 Existing Indebtedness; No Defenses. As of the date hereof, (a)
----------------------------------
the Borrower is indebted to Existing Lenders under the Existing Notes in the
aggregate principal amount of $16,108,454.64, and (b) the Borrower has no
defenses to, rights of setoff against, claims or counterclaims with respect to,
and no default exists under or with respect to, any of the Existing Loan
Documents or any Indebtedness or obligation of the Borrower to the Existing
Lenders.
ARTICLE V
---------
AFFIRMATIVE COVENANTS
---------------------
So long as any Obligation remains outstanding or unpaid or any
Commitment exists, the Borrower shall:
V.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 promptly following the reasonable request of the Lender, make such records
available for inspection by the Lender and, at the expense of the Borrower,
allow the Lender to make and take away copies thereof.
V.2 Quarterly Financial Statements; Compliance Certificates.
-------------------------------------------------------
Deliver to the Lender, (a) on or before the 60th day after the close
Certificates of each of the first three quarterly periods of each fiscal year of
the Borrower, a copy of the unaudited consolidated and consolidating Financial
Statements of the Borrower 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 as having
been prepared in accordance with GAAP consistently applied and as a fair
presentation of the condition of the Borrower, subject to changes resulting from
normal year-end audit adjustments, and (b) on or before the 60th day after the
close of each fiscal quarter, a Compliance Certificate.
V.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, a copy of the annual audited consolidated and annual unaudited
consolidating Financial Statements of the Borrower.
V.4 Oil and Gas Reserve Reports. (a) Deliver to the Agent no later
---------------------------
than April 1 of each year during the term of this Agreement, engineering reports
in form and substance satisfactory to the Agent, certified by any nationally- or
regionally-recognized independent consulting petroleum engineers acceptable to
the Lender 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 as of January 1 of
the year for which such
32
reserve reports are furnished, (ii) the aggregate present value of the future
net income with respect to such Mortgaged Properties, 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.
(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 Lender prepared by or under the supervision of the
chief petroleum engineer of the Borrower evaluating the Mortgaged Properties 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, volumes of
production sold, purchasers of production, gross revenues, expenses, and such
other information and engineering and geological data with respect thereto as
the Lender may reasonably request.
V.5 Title Opinions; Title Defects. Promptly upon the request of the
-----------------------------
Agent, 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
Agent, covering Oil and Gas Properties constituting not less than 90% of the
value, determined by the Agent in its sole discretion, of the Mortgaged
Properties; and promptly, but in any event within 60 days after notice by the
Agent of any defect (other than Permitted Liens), material in the opinion of the
Agent in value, in the title of the Borrower to any of its 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.
V.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 setting forth the relevant
event or circumstance and the steps being taken by the Borrower 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, or any litigation, investigation, or proceeding between
the Borrower 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;
33
(c any litigation or proceeding involving the Borrower as a defendant
or in which any Property of the Borrower is subject to a claim and in which
the amount involved is $500,000 or more and which is not covered by
insurance or in which injunctive or similar relief is sought;
(d the receipt by the Borrower 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 or adjacent to
any Property of the Borrower following any allegation of a violation of any
Requirement of Law;
(f any Release of Hazardous Substances by the Borrower or from,
affecting, or related to any Property of the Borrower or adjacent to any
Property of the Borrower 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 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 Default or Event of Default in the Credit Agreement between
Neutrino Resources, Inc. and Bank One Canada; and
(j any other event or condition which could reasonably be expected to
have a Material Adverse Effect.
V.7 Letters in Lieu of Transfer Orders; Division Orders. Promptly
----------------------------------------------------
upon request by the Agent at any time and from to time, execute such letters in
time lieu of transfer orders, in addition to the letters signed by the Borrower
and delivered to the Lender in satisfaction of the condition set forth in
Section 3.1(g)(iv) and/or division and/or transfer orders as are necessary or
appropriate to transfer and deliver to the Lender proceeds from or attributable
to any Mortgaged Property.
V.8 Additional Information. Furnish to the Agent and each Lender,
----------------------
promptly upon the request of the Lender, such additional financial or other
information concerning the assets, liabilities, operations, and transactions of
the Borrower as the Lender may from time to time request; and notify the Lender
not less than ten Business Days prior to the occurrence of any condition or
event that may change the proper location for the filing of any financing
statement or other public
34
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 Lender, execute such additional Security Instruments as may be necessary or
appropriate in connection therewith.
V.9 Compliance with Laws. Except to the extent the failure to
--------------------
comply or cause compliance would not have a Material Adverse Effect, 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 (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, (ii) required for the performance of the operations of the Borrower,
or (iii) applicable to the use, generation, handling, storage, treatment,
transport, or disposal of any Hazardous Substances; and cause all employees,
crew members, agents, contractors, subcontractors, and future lessees (pursuant
to appropriate lease provisions) of the Borrower, while such Persons are acting
within the scope of their relationship with the Borrower, to comply with all
such Requirements of Law as may be necessary or appropriate to enable the
Borrower to so comply.
V.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, 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.
V.11 Maintenance of Corporate Existence and Good Standing. Maintain
----------------------------------------------------
its 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.
V.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.
V.13 Further Assurances. 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 Lender, be necessary to fulfill the
terms of the Loan Documents.
V.14 Initial Fees and Expenses of Counsel to Lender. On the Closing
----------------------------------------------
Date, 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
negotiations, preparation and all approval processes related to 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
35
consummation of the transactions contemplated in this Agreement. Jackson Walker
L.L.P. will furnish a detailed statement of legal services rendered and a
statement for estimated recording fees one day prior to the Closing Date.
V.15 Subsequent Fees and Expenses of Lender. 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 satisfy any obligation of the Borrower under any of the Loan Documents;
to collect the Obligations; to ratify, amend, restate, or prepare additional
Loan Documents, as the case may be; for the filing and recordation of Security
Instruments; to enforce the rights of the Agent under any of the Loan Documents;
and to protect the Properties or business of the Borrower, including, without
limitation, the Collateral, which amounts shall be deemed compensatory in nature
and liquidated as to amount upon notice to the Borrower by the Agent 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, (d)fees and expenses incurred in
connection with the participation by the Agent 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
(S)362 Title 11 of the United States Code, and (f) fees and expenses incurred in
connection with any action pursuant to (S)1129 Title 11 of the United States
Code all reasonably incurred by the Agent 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 until the date it is repaid to the
Agent, 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 a trustee, receiver, custodian, or liquidator
of the Borrower appointed in any such case.
V.16 Operation of Oil and Gas Properties. Develop, maintain, and
-----------------------------------
operate its Oil and Gas Properties for which it is the operator (and use
commercially reasonably efforts to cause the operator of each other of its Oil
and Gas Properties to develop, maintain and operate such Oil and Gas Properties)
in a prudent and workmanlike manner in accordance with industry standards.
V.17 Maintenance and Inspection of Properties. Maintain all of its
----------------------------------------
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 any authorized representative of the
Lenders to visit and inspect, at the expense of the Borrower, any tangible
Property of the Borrower.
V.18 Maintenance of Insurance. Maintain insurance with respect to
------------------------
its 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, maintained by Borrower, naming the Lenders
36
as loss payee, and, upon any renewal of any such insurance and at other times
upon request by the Lenders, furnish to the Lenders evidence, satisfactory to
the Lenders, within 30 days of the Closing Date of the maintenance of such
insurance. The Lenders shall have the right to collect, and the Borrower hereby
assigns to 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 Lenders may, at their 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 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 Lenders shall deliver any
such proceeds received by it to the Borrower. In the event the Lenders receive
insurance proceeds not attributable to Collateral or business interruption, the
Lenders shall deliver any such proceeds to the Borrower.
V.19 INDEMNIFICATION. INDEMNIFY AND HOLD THE AGENT AND EACH LENDER
----------------
AND ITS 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, WHETHER PRIOR TO OR DURING THE TERM HEREOF, (B) ANY ACTIVITY CARRIED
ON OR UNDERTAKEN ON OR OFF ANY PROPERTY OF THE BORROWER, WHETHER PRIOR TO OR
DURING THE TERM HEREOF, AND WHETHER BY THE BORROWER OR ANY PREDECESSOR IN TITLE,
EMPLOYEE, AGENT, CONTRACTOR, OR SUBCONTRACTOR OF THE BORROWER OR ANY OTHER
PERSON AT ANY TIME OCCUPYING OR PRESENT ON SUCH PROPERTY, IN CONNECTION WITH THE
HANDLING, TREATMENT, REMOVAL, STORAGE, 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, (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 OR ANY EMPLOYEE, AGENT,
CONTRACTOR, OR SUBCONTRACTOR OF THE BORROWER WHILE SUCH PERSONS ARE ACTING
WITHIN THE SCOPE OF THEIR RELATIONSHIP WITH THE BORROWER, IRRESPECTIVE OF
37
WHETHER ANY OF SUCH ACTIVITIES WERE OR WILL BE UNDERTAKEN IN ACCORDANCE WITH
APPLICABLE REQUIREMENTS OF LAW, OR (E) THE PERFORMANCE AND ENFORCEMENT OF ANY
LOAN DOCUMENT, ANY ALLEGATION BY ANY BENEFICIARY OF A LETTER OF CREDIT OF A
WRONGFUL DISHONOR BY THE LENDERS 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 LENDERS OR ANY OF THEIR
SHAREHOLDERS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT, OR
AFFILIATES OR ANY TRUSTEE FOR THE BENEFIT OF THE LENDERS 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.
V.20 Bank Accounts. Maintain all accounts and funds with the Agent
-------------
and/or the Lenders.
V.21 Hedging. Enter into a Commodity Hedge Agreement acceptable to the
-------
Lenders of a minimum of 50% of its reasonably projected production from its Oil
and Gas Properties during the 24 month period following the Closing Date.
ARTICLE VI
----------
NEGATIVE COVENANTS
------------------
So long as any Obligation remains outstanding or unpaid or any
Commitment exists, the Borrower will not:
VI.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) unsecured
accounts payable incurred in the ordinary course of business, which are not
unpaid in excess of 75 days beyond invoice date, or agreed payment date or are
being
38
contested in good faith and as to which such reserve as is required by GAAP has
been made, (c) Commodity Hedge Agreements, in form and substance and with a
Person reasonably acceptable to the Agent and each Lender, provided that (i)
each commitment issued under such agreement must also be approved by the Agent
and each Lender, which approvals are not unreasonably withheld or delayed, (ii)
such agreements shall not be entered into with respect to Mortgaged Properties
constituting more than 75% of monthly production of proven producing reserves as
forecast in Agent and each Lender's most recent engineering evaluation, (iii)
that the strike prices in such agreements are not less than the prices used by
the Agent and each Lender in the most recent Borrowing Base determination, and
(iv) the Agent for the benefit of each Lender shall receive a security interest
in the Commodity Hedge Agreements, (d) Rate Management Transactions, in form and
substance and with a Person reasonably acceptable to the Agent and each Lender,
(e) $250,000 for financing of insurance premiums, (f) Indebtedness in respect of
Permitted Liens, (g) inter-company Indebtedness among the Borrowers, or (h)
Permitted Indebtedness.
VI.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, (b) trade credit incurred or
operating leases entered into in the ordinary course of business, or (c)
Permitted Indebtedness.
VI.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.
VI.4 Sales of Assets. Without the prior written consent of the Agent
---------------
and each Lender, sell, transfer, or otherwise dispose of, in one or any series
of transactions, assets, whether now owned or hereafter acquired, in excess of
$250,000 per annum, other than sales of severed hydrocarbons in the ordinary
course of business.
VI.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.
VI.6 Acquisitions. Make any acquisition in excess of $2,500,000,
------------
without the prior written consent of the Agent.
VI.7 Loans or Advances. Make or agree to make or allow to remain
-----------------
outstanding any loans or advances to any Person; 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 for the payment of expenses in the
ordinary course of business or (c) between the Borrowers in the ordinary course
of business.
39
VI.8 Investments. Acquire Investments in, or purchase or otherwise
-----------
acquire all or substantially all of the assets of, any Person; provided,
however, the foregoing restriction shall not apply to the purchase or
acquisition of (a) Oil and Gas Properties, (b) Investments in the form of (i)
debt securities issued or directly and fully guaranteed or insured by the United
States Government or any agency or instrumentality thereof, with maturities of
no more than one year, (ii) commercial paper of a domestic issuer rated at the
date of acquisition at least P-2 by Moody's Investor Service, Inc. or A-2 by
Standard & Poor's Corporation and with maturities of no more than one year from
the date of acquisition, or (iii) repurchase agreements covering debt securities
or commercial paper of the type permitted in this Section, certificates of
deposit, demand deposits, eurodollar time deposits, overnight bank deposits and
bankers' acceptances, with maturities of no more than one year from the date of
acquisition, issued by or acquired from or through the Lenders or any bank or
trust company organized under the laws of the United States or any state thereof
and having capital surplus and undivided profits aggregating at least
$100,000,000, (c) other short-term Investments similar in nature and degree of
risk to those described in clause (b) of this Section, (d) money-market funds,
or (e) investments in the form of intercompany loans to, advances to or
investments in, the Borrowers or any of their wholly-owned Subsidiaries, as long
as there is no Default or Event of Default or such loan, advances or investments
would not result in a Default or Event of Default.
VI.9 Dividends and Distributions. Declare, pay, or make, whether in
---------------------------
cash or Property of the Borrower, any dividend or distribution on, or purchase,
redeem, or otherwise acquire for value, any share of any class of its capital
stock.
VI.10 Plan Obligations. 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.
VI.11 Management. Make any changes in senior management.
----------
VI.12 Change of Board of Directors. Make any changes in the Board of
----------------------------
Directors of any Borrower.
VI.13 Issuance of Stock; Changes in Corporate Structure. Except as
-------------------------------------------------
contemplated by the Reorganization Plan, issue or agree to issue additional
shares of capital stock, in one or any series of transactions which would change
the corporate structure; enter into any transaction of consolidation, merger, or
amalgamation; liquidate, wind up, or dissolve (or suffer any liquidation or
dissolution).
VI.14 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 its 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.
40
VI.15 Lines of Business. Expand, on its own or through any Subsidiary,
-----------------
into any line of business other than those in which the Borrower is engaged as
of the Closing Date.
VI.16 Current Ratio. Permit the ratio of Current Assets to Current
-------------
Liabilities to be less than 1.00 to 1.00 at any time.
VI.17 Tangible Net Worth. Permit Tangible Net Worth as of the close of
------------------
any fiscal quarter to be less than 85% of Tangible Net Worth on month following
the effective date of confirmation of the plan by the United States Bankruptcy
Court, plus 75% of positive quarterly Net Income and 100% of any new equity,
tested quarterly.
VI.18 Debt Coverage Ratio. Permit, as of the close of any fiscal
-------------------
quarter, the ratio of (a) EBITDA for each quarter to (b) Debt Service for each
quarter to be less than 1.20 to 1.0.
VI.19 General and Administrative Expenses. Beginning with the fiscal
-----------------------------------
quarter ending December 31, 2000, Borrower shall not permit general and
administrative expenses on a consolidated basis to exceed on a quarterly basis
12 1/2% of total quarterly revenues.
ARTICLE VII
-----------
EVENTS OF DEFAULT
-----------------
VII.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 and such
default as to interest or fees only shall have continued for three days;
(b default shall be made by the Borrower in the due observance or
performance of any of its obligations under the Loan Documents, and such
default shall continue for 30 days after the earlier of notice thereof to
the Borrower by the Lenders or knowledge thereof by the Borrower;
(c any representation or warranty made by the Borrower 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 or any Lender 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;
41
(d default shall be made by the Borrower (as principal or guarantor or
other surety) in the payment or performance of any bond, debenture, note,
or other Indebtedness or under any credit agreement, loan agreement
including, but not limited to, the Credit Agreement with Bank One Canada,
indenture, promissory note, or similar agreement or instrument executed in
connection with any of the foregoing, and such default shall remain
unremedied for in excess of the period of grace, if any, with respect
thereto;
(e the Borrower shall be unable to satisfy any condition or cure any
circumstance specified in Article , the satisfaction or curing of which is
precedent to the right of the Borrower to obtain a Loan or the issuance of
a Letter of Credit, and such inability shall continue for a period in
excess of 30 days;
(f the Borrower shall (i) apply for or consent to the appointment of a
receiver, trustee, or liquidator of it or all or a substantial part of its
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 after the Closing Date, an order, judgment, or decree shall be
entered against the Borrower 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 its debts or
appointing a receiver, trustee, conservator, custodian, or liquidator of it
or all or any substantial part of its 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 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;
(i a final and non-appealable order, judgment, or decree shall be
entered against the Borrower for money damages and/or Indebtedness due in
an amount in excess of $500,000, 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 under the
Racketeering Influence and Corrupt Organizations Statute (18 U.S.C. (S)1961
et seq.), the result of which could be the forfeiture or transfer of any
-- ---
material Property of the Borrower subject to a Lien in favor of the Lender
without (i) satisfaction or provision for satisfaction of such
42
Lien, or (ii) such forfeiture or transfer of such Property being expressly
made subject to such Lien;
(k after the Closing Date, the Borrower shall have (i) concealed,
removed, or diverted, or permitted to be concealed, removed, or diverted,
any part of its Property, with intent to hinder, delay, or defraud its
creditors or any of them, (ii) made or suffered a transfer of any of its
Property which may be fraudulent under any bankruptcy, fraudulent
conveyance, or similar law, (iii) made any transfer of its Property to or
for the benefit of a creditor at a time when other creditors similarly
situated have not been paid, or (iv) shall have suffered or permitted,
while insolvent, any creditor to obtain a Lien upon any of its 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 the
existence of a Permitted Lien) not, or cease to, create valid and perfected
first-priority Liens against the Collateral purportedly covered thereby; or
(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.
VII.2 Remedies. 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; (ii) the Commitment
shall immediately cease and terminate unless and until reinstated by the Lenders
in writing; and (iii) the Lenders are hereby authorized at any time and from
time to time, without notice to the Borrower (any such notice being expressly
waived by the Borrower), to set-off and apply any and all deposits (general or
special, time or demand, provisional or final) held by the Lenders and any and
all other indebtedness at any time owing by the Lenders to or for the credit or
account of the Borrower against any and all of the Obligations although such
Obligations may be unmatured.
(b Upon the occurrence of any Event of Default other than those
specified in Sections 7.1(f) or 7.1(g), (i) the Lenders may, by notice to the
Borrower, 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; (ii) the Commitment
shall immediately cease and terminate unless and until reinstated by the Lenders
in writing; and (iii) to the extent permitted by and in compliance with
applicable law, the Lenders are hereby authorized at any time and from time to
time, without notice to the Borrower (any such notice being expressly waived by
the Borrower), to set-off and apply any and all deposits (general or special,
time or demand, provisional or final) held
43
by the Lenders and any and all other indebtedness at any time owing by the
Lenders to or for the credit or account of the Borrower against any and all of
the Obligations although such Obligations may be unmatured.
(c Upon the occurrence of any Event of Default, 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
---------
VIII.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.
VIII.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 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 Notes 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
monthly amount by which the Borrowing Base shall be reduced.
VIII.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
44
be responsible to any Lender for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care.
VIII.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 Required 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 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.
VIII.5 Reliance by Agent. The Agent shall be entitled to rely, and
-----------------
shall be fully protected in relying, upon any Notes, 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 counsel to the Borrower), independent accountants and other experts
selected by the Agent. The Agent may deem and treat the payee of any Notes as
the owner thereof for all purposes unless and until a written notice of
assignment, negotiation, or transfer thereof 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 Required 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 Required 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.
VIII.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 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
45
a notice, the Agent shall promptly give 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 Required 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 or the officer of any Lender primarily
responsible for the lending relationship with the Borrower 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.
VIII.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, 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 the value of the Collateral and other Properties of the
Borrower 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 the value of the Collateral
and other Properties of the Borrower. 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 or the value of the Collateral or other Properties of the Borrower
which may come into the possession of the Agent or any of its officers,
directors, employees, agents, attorneys-in-fact or affiliates.
VIII.8 Indemnification. Each Lender agrees to indemnify the Agent
---------------
and its officers, directors, employees, agents, attorneys-in-fact and affiliates
(to the extent not reimbursed by the Borrower and without limiting the
obligation of the Borrower to do so), ratably 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
46
whatsoever which may at any time (including 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 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
solely from the gross negligence 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.
VIII.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 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 Central 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. 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 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 Central 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, 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
is made by the Agent (or the Lender required to return funds to the Borrower, 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 shall
have made its ratable share of such funds available.
VIII.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 as though
47
the Agent were not the agent hereunder. With respect to any Notes 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.
VIII.11 Succesor Agent. The Agent may resign as Agent upon ten days'
--------------
notice to the Lenders and the Borrower. If the Agent shall resign as Agent under
this Agreement and the other Loan Documents, Lenders for which the Percentage
Shares aggregate at least fifty-one percent (51%) shall appoint from among the
Lenders a successor agent for the Lenders, subject to the reasonable consent of
the Borrower 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 those of any Section hereof
------------
relating to the Agent, including Section 5,14, Section 5.15 and Section 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.
VIII.11 Applicable Parties. The provisions of this Article are solely
------------------
for the benefit of the Agent and the Lenders, and the Borrower 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 or any legal
representative, successor, and assign of the Borrower.
ARTICLE IX
----------
MISCELLANEOUS
-------------
IX.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 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
48
(ii) with notice to the Borrower and the Agent, but without the
consent of the Borrower 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 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 and the
Agent by such Lender and such Assignee Lender,
(iv) such Assignee Lender shall have executed and deliver to the
Borrower the Agent a Lender Assignment Agreement, accepted by the
Borrower and the Agent and attached hereto as Exhibit VIII, and
(v) the processing fees described below shall have been paid.
From and after the date that the Borrower 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. Accrued interest
on that part of the predecessor Notes evidenced by the new Notes, and accrued
fees, shall be paid as provided in
49
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 in its 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 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.
IX.2 Survival of Representations, Warranties, and Covenants. All
------------------------------------------------------
representations and warranties of the Borrower 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.
IX.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, 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, to:
Bank One, Texas, National Association
910 Travis, 6th Floor
Houston, Texas 77002-5860
Attention: Energy Group, 6th Floor
(or for notice by mail, to:
P.O. Box 2629)
Houston, Texas 77252-2629
Attention: Energy Group, 6th Floor
Telecopy: (713) 751-7894
50
(b) if to the Borrower, to:
Southern Mineral Corporation
1201 Louisiana, Suite 3350
Houston, Texas 77002
Attention: Michael E. Luttrell
Telecopy: (713) 658-0016
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.
IX.4 Parties in Interest. Subject to applicable restrictions contained
-------------------
herein, all covenants and agreements herein contained by or on behalf of the
Borrower, the Agent or the Lenders shall be binding upon and inure to the
benefit of the Borrower, the Agent or the Lenders, as the case may be, and their
respective legal representatives, successors, and assigns.
IX.5 Rights of Third Parties. All provisions herein are imposed solely
-----------------------
and exclusively for the benefit of the Agent, Lenders and the Borrower. 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.
IX.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 under this Agreement, the Notes,
or any other Loan Document.
IX.7 No Waiver; Rights Cumulative. No course of dealing on the part
----------------------------
of the Agent or the Lender, its officers or employees, nor any failure or delay
by the Agent or the Lender with respect to exercising any of its rights under
any Loan Document shall operate as a waiver thereof. The rights of the Agent or
the 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. Neither the making of any Loan nor the issuance of a Letter of Credit
shall constitute a waiver of any of the covenants, warranties, or conditions of
the Borrower contained herein. In the event the Borrower is unable to satisfy
any such covenant, warranty, or condition, neither the making of any Loan nor
the issuance of a Letter of Credit shall have the effect of precluding the
Lender from thereafter declaring such inability to be an Event of Default as
hereinabove provided.
IX.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.
51
IX.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.
IX.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.
IX.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 Lender; provided, however, that in no event shall the
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.
IX.12 GOVERNING LAW. THIS AGREEMENT AND THE NOTES 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 CHAPTER 345 OF THE TEXAS
FINANCE CODE (WHICH REGULATES CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND
REVOLVING TRIPARTY ACCOUNTS) SHALL NOT APPLY.
IX.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, SOLELY IN
COURTS HAVING SITUS IN HOUSTON, HARRIS COUNTY, TEXAS. THE BORROWER HEREBY
SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE, OR FEDERAL COURT LOCATED IN
HOUSTON, HARRIS COUNTY, TEXAS, AND HEREBY WAIVES ANY RIGHTS IT MAY HAVE TO
TRANSFER OR CHANGE THE JURISDICTION OR VENUE OF ANY LITIGATION BROUGHT AGAINST
IT BY THE LENDER IN ACCORDANCE WITH THIS SECTION.
IX.14 WAIVER OF RIGHTS TO JURY TRIAL. THE BORROWER, 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
LENDER IN THE ENFORCEMENT OF ANY OF THE TERMS OR PROVISIONS OF THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT OR OTHERWISE WITH RESPECT THERETO.
52
THE PROVISIONS OF THIS SECTION ARE A MATERIAL INDUCEMENT FOR THE LENDER ENTERING
INTO THIS AGREEMENT.
IX.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.
IX.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.
IX.17 Release by Borrower. Notwithstanding the assignment made and
-------------------
evidenced by the Assignment and the assumption by the Agent of certain
obligations and liabilities of the Existing Lenders pursuant thereto, the
Borrower hereby releases and discharges the Agent from all obligations, claims,
losses, causes of action, and liabilities, of whatsoever kind or nature, whether
heretofore or hereafter accruing, whether now known or unknown, arising under or
in connection with any Existing Loan Document or Existing Letter of Credit or
any act or omission by the Existing Lenders under or in connection with any
Existing Loan Document or Existing Letter of Credit; provided, however, nothing
set forth in this Section shall relieve the Lenders from their obligations and
liabilities under the Loan Documents (other than the Assignment) to which it is
a party.
IN WITNESS WHEREOF, this Agreement is deemed executed effective as of
the date first above written.
BORROWERS:
---------
SOUTHERN MINERAL CORPORATION
SMC ECUADOR, INC.
SMC PRODUCTION CO.
BEC ENERGY, INC.
53
SPRUCE HILLS PRODUCTION COMPANY,
INC.
By:___________________________________________
Michael E. Luttrell
Vice President and Chief Financial Officer
AGENT AND LENDER:
----------------
BANK ONE, TEXAS, NATIONAL
ASSOCIATION
By:___________________________________________
Jonathan Gregory
Vice President
54
EXHIBIT I
---------
[FORM OF NOTE]
PROMISSORY NOTE
---------------
$30,000,000 Houston, Texas August 23, 2000
FOR VALUE RECEIVED and WITHOUT GRACE, the undersigned ("Maker")
-----
promises to pay to the order of Bank One, Texas, National Association ("Payee"),
-----
at its banking quarters in Houston, Harris County, Texas, the sum of THIRTY
MILLION DOLLARS ($30,000,000), 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 (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 issued, in whole or in part, in renewal and extension,
but not in novation or discharge, of the remaining principal balance of the
Existing Note.
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, THAT CHAPTER 345 OF THE TEXAS FINANCE CODE (WHICH REGULATES
CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND REVOLVING TRIPARTY ACCOUNTS) SHALL
NOT APPLY TO THIS NOTE.
(Page One of Two Page Note)
I-i
SOUTHERN MINERAL CORPORATION
SMC ECUADOR, INC.
SMC PRODUCTION CO.
BEC ENERGY, INC.
SPRUCE HILLS PRODUCTION COMPANY,
INC.
By:___________________________________________
Michael E. Luttrell
Vice President and Chief Financial Officer
(Page Two of Two Page Note)
I-ii
EXHIBIT II
----------
[FORM OF BORROWING REQUEST]
BANK ONE, TEXAS, NATIONAL ASSOCIATION
910 TRAVIS
HOUSTON, TEXAS 77002
Attention: Energy Group, 6th Floor
Re: Credit Agreement dated as of August 23, 2000, by and between Southern
Mineral Corporation, SMC Ecuador, Inc., SMC Production Co., BEC
Energy, Inc., and Spruce Hills Production Company, Inc. and Bank One,
Texas, National Association, as Agent and the Lenders signatory
thereto from time to time (as amended, restated, or supplemented from
time to time, the "Credit Agreement")
----------------
Ladies and Gentlemen:
Pursuant to the Credit Agreement, the Borrower hereby requests a Loan
on the date and in the amount as follows:
Amount: $__________
Requested funding date: _____________, 19__
The undersigned certifies that she is the ___________ of the Borrower,
has obtained all consents necessary, and as such she 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 Loan 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
SMC ECUADOR, INC.
SMC PRODUCTION CO.
BEC ENERGY, INC.
II-i
SPRUCE HILLS PRODUCTION COMPANY,
INC.
By:___________________________________________
Michael E. Luttrell
Vice President and Chief Financial Officer
II-ii
EXHIBIT III
-----------
[FORM OF COMPLIANCE CERTIFICATE]
________, 19__
BANK ONE, TEXAS, NATIONAL ASSOCIATION
910 TRAVIS
HOUSTON, TEXAS 77002
Attention: Energy Group, 6th Floor
Re: Credit Agreement dated as of August 23, 2000, by and between Southern
Mineral Corporation, SMC Ecuador, Inc., SMC Production Co., BEC
Energy, Inc., and Spruce Hills Production Company, Inc. and Bank One,
Texas, National Association, as Agent and the Lenders signatory
thereto from time to time (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, 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 with the financial covenants of the
Credit Agreement, as of the close of business on ____________________, is
evidenced by the following:
(a) Section 6.16: Current Ratio. Permit the ratio of Current Assets to
-------------
Current Liabilities to be less than 1.00 to 1.00 at any time.
Actual
------
___ to 1.0
III-i
(b) Section 6.17: Tangible Net Worth. Permit Tangible Net Worth as of the
------------------
close of any fiscal quarter to be less than 85% of Tangible Net Worth on
the effective date of confirmation of the plan by the United States
Bankruptcy Court, plus 75% of positive quarterly Net Income and 100% of any
new equity, tested quarterly.
Actual
------
___ to 1.0
(c) Section 6.18: Debt Coverage Ratio. Permit, as of the close of any
-------------------
fiscal quarter, the ratio of (a) EBITDA for each quarter to (b) Debt
Service for each quarter to be less than 1.20 to 1.0.
Actual
------
___ to 1.0
(d) Section 6.19: General and Administrative Expenses. Borrower shall not
-----------------------------------
permit general and administrative expenses to exceed on a quarterly basis
12 2% of total quarterly revenues.
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
SMC ECUADOR, INC.
SMC PRODUCTION CO.
BEC ENERGY, INC.
III-ii
SPRUCE HILLS PRODUCTION COMPANY,
INC.
By:___________________________________________
Michael E. Luttrell
Vice President and Chief Financial Officer
III-iii
EXHIBIT IV
----------
FACILITY AMOUNTS
----------------
Facility
Name of Lender Amount
- -------------- ------
Bank One, Texas, National Association $30,000,000
-----------
Total: $30,000,000
IV-i
EXHIBIT V
---------
[FORM OF OPINION OF COUNSEL]
[Akin, Gump will provide their form of opinion]
V-i
EXHIBIT VI
----------
[DISCLOSURES]
Section 4.8 Liabilities
-----------
Litigation
----------
Section 4.12 Environmental Matters
---------------------
Section 4.17 Refunds
-------
Section 4.18 Gas Contracts
-------------
Section 4.20 Casualties
----------
Section 4.22 Subsidiaries
------------
VI-i
EXHIBIT VII
-----------
[FORM OF ASSIGNMENT AGREEMENT]
ASSIGNMENT AGREEMENT
--------------------
This ASSIGNMENT AGREEMENT (as amended, supplemented, restated or otherwise
modified from time to time, this "Agreement") is dated as of ________________,
---------
__________, by and between _______________ (the "Assignor") and _______________
--------
(the "Assignee").
--------
RECITALS
--------
WHEREAS, the Assignor is a party to the Credit Agreement dated as of August
23, 2000 (as amended, supplemented or restated from time to time, the "Credit
------
Agreement") by and among SOUTHERN MINERAL CORPORATION, a Nevada corporation, SMC
- ---------
PRODUCTION CO., a Texas corporation, SMC ECUADOR, INC., a Delaware corporation,
BEC ENERGY, INC., a Texas corporation and SPRUCE HILLS PRODUCTION COMPANY, a
Delaware corporation (collectively, the "Borrower"), each of the lenders that is
--------
or becomes a party thereto as provided in Section 9.1(b) of the Credit Agreement
(individually, together with its successors and assigns, a "Lender", and
------
collectively, together with their successors and assigns, the "Lenders"), and
-------
Bank One, Texas, National Association, a national banking association, as a
Lender (in such capacity, "Bank One") and as agent for the Lenders (in such
capacity, together with its successors in such capacity, the "Agent"); and
-----
WHEREAS, the Assignor proposes to sell, assign and transfer to the
Assignee, and the Assignee proposes to purchase and assume from the Assignor,
[all][a portion] of the Assignor's Facility Amount and its outstanding Loans,
all on the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
------------------------------
1.1 Definitions from Credit Agreement. All capitalized terms used but not
---------------------------------
defined herein have the respective meanings given to such terms in the Credit
Agreement.
1.2 Additional Defined Terms. As used herein, the following terms have
------------------------
the following respective meanings:
VII-i
"Assigned Interest" shall mean all of Assignor's (in its capacity as a
-----------------
"Lender") rights and obligations (i) under the Credit Agreement and the
other Loan Documents in respect of [all of] [the portion of the] Facility
Amount of the Assignor in the principal amount equal to $_____________ and
(ii) to make Loans under its Commitment up to such amount referenced above
and any right to receive payments for the Loans currently outstanding under
its Commitment in the principal amount of $_____________ (the "Loan
----
Balance"), plus the interest and fees which will accrue with respect
thereto from and after the Assignment Date.
"Assignment Date" shall mean ___________, ________.
---------------
1.3 References. References in this Agreement to Schedule, Exhibit,
----------
Article, or Section numbers shall be to Schedules, 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 Schedule, Exhibit,
Article, or Section in which such reference appears. Except as otherwise
indicated, references in this Agreement to statutes, sections, or regulations
are to be construed as including all statutory or regulatory provisions
consolidating, amending, replacing, succeeding, or supplementing the statute,
section, or regulation referred to. References in this Agreement to "writing"
include printing, typing, lithography, facsimile reproduction, and other means
of reproducing words in a tangible visible form. References in this Agreement
to agreements and other contractual instruments shall be deemed to include all
exhibits and appendices attached thereto and all subsequent amendments and other
modifications to such instruments, but only to the extent such amendments and
other modifications are not prohibited by the terms of this Agreement.
References in this Agreement to Persons include their respective successors and
permitted assigns.
1.4 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.
1.5 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.
1.6 Negotiated Transaction. Each party to this Agreement affirms to
----------------------
the other that it has had the opportunity to consult, and discuss the provisions
of this Agreement with, independent counsel and fully understands the legal
effect of each provision.
VII-ii
ARTICLE II
SALE AND ASSIGNMENT
-------------------
2.1 Sale and Assignment. On the terms and conditions set forth herein,
-------------------
effective on and as of the Assignment Date, the Assignor hereby sells, assigns
and transfers to the Assignee, and the Assignee hereby purchases and assumes
from the Assignor, all of the right, title and interest of the Assignor in and
to, and all of the obligations of the Assignor in respect of, the Assigned
Interest. Such sale, assignment and transfer is without recourse and, except as
expressly provided in this Agreement, without representation or warranty.
2.2 Assumption of Obligations. The Assignee agrees with the Assignor (for
-------------------------
the express benefit of the Assignor and the Borrower) that the Assignee will,
from and after the Assignment Date, assume and perform all of the obligations of
the Assignor in respect of the Assigned Interest. From and after the Assignment
Date: (a) the Assignor shall be released from the Assignor's obligations in
respect of the Assigned Interest, and (b) the Assignee shall be entitled to all
of the Assignor's rights, powers and privileges under the Credit Agreement and
the other Loan Documents in respect of the Assigned Interest.
2.3 Consent by Agent. By executing this Agreement as provided below, in
----------------
accordance with Section 9.1(b) of the Credit Agreement, the Agent hereby
acknowledges notice of the transactions contemplated by this Agreement and
consents to such transactions.
ARTICLE III
PAYMENTS
--------
3.1 Payments. As consideration for the sale, assignment and transfer
--------
contemplated by Section 2.1, the Assignee shall, on the Assignment Date, assume
-----------
Assignor's obligations in respect of the Assigned Interest and pay to the
Assignor an amount equal to the Loan Balance, if any, all accrued and unpaid
interest and fees with respect to the Assigned Interest as of the Assignment
Date. Except as otherwise provided in this Agreement, all payments hereunder
shall be made in Dollars and in immediately available funds, without setoff,
deduction or counterclaim.
3.2 Allocation of Payments. The Assignor and the Assignee agree that (i)
----------------------
the Assignor shall be entitled to any payments of principal with respect to the
Assigned Interest made prior to the Assignment Date, together with any interest
and fees with respect to the Assigned Interest accrued prior to the Assignment
Date, (ii) the Assignee shall be entitled to any payments of principal with
respect to the Assigned Interest made from and after the Assignment Date,
together with any and all interest and fees with respect to the Assigned
Interest accruing from and after the Assignment Date, and (iii) the Agent is
authorized and instructed to allocate payments received by it for the account
VII-iii
of the Assignor and the Assignee as provided in the foregoing clauses. Each
party hereto agrees that it will hold any interest, fees or other amounts that
it may receive to which the other party hereto shall be entitled pursuant to the
preceding sentence for account of such other party and pay, in like money and
funds, any such amounts that it may receive to such other party promptly upon
receipt.
3.3 Delivery of Notes. Promptly following the receipt by the Assignor of
-----------------
the consideration required to be paid under Section 3.1 hereof, the Assignor
-----------
shall, in the manner contemplated by Section 9.1(b) of the Credit Agreement, (i)
deliver to the Agent (or its counsel) the Notes held by the Assignor and (ii)
notify the Agent to request that the Borrower execute and deliver new Notes to
the Assignor, if Assignor continues to be a Lender, and the Assignee, dated the
Assignment Date in respective principal amounts equal to the respective Facility
Amounts of the Assignor (if appropriate) and the Assignee after giving effect to
the sale, assignment and transfer contemplated hereby.
3.4 Further Assurances. The Assignor and the Assignee hereby agree to
------------------
execute and deliver such other instruments, and take such other actions, as
either party may reasonably request in connection with the transactions
contemplated by this Agreement.
ARTICLE IV
CONDITIONS PRECEDENT
--------------------
The effectiveness of the sale, assignment and transfer contemplated hereby
is subject to the satisfaction of each of the following conditions precedent:
(a) the execution and delivery of this Agreement by the Assignor and
the Assignee;
(b) the receipt by the Assignor of the payments required to be made
under Section 3.1; and
-----------
(c) the acknowledgment and consent by the Agent contemplated by
Section 2.3.
------------
ARTICLE V
REPRESENTATIONS AND WARRANTIES
------------------------------
5.1 Representations and Warranties of Assignor. The Assignor represents
------------------------------------------
and warrants to the Assignee as follows:
VII-iv
(a) it has all requisite power and authority, and has taken all
action necessary to execute and deliver this Agreement and to fulfill its
obligations under, and consummate the transactions contemplated by, this
Agreement;
(b) the execution, delivery and compliance with the terms hereof by
the Assignor and the delivery of all instruments required to be delivered
by it hereunder do not and will not violate any Requirement of Law
applicable to it;
(c) this Agreement has been duly executed and delivered by it and
constitutes the legal, valid and binding obligation of the Assignor,
enforceable against it in accordance with its terms;
(d) all approvals and authorizations of, all filings with and all
actions by any Governmental Authority necessary for the validity or
enforceability of its obligations under this Agreement have been obtained;
(e) the Assignor has good title to, and is the sole legal and
beneficial owner of, the Assigned Interest, free and clear of all Liens,
claims, participations or other charges of any nature whatsoever; and
(f) the transactions contemplated by this Agreement are commercial
banking transactions entered into in the ordinary course of the banking
business of the Assignor.
5.2 Disclaimer. Except as expressly provided in Section 5.1 hereof, the
---------- -----------
Assignor does not make any representation or warranty, nor shall it have any
responsibility to the Assignee, with respect to the accuracy of any recitals,
statements, representations or warranties contained in the Credit Agreement or
in any other Loan Document or for the value, validity, effectiveness,
genuineness, execution, legality, enforceability or sufficiency of the Credit
Agreement, the Notes or any other Loan Document or for any failure by the
Borrower or any other Person (other than Assignor) to perform any of its
obligations thereunder or for the existence, value, perfection or priority of
any collateral security or the financial or other condition of the Borrower or
any other Person, or any other matter relating to the Credit Agreement or any
other Loan Document or any extension of credit thereunder.
5.3 Representations and Warranties of Assignee. The Assignee represents
------------------------------------------
and warrants to the Assignor as follows:
(a) it has all requisite power and authority, and has taken all
action necessary to execute and deliver this Agreement and to fulfill its
obligations under, and consummate the transactions contemplated by, this
Agreement;
VII-v
(b) the execution, delivery and compliance with the terms hereof by
the Assignee and the delivery of all instruments required to be delivered
by it hereunder do not and will not violate any Requirement of Law
applicable to it;
(c) this Agreement has been duly executed and delivered by it and
constitutes the legal, valid and binding obligation of the Assignee,
enforceable against it in accordance with its terms;
(d) all approvals and authorizations of, all filings with and all
actions by any Governmental Authority necessary for the validity or
enforceability of its obligations under this Agreement have been obtained;
(e) the Assignee has received copies of the Credit Agreement and the
other Loan Documents, as well as copies of all Financial Statements
previously provided by the Borrower in satisfaction of obligations under
the Credit Agreement.
(f) the Assignee has fully reviewed the terms of the Credit Agreement
and the other Loan Documents and has independently and without reliance
upon the Assignor, and based on such information as the Assignee has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement;
(g) if the Assignee is not incorporated under the laws of the United
Sates of America or a state thereof, the Assignee has contemporaneously
herewith delivered to the Agent and the Borrower such documents as are
required by Section 2.25(b) of the Credit Agreement; and
(h) the transactions contemplated by this Agreement are commercial
banking transactions entered into in the ordinary course of the banking
business of the Assignee.
ARTICLE VI
MISCELLANEOUS
-------------
6.1 Notices. All notices and other communications provided for herein
-------
(including any modifications of, or waivers, requests or consents under, this
Agreement) shall be given or made in writing (including by telecopy) to the
intended recipient at its "Address for Notices" specified below its name on the
signature pages hereof or, as to either party, at such other address as shall be
designated by such party in a notice to the other party.
6.2 Amendment, Modification or Waiver. No provision of this Agreement may
---------------------------------
be amended, modified or waived except by an instrument in writing signed by the
Assignor and the Assignee, and consented to by the Agent.
VII-vi
6.3 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. The representations and warranties made herein by the
Assignee are also made for the benefit of the Agent, and the Assignee agrees
that the Agent is entitled to rely upon such representations and warranties.
6.4 Assignments. Neither party hereto may assign any of its rights or
-----------
obligations hereunder except in accordance with the terms of the Credit
Agreement.
6.5 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be identical and all of which, taken together,
shall constitute one and the same instrument, and each of the parties hereto may
execute this Agreement by signing any such counterpart.
6.6 Governing Law. This Agreement (including the validity and
-------------
enforceability hereof) shall be governed by, and construed in accordance with,
the laws of the State of Texas, other than the conflict of laws rules thereof.
6.7 Expenses. To the extent not paid by the Borrower pursuant to the
--------
terms of the Credit Agreement, each party hereto shall bear its own expenses in
connection with the execution, delivery and performance of this Agreement.
6.8 Waiver of Jury Trial. Each of the parties hereto hereby irrevocably
--------------------
waives, to the fullest extent permitted by law, any and all right to trial by
jury in any legal proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment
Agreement to be executed and delivered as of the date first above written.
ASSIGNOR
--------
__________________________________
By:______________________________
Name:_____________________________
Title:___________________________
Address for Notices:
__________________________________
VII-vii
__________________________________
__________________________________
Telecopier No.:_______________________
Telephone No.:________________________
Attention:__________________________
ASSIGNEE
--------
__________________________________
By:________________________________
Name:________________________________
Title:______________________________
Address for Notices:
__________________________________
__________________________________
__________________________________
Telecopier No.:_______________________
Telephone No.:________________________
Attention:__________________________
ACKNOWLEDGED AND CONSENTED TO:
BANK ONE, TEXAS, NATIONAL ASSOCIATION
as Agent
By:_____________________________
Name:___________________________
Title:__________________________
VII-viii