EXHIBIT 10.1
CREDIT AGREEMENT
BETWEEN
ULTRA PETROLEUM (USA) INC.
ULTRA RESOURCES, INC.
AND
BANK ONE, TEXAS, NATIONAL ASSOCIATION
March 22, 2000
REVOLVING LINE OF CREDIT OF UP TO $40,000,000
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 14
1.4 References 14
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 15
2.4 Interest 15
2.5 Repayment of Loans and Interest 16
2.6 Outstanding Amounts 16
2.7 Time, Place, and Method of Payments 16
2.8 Borrowing Base Determinations 17
2.9 Mandatory Prepayments 17
2.10 Voluntary Prepayments and Conversions of Loans 18
2.11 Commitment Fee 18
2.12 Engineering Fee 18
2.13 Facility Fee 18
2.14 Letter of Credit Fee 18
2.15 Loans to Satisfy Obligations of Borrower 19
2.16 Security Interest in Accounts; Right of Offset 19
2.17 General Provisions Relating to Interest 19
2.18 Yield Protection 20
2.19 Limitation on Types of Loans 22
2.20 Illegality 23
2.21 Regulatory Change 23
2.22 Limitations on Interest Periods 23
2.23 Letters in Lieu of Transfer Orders 23
2.24 Power of Attorney 23
ARTICLE III CONDITIONS
3.1 Receipt of Loan Documents and Other Items 24
3.2 Each Loan and Letter of Credit 26
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ARTICLE IV REPRESENTATIONS AND WARRANTIES
4.1 Due Authorization 27
4.2 Corporate Existence 28
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 28
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 29
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 30
4.20 Casualties or Taking of Property 30
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 31
5.2 Quarterly Financial Statements; Compliance Certificates 31
5.3 Annual Financial Statements 31
5.4 Oil and Gas Reserve Reports 32
5.5 Title Opinions; Title Defects 32
5.6 Notices of Certain Events 32
5.7 Letters in Lieu of Transfer Orders; Division Orders 33
5.8 Additional Information 33
5.9 Compliance with Laws 34
5.10 Payment of Assessments and Charges 34
5.11 Maintenance of Corporate Existence and Good Standing 34
5.12 Payment of Notes; Performance of Obligations 34
5.13 Further Assurances 34
5.14 Initial Fees and Expenses of Counsel to Lender 34
5.15 Subsequent Fees and Expenses of Lender 34
5.16 Operation of Oil and Gas Properties 35
5.17 Maintenance and Inspection of Properties 35
5.18 Maintenance of Insurance 35
5.19 INDEMNIFICATION 36
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ARTICLE VI NEGATIVE COVENANTS
6.1 Indebtedness 37
6.2 Contingent Obligations 37
6.3 Liens 37
6.4 Sales of Assets 37
6.5 Leasebacks 38
6.6 Loans or Advances 38
6.7 Investments 38
6.8 Dividends 38
6.9 Issuance of Stock; Changes in Corporate Structure 38
6.10 Transactions with Affiliates 38
6.11 Lines of Business 39
6.12 Plan Obligations 39
6.13 Current Ratio 39
6.14 Debt Service 39
6.15 Tangible Net Worth 39
6.16 General and Administrative Expenses 39
ARTICLE VII EVENTS OF DEFAULT
7.1 Enumeration of Events of Default 39
7.2 Remedies 41
ARTICLE VIII MISCELLANEOUS
8.1 Transfers; Participations 42
8.2 Survival of Representations, Warranties, and Covenants 42
8.3 Notices and Other Communications 42
8.4 Parties in Interest 43
8.5 Rights of Third Parties 43
8.6 Renewals; Extensions 43
8.7 No Waiver; Rights Cumulative 43
8.8 Survival Upon Unenforceability 43
8.9 Amendments; Waivers 44
8.10 Controlling Agreement 44
8.11 Disposition of Collateral 44
8.12 GOVERNING LAW 44
8.13 JURISDICTION AND VENUE 44
8.14 WAIVER OF RIGHTS TO JURY TRIAL 44
8.15 ENTIRE AGREEMENT 45
8.16 Release by Borrower 45
8.17 Counterparts 45
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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 - Form of Opinion of Counsel
Exhibit V - Form of Opinion of Local Counsel
Exhibit VI - Disclosures
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CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made and entered into this 22nd day of
March, 2000, by and between ULTRA PETROLEUM (USA) INC., a Colorado corporation,
and ULTRA RESOURCES, INC., a Wyoming corporation, (collectively, the
"Borrower"), and BANK ONE, TEXAS, NATIONAL ASSOCIATION, a national banking
association (the "Lender").
W I T N E S S E T H:
In consideration of the mutual covenants and agreements herein
contained, the Borrower and the Lender hereby agree as follows, amending and
restating in its entirety the Credit Agreement dated as of November 3, 1997, by
and between the Borrower and Wells Fargo Bank (the "Existing Lender"), as
heretofore amended, restated, or supplemented (the "Existing Credit Agreement").
ARTICLE I
DEFINITIONS AND INTERPRETATION
1.1 Terms Defined Above. As used in this Credit Agreement, the terms
"Borrower", "Existing Credit Agreement", "Existing Lender", and "Lender" shall
have the meaning assigned to them hereinabove.
1.2 Additional Defined Terms. As used in this Credit Agreement, each
of the following terms shall have the meaning assigned thereto in this Section,
unless the context otherwise requires:
"Additional Costs" shall mean costs which the Lender determines are
attributable to its obligation to make or its making or maintaining any
LIBO Rate Loan, or any reduction in any amount receivable by the Lender in
respect of any such obligation or any LIBO Rate Loan, resulting from any
Regulatory Change which (a) changes the basis of taxation of any amounts
payable to the Lender under this Credit Agreement or the Note in respect of
any LIBO Rate Loan (other than taxes imposed on the overall net income of
the Lender), (b) imposes or modifies any reserve, special deposit, minimum
capital, capital rates, or similar requirements relating to any extensions
of credit or other assets of, or any deposits with or other liabilities of,
the Lender (including LIBO Rate Loans and Dollar deposits in the London
interbank market in connection with LIBO Rate Loans), or any commitments of
the Lender hereunder, (c) increases the Assessment Rate, or (d) imposes any
other condition affecting this Credit Agreement or any of such extensions
of credit, liabilities, or commitments.
"Adjusted LIBO Rate" shall mean, for any LIBO Rate Loan, an interest
rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%)
determined by the Lender to be equal to the sum of the LIBO Rate for such
Loan plus the Applicable Margin, but in no event exceeding the Highest
Lawful Rate.
"Affiliate" shall mean any Person directly or indirectly controlling,
or under common control with, any other Person and includes any Subsidiary
of such Person and any "affiliate" of such Person 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.
"Applicable Lending Office" shall mean, for each type of Loan, the
lending office of the Lender (or an affiliate of the Lender) designated for
such type of Loan on the signature pages hereof or such other office of the
Lender (or an affiliate of the Lender) as the Lender may from time to time
specify to the Borrower as the office by which Loans of such type are to be
made and maintained.
"Applicable Margin" shall mean as to each LIBO Rate Loan, two and one-
half percent (2 1/2%).
"Assessment Rate" shall mean, for any Interest Period, the average
rate (rounded upwards if necessary to the nearest 1/100 of 1%) charged by
the Federal Deposit Insurance Corporation (or any successor thereto) to the
Lender for deposit insurance for Dollar time deposits with the Lender at
the Principal Office during such Interest Period, as determined by the
Lender.
"Assignment" shall mean the Assignment of Notes, Liens, Security
Interests, and Other Rights, in form and substance satisfactory to the
Lender, executed by the Existing Lender, assigning to the Lender the
Existing Note, the indebtedness evidenced thereby, the Liens securing the
Existing Note, and the rights of the Existing Lender under the Existing
Loan Documents, and financing statement changes constituent thereto.
"Available Commitment" shall mean, at any time, an amount equal to the
remainder, if any, of (a) the Borrowing Base in effect at such time minus
(b) the sum of the Loan Balance at such time plus the L/C Exposure at such
time.
"Borrowing Base" shall mean, at any time, the amount determined by the
Lender in accordance with Section 28 and then in effect.
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"Borrowing Request" shall mean each written request, in substantially
the form attached hereto as Exhibit II, by the Borrower to the Lender for a
borrowing, conversion, or prepayment pursuant to Sections 2.1 or 2.10, each
of which shall:
(a) be signed by a Responsible Officer of the Borrower;
(b) when requesting a borrowing, be accompanied by a Compliance
Certificate;
(c) specify the amount and type of Loan requested, and, as
applicable, the Loan to be converted or prepaid and the date of the
borrowing, conversion, or prepayment (which shall be a Business Day);
(d) when requesting a Floating Rate Loan, be delivered to the
Lender no later than 10:00 a.m., Central Standard or Daylight Savings
Time, as the case may be, on the Business Day of the requested
borrowing, conversion, or prepayment;
(e) when requesting a LIBO Rate Loan, be delivered to the Lender
no later than 10:00 a.m., Central Standard or Daylight Savings Time,
as the case may be, two Business Days preceding the requested
borrowing, conversion, or prepayment and designate the Interest Period
requested with respect to such Loan.
"Business Day" shall mean (a) for all purposes other than as covered
by clause (b) of this definition, a day other than a Saturday, Sunday,
legal holiday for commercial banks under the laws of the State of Texas, or
any other day when banking is suspended in the State of Texas, and (b) with
respect to all requests, notices, and determinations in connection with,
and payments of principal and interest on, LIBO Rate Loans, a day which is
a Business Day described in clause (a) of this definition and which is a
day for trading by and between banks for Dollar deposits in the London
interbank market.
"Cash Flow" shall mean, as of the end of any fiscal quarter period,
net income of the Borrower and Guarantor from operations for such period
plus depreciation, amortization, depletion, and other non-cash expenses of
the Borrower and Guarantor on a consolidated basis for the two fiscal
quarter periods then ending.
"Closing Date" shall mean the effective date of this Credit Agreement.
"Collateral" shall mean the Mortgaged Properties and any other
Property subject to a Lien in Favor of the Lender, subject only to
Permitted Liens, as security for the payment or performance of all or any
portion of the Obligations and the Guaranty.
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"Commitment" shall mean the obligation of the Lender, subject to
applicable provisions of this Credit 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 Fee" shall mean each fee payable to the Lender by the
Borrower pursuant to Section 2.11.
"Commitment Period" shall mean the period from and including the
Closing Date to but not including the Commitment Termination Date.
"Commitment Termination Date" shall mean March 1, 2003.
"Commodity Hedge Agreement" shall mean any crude oil, natural gas, or
other hydrocarbon floor, collar, cap, price protection, swap agreement, or
other similar agreements, in form and substance with a Person acceptable to
the Lender.
"Commonly Controlled Entity" shall mean any Person which is under
common control with the Borrower within the meaning of Section 4001 of
ERISA.
"Compliance Certificate" shall mean each certificate, substantially in
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 Sections 5.2 and 5.3.
"Contingent Obligation" shall mean, as to any Person, any obligation
of such Person guaranteeing or in effect guaranteeing any Indebtedness,
leases, dividends, or other obligations of any other Person (for purposes
of this definition, a "primary obligation") in any manner, whether directly
or indirectly, including, without limitation, any obligation of such
Person, regardless of whether such obligation is contingent, (a) to
purchase any primary obligation or any Property constituting direct or
indirect security therefor, (b) to advance or supply funds (i) for the
purchase or payment of any primary obligation, or (ii) to maintain working
or equity capital of any other Person in respect of any primary obligation,
or otherwise to maintain the net worth or solvency of any other Person, (c)
to purchase Property, securities or services primarily for the purpose of
assuring the owner of any primary obligation of the ability of the Person
primarily liable for such primary obligation to make payment thereof, or
(d) otherwise to assure or hold harmless the owner of any such primary
obligation against loss in respect thereof, with the amount of any
Contingent Obligation being deemed to be equal to the stated or
determinable amount of the primary obligation in respect of which such
Contingent Obligation is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof as determined
by such Person in good faith.
"Credit Agreement" shall mean this agreement, as it may be amended,
supplemented, or restated from time to time.
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"Current Assets" shall mean all assets which would, in accordance with
GAAP, be included as current assets on a consolidated balance sheet of the
Borrower and Guarantor as of the date of calculation, plus an amount equal
to the Available Commitment.
"Current Liabilities" shall mean all liabilities which would, in
accordance with GAAP, be included as current liabilities plus short term
liabilities (which have been reclassified as non-current) to be refinanced
with the Available Commitment on a consolidated balance sheet of the
Borrower and Guarantor as of the date of calculation less current
maturities on the Obligations.
"Debt Service" shall mean an amount equal to 1/12 of the Loan Balance
plus outstanding Letters of Credit at each quarter's end.
"Default" shall mean any event or occurrence which with the lapse of
time or the giving of notice or both would become an Event of Default.
"Default Rate" shall mean a per annum interest rate equal to the Prime
Rate plus five percent (5%), but in no event exceeding the Highest Lawful
Rate.
"Dollars" and "$" shall mean dollars in lawful currency of the United
States of America.
"Engineering Fee" shall mean each fee payable to the Lender by the
Borrower pursuant to Section 212.
"Environmental Complaint" shall mean any written complaint, order,
directive, claim, citation, notice of environmental report or
investigation, or other 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
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
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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
1974, as amended from time to time, and the regulations thereunder and
interpretations thereof.
"Event of Default" shall mean any of the events specified in Section
7.1.
"Existing Loan Documents" shall mean the Loan Documents, as such term
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
Existing Credit Agreement, in existence on the Closing Date immediately
prior to the Assignment.
"Existing Security Instruments" shall mean the Security Instruments,
as such term is defined in the Existing Credit Agreement, in existence on
the Closing Date immediately prior to the Assignment.
"Facility Fee" shall mean the fee payable to the Lender by the
Borrower pursuant to Section 2.13.
"Federal Funds Rate" shall mean, for any day, the rate per annum
(rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the
weighted average of the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by federal funds brokers on
such day, as published by the Federal Reserve Bank of Dallas, Texas, on the
Business Day next succeeding such day, provided that (a) if the day for
which such rate is to be determined is not a Business Day, the Federal
Funds Rate for such day shall be such rate on such transactions on the next
preceding Business Day as so published on the next succeeding Business Day,
and (b) if such rate is not so published for any day, the Federal Funds
Rate for such day shall be the average rate charged to Lender on such day
on such transactions as determined by the Lender.
"Final Maturity" shall mean March 1, 2003.
"Financial Statements" shall mean statements of the financial
condition in U.S. Dollars 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 each Borrower alone or, where indicated, on a consolidated
and consolidating basis with the other Borrower
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and the Guarantor and, when required by applicable provisions of this
Credit 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
greater of (a) the Prime Rate from time to time in effect, or (b) the
Federal Funds Rate from time to time in effect plus one-half percent
(1/2%), but in no event exceeding the Highest Lawful Rate.
"Floating Rate Loan" shall mean any Loan and any portion of the Loan
Balance which the Borrower has requested, in the initial Borrowing Request
for such Loan or a subsequent Borrowing Request for such portion of the
Loan Balance, bearing interest at the Floating Rate, or which pursuant to
the terms hereof is otherwise required to bear interest at the Floating
Rate.
"GAAP" shall mean generally accepted accounting principles established
by the Financial Accounting Standards Board or the American Institute of
Certified Public Accountants and in effect in the United States from time
to time after December 31, 1999 and prior to that time shall mean Canadian
GAAP.
"General and Administrative Expenses" shall mean total expenses
excluding lease operating expenses; gathering, transportation and
processing expenses; depletion, depreciation, and amortization; all income
and property taxes; and interest expense.
"Governmental Authority" shall mean any nation, country, commonwealth,
territory, government, state, county, parish, municipality, or other
political subdivision and any entity exercising executive, legislative,
judicial, regulatory, or administrative functions of or pertaining to
government.
"Guarantor" shall mean Ultra Petroleum Corporation, a Yukon
corporation.
"Guaranty" shall mean the Guaranty dated the Closing Date executed by
the Guarantor in favor of the Lender, guaranteeing the payment and
performance of the Obligations, as it may be ratified, amended, restated,
or supplemented from time to time.
"Hazardous Substances" shall mean flammables, explosives, radioactive
materials, hazardous wastes, asbestos, or any material containing asbestos,
polychlorinated biphenyls (PCBs), toxic substances or related materials,
petroleum, petroleum products, associated oil or natural gas exploration,
production, and development wastes, or any substances defined as "hazardous
substances,"
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"hazardous materials," "hazardous wastes," or "toxic substances" under the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, the Superfund Amendments and Reauthorization Act, as amended, the
Hazardous Materials Transportation Act, as amended, the Resource
Conservation and Recovery Act, as amended, the Toxic Substances Control
Act, as amended, or any other law or regulation now or hereafter enacted or
promulgated by any Governmental Authority.
"Highest Lawful Rate" shall mean the maximum non-usurious interest
rate, if any (or, if the context so requires, an amount calculated at such
rate), that at any time or from time to time may be contracted for, taken,
reserved, charged, or received under applicable laws of the State of Texas
or the United States of America, whichever authorizes the greater rate, as
such laws are presently in effect or, to the extent allowed by applicable
law, as such laws may hereafter be in effect and which allow a higher
maximum non-usurious interest rate than such laws now allow.
"Indebtedness" shall mean, as to any Person, without duplication, (a)
all liabilities (excluding reserves for deferred income taxes, deferred
compensation liabilities, and other deferred liabilities and credits) which
in accordance with GAAP would be included in determining total liabilities
as shown on the liability side of a balance sheet, (b) all obligations of
such Person evidenced by bonds, debentures, promissory notes, or similar
evidences of indebtedness, (c) all other indebtedness of such Person for
borrowed money, 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).
"Insolvency Proceeding" shall mean application (whether voluntary or
instituted by another Person) for or the consent to the appointment of a
receiver, trustee, conservator, custodian, or liquidator of any Person or
of all or a substantial part of the Property of such Person, or the filing
of a petition (whether voluntary or instituted by another Person)
commencing a case under Title 11 of the United States Code, seeking
liquidation, reorganization, or rearrangement or taking advantage of any
bankruptcy, insolvency, debtor's relief, or other similar law of the United
States, the State of Texas, or any other jurisdiction.
"Intellectual Property" shall mean patents, patent applications,
trademarks, tradenames, copyrights, technology, know-how, and processes.
"Interest Period" shall mean, subject to the limitations set forth in
Section 2.22, with respect to any LIBO Rate Loan, a period commencing on
the date such Loan is made or converted from a Loan of another type
pursuant to this Credit Agreement or the last day of the next preceding
Interest Period with respect to such Loan and ending on the numerically
corresponding day in the calendar month that is one, two, three, or,
subject to availability, six months thereafter, as the Borrower may request
in the Borrowing Request for such Loan.
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"Investment" in any Person shall mean any stock, bond, note, or other
evidence of Indebtedness, or any other security (other than current trade
and customer accounts) of, investment or partnership interest in or loan
to, such Person.
"L/C Exposure" shall mean, at any time, the aggregate maximum amount
available to be drawn under outstanding Letters of Credit at such time.
"Letter of Credit" shall mean any standby letter of credit issued by
the Lender for the account of the Borrower pursuant to Section 2.2.
"Letter of Credit Application" shall mean the standard letter of
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
the Borrower pursuant to Section 2.14 upon or in connection with the
issuance of a Letter of Credit.
"LIBO Rate" means, with respect to a LIBO Rate Loan for the relevant
Interest Period, the applicable British Banker's Association Interest
Settlement Rate for deposits in U.S. dollars appearing on Reuters Screen
FRBD as of 11:00 a.m. (London time) two Business Days prior to the first
day of such Interest Period, and having a maturity equal to such Interest
Period, provided that, (i) if Reuters Screen FRBD is not available to the
Lender for any reason, the applicable LIBO rate for the relevant Interest
Period shall instead be the applicable British Bankers' Association
Interest Settlement Rate for deposits in U.S. dollars as reported by any
other generally recognized financial information service as of 11:00 a.m.
(London time) two Business Days prior to the first day of such Interest
Period, and having a maturity equal to such Interest Period, and (ii) if no
such British Bankers' Association Interest Settlement Rate is available to
the Lender, the applicable LIBO Rate for the relevant Interest Period shall
instead be the rate determined by the Lender to be the rate at which Lender
or one of its affiliate banks offers to place deposits in U.S. dollars with
first-class banks in the London interbank market at approximately 11:00
a.m. (London time) two Business Day prior to the first day of such Interest
Period, in the approximate amount of Bank One's relevant LIBO Rate Loan and
having a maturity equal to such Interest Period.
"LIBO Rate Loan" shall mean any Loan and any portion of the Loan
Balance which the Borrower has requested, in the initial Borrowing Request
for such Loan or a subsequent Borrowing Request for such portion of the
Loan Balance, bearing interest at the Adjusted LIBO Rate and which is
permitted by the terms hereof to bear interest at the Adjusted LIBO Rate.
"Lien" shall mean any interest in Property securing an obligation owed
to, or a claim by, a Person other than the owner of such Property, whether
such interest is based on common law, statute, or contract, and including,
but not limited to, the lien
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or security interest arising from a mortgage, ship mortgage, encumbrance,
pledge, security agreement, conditional sale or trust receipt, or a lease,
consignment, or bailment for security purposes (other than true leases or
true consignments), liens of mechanics, materialmen, and artisans, maritime
liens and reservations, exceptions, encroachments, easements, rights of
way, covenants, conditions, restrictions, leases, and other title
exceptions and encumbrances affecting Property which secure an obligation
owed to, or a claim by, a Person other than the owner of such Property (for
the purpose of this Credit 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
owing on the Note 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 the Lender to or for the benefit of
the Borrower pursuant to this Credit Agreement and any payment made by the
Lender under a Letter of Credit.
"Loan Balance" shall mean, at any time, the outstanding principal
balance of the Note at such time.
"Loan Documents" shall mean this Credit Agreement, the Note, the
Guaranty, 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
Credit Agreement, the Note, the Guaranty, the Letter of Credit
Applications, the Letters of Credit, or the Security Instruments, and all
renewals and extensions of, amendments and supplements to, and restatements
of, any or all of the foregoing from time to time in effect.
"Material Adverse Effect" shall mean (a) any material adverse effect
on the business, operations, properties, condition (financial or
otherwise), or prospects of the Borrower, (b) any adverse effect upon the
business operations, properties, condition (financial or otherwise), or
prospects of the Borrower which increases the risk that any of the
Obligations will not be repaid as and when due, or (c) any adverse effect
upon the Collateral.
"Mortgaged Properties" shall mean all Oil and Gas Properties of the
Borrower subject to a perfected first-priority Lien in favor of the Lender,
subject only to Permitted Liens, as security for the Obligations.
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"Net Income" shall mean, for any period, the net income (or loss) of
the Borrower for such period, determined in accordance with GAAP.
"Note" shall mean the promissory note of the Borrower, in the form
attached hereto as Exhibit I, together with all renewals, extensions for
any period, increases, and rearrangements thereof.
"Obligations" shall mean, without duplication, (a) all Indebtedness
evidenced by the Note, (b) the Reimbursement Obligations, (c) the undrawn,
unexpired amount of all outstanding Letters of Credit, (d) the obligation
of the Borrower for the payment of Commitment Fees, Facility Fees, Letter
of Credit Fees, and Engineering Fees, (e) the obligations of the Guarantor
under the Guaranty, (f) 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 (g)
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" shall mean petroleum, natural gas and other related
hydrocarbons or mineral or any of them and all other substances produced or
extracted in association therewith.
"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.
"Permitted Liens" shall mean (a) Liens for taxes, assessments, or
other governmental charges or levies not yet due or which (if foreclosure,
distraint, sale, or other similar proceedings shall not have been
initiated) are being contested in good faith by appropriate proceedings,
and such reserve as may be required by GAAP shall have been made therefor,
(b) Liens in connection with workers' compensation, unemployment insurance
or other social security (other than Liens created by Section 4068 of
ERISA), old-age pension, or public liability obligations which are not yet
due or which are being contested in good faith by appropriate proceedings,
if such reserve as may be required by GAAP shall have been made therefor,
(c) Liens in favor of landlords, 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
11
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 arising solely by virtue of any statutory or
common law provision relating to banker's liens, rights of set-off or
similar rights and remedies as to deposit accounts or other funds
maintained with a creditor depository institution; or under any deposit
account agreement entered into in the ordinary course of business, (h)
purchase money Liens upon or in any equipment acquired by Borrower or
Guarantor to secure the deferred purchase price of such equipment or any
indebtedness incurred to finance the acquisition of such equipment,
provided, the Indebtedness secured thereby is permitted pursuant to Section
6.1, and (i) Liens in favor of the Lender and other Liens expressly
permitted under the Security Instruments.
"Person" shall mean an individual, corporation, partnership, trust,
unincorporated organization, government, any agency or political
subdivision of any government, or any other form of entity.
"Plan" shall mean, at any time, any employee benefit plan which is
covered by ERISA and in respect of which the Borrower or any Commonly
Controlled Entity is (or, if such plan were terminated at such time, would
under Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
"Prime Rate" shall mean a rate per annum equal to the prime rate of
interest announced from time to time by Lender or its parent (which is not
necessarily the lowest rate charged to any customer), changing when and as
said prime rate changes.
"Principal Office" shall mean the principal office of the Lender in
Houston, Texas, presently located at 910 Travis, 6th Floor, Houston, Texas
77002-5860.
"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, tangible or intangible.
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"Rate Management Transaction" shall mean any transaction (including an
agreement with respect thereto) now existing or hereafter entered into
between Borrower and Lender 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 one or more interest rates, foreign
currencies, commodity prices, equity prices or other financial measures.
"Regulation D" shall mean Regulation D of the Board of Governors of
the Federal Reserve System, as 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 or its Applicable
Lending Office.
"Reimbursement Obligation" shall mean the obligation of the Borrower
to provide to the Lender or reimburse the Lender 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.
"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 Lender
pursuant to Section 54.
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"Reserve Requirement" means, with respect to an Interest Period, the
maximum aggregate reserve requirement (including all basic, supplemental,
marginal and other reserves) which is imposed under Regulation D on
Eurocurrency liabilities.
"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.
"Subordinated Debt" shall mean any Indebtedness or other obligations
of the Borrower, to the extent that the rights of the holders thereof to
enforce such Indebtedness or other obligations of Borrower thereunder have
been subordinated to the rights of the Lender hereunder or in connection
herewith by subordination agreements executed by the holders of the
Subordinated Debt and satisfactory in form and substance to the Lender.
"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 and Guarantor 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.
"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 8.1, and any Person
acquiring, by purchase, assignment, transfer, or participation, from any
such purchaser, assignee, transferee, or participant, any part of such
Obligations.
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"UCC" shall mean the Uniform Commercial Code as from time to time in
effect in the State of Texas.
1.3 Undefined Financial Accounting Terms. Undefined financial
accounting terms used in this Credit Agreement shall be defined according to
GAAP at the time in effect.
1.4 References. References in this Credit Agreement to Exhibit,
Article, or Section numbers shall be to Exhibits, Articles, or Sections of this
Credit Agreement, unless expressly stated to the contrary. References in this
Credit Agreement to "hereby," "herein," "hereinafter," "hereinabove,"
"hereinbelow," "hereof," "hereunder" and words of similar import shall be to
this Credit Agreement in its entirety and not only to the particular Exhibit,
Article, or Section in which such reference appears.
1.5 Articles and Sections. This Credit Agreement, for convenience
only, has been divided into Articles and Sections; and it is understood that the
rights and other legal relations of the parties hereto shall be determined from
this instrument as an entirety and without regard to the aforesaid division into
Articles and Sections and without regard to headings prefixed to such Articles
or Sections.
1.6 Number and Gender. Whenever the context requires, reference
herein made to the single number shall be understood to include the plural; and
likewise, the plural shall be understood to include the singular. Definitions
of terms defined in the singular or plural shall be equally applicable to the
plural or singular, as the case may be, unless otherwise indicated. Words
denoting sex shall be construed to include the masculine, feminine and neuter,
when such construction is appropriate; and specific enumeration shall not
exclude the general but shall be construed as cumulative.
1.7 Incorporation of Exhibits. The Exhibits attached to this Credit
Agreement are incorporated herein and shall be considered a part of this Credit
Agreement for all purposes.
ARTICLE II
TERMS OF FACILITY
2.1 Revolving Line of Credit. (a) Upon the terms and conditions
(including, without limitation, the right of the Lender 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 Credit Agreement, the Lender
agrees, during the Commitment Period, to make Loans, in immediately available
funds at the Applicable Lending Office or the Principal Office, to or for the
benefit of the Borrower, from time to time on any Business Day designated by the
Borrower following receipt by the Lender of a Borrowing Request; provided,
however, no Loan shall exceed the then existing Available Commitment.
(b) Subject to the terms of this Credit Agreement, during the
Commitment Period, the Borrower may borrow, repay, and reborrow and convert
Loans of one type or with one Interest
15
Period into Loans of another type or with a different Interest Period. Except
for prepayments made pursuant to Section 2.9, each borrowing, conversion, and
prepayment of principal of Loans shall be in an amount at least equal to
$100,000. Each borrowing, prepayment, or conversion of or into a Loan of a
different type or, in the case of a LIBO Rate Loan, having a different Interest
Period, shall be deemed a separate borrowing, conversion, and prepayment for
purposes of the foregoing, one for each type of Loan or Interest Period.
Anything in this Credit Agreement to the contrary notwithstanding, the aggregate
principal amount of LIBO Rate Loans having the same Interest Period shall be at
least equal to $100,000; and if any LIBO Rate Loan would otherwise be in a
lesser principal amount for any period, such Loan shall be a Floating Rate Loan
during such period.
(c) The Loans shall be made and maintained at the Applicable Lending
Office or the Principal Office and shall be evidenced by the Note.
2.2 Letter of Credit Facility. (a) Upon the terms and conditions
(including, without limitation, the right of the Lender to decline to issue any
Letter of Credit so long as any Default or Event of Default exists) and relying
on the representations and warranties contained in this Credit Agreement, the
Lender agrees, during the Commitment Period, to issue Letters of Credit
following the receipt not less than two Business Days prior to the requested
date for issuance of the relevant Letter of Credit, of a Letter of Credit
Application executed by the Borrower; provided, however, (a) no Letter of Credit
shall have an expiration date which is more than 360 days after the issuance
thereof or subsequent to the Commitment Termination Date, and (b) the Lender
shall not be obligated to issue any Letter of Credit if (i) the face amount
thereof would exceed the Available Commitment, or (ii) after giving effect to
the issuance thereof, (A) the L/C Exposure, when added to the Loan Balance then
outstanding, would exceed the Borrowing Base then in effect, or (B) the L/C
Exposure would exceed $2,000,000.
(b) Should the Lender be called upon by the beneficiary of any Letter
of Credit to honor all or any portion of the commitment thereunder, whether upon
the presentation of drafts or otherwise, such payment by the Lender on account
of such Letter of Credit shall be treated, for all purposes, as a Floating Rate
Loan and an advance against the Note.
2.3 Use of Loan Proceeds and Letters of Credit. (a) As of the date
hereof, indebtedness in the principal amount of $6,150,000 is outstanding under
the Existing Note. The Lender 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 Credit Agreement, the Note, and the
relevant Borrowing Request and shall for all purposes be deemed a borrowing
hereunder. Proceeds of all subsequent Loans shall be used solely for (i) the
acquisition and development of Oil and Gas Properties, (ii) working capital,
(iii) Letters of Credit, and (iv) general corporate purposes.
(b) Letters of Credit shall be used solely for general corporate
purposes.
2.4 Interest. Subject to the terms of this Credit Agreement
(including, without limitation, Section 2.17), interest on the Loans shall
accrue and be payable at a rate per annum equal to the Floating Rate for each
Floating Rate Loan and the Adjusted LIBO Rate for each LIBO Rate Loan. Interest
on all Floating Rate Loans shall be computed on the basis of a year of 365 or
366 days, as the case may be, and actual days elapsed (including the first day
but excluding the last day)
16
during the period for which payable. Interest on all LIBO Rate Loans shall be
computed on the basis of a year of 360 days, and actual days elapsed (including
the first day but excluding the last day) during the period for which payable.
Notwithstanding the foregoing, interest on past-due principal and, to the extent
permitted by applicable law, past-due interest, shall accrue at the Default
Rate, computed on the basis of a year of 365 or 366 days, as the case may be,
and actual days elapsed (including the first day but excluding the last day)
during the period for which payable, and shall be payable upon demand by the
Lender at any time as to all or any portion of such interest. In the event that
the Borrower fails to select the duration of any Interest Period for any LIBO
Rate Loan within the time period and otherwise as provided herein, such Loan (if
outstanding as a LIBO Rate Loan) will be automatically converted into a Floating
Rate Loan on the last day of the then current Interest Period for such Loan or
(if outstanding as a Floating Rate Loan) will remain as, or (if not then
outstanding) will be made as, a Floating Rate Loan. Interest provided for herein
shall be calculated on unpaid sums actually advanced and outstanding pursuant to
the terms of this Credit Agreement and only for the period from the date or
dates of such advances until repayment.
2.5 Repayment of Loans and Interest. Accrued and unpaid interest on
each outstanding Floating Rate Loan shall be due and payable monthly commencing
on the first day of April, 2000, and continuing on the first day of each
calendar month thereafter while any Floating Rate Loan remains outstanding, the
payment in each instance to be the amount of interest which has accrued and
remains unpaid in respect of the relevant Loan. Accrued and unpaid interest on
each outstanding LIBO Rate Loan shall be due and payable on the last day of the
Interest Period for such LIBO Rate Loan and, in the case of any Interest Period
in excess of three months, on the day of the third calendar month following the
commencement of such Interest Period corresponding to the day of the calendar
month on which such Interest Period commenced, the payment in each instance to
be the amount of interest which has accrued and remains unpaid in respect of the
relevant Loan. The Loan Balance, together with all accrued and unpaid interest
thereon, shall be due and payable at Final Maturity. At the time of making each
payment hereunder or under the Note, the Borrower shall specify to the Lender
the Loans or other amounts payable by the Borrower hereunder to which such
payment is to be applied. In the event the Borrower fails to so specify, or if
an Event of Default has occurred and is continuing, the Lender may apply such
payment as it may elect in its sole discretion.
2.6 Outstanding Amounts. The outstanding principal balance of the
Note reflected by the notations by the Lender on its records shall be deemed
rebuttably presumptive evidence of the principal amount owing on the Note. The
liability for payment of principal and interest evidenced by the Note shall be
limited to principal amounts actually advanced and outstanding pursuant to this
Credit Agreement and interest on such amounts calculated in accordance with this
Credit Agreement.
2.7 Time, Place, and Method of Payments. All payments required
pursuant to this Credit Agreement or the Note shall be made in lawful money of
the United States of America and in immediately available funds, shall be deemed
received by the Lender 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 Note would otherwise fall on a day which is not a
Business Day, such date shall be extended to the next succeeding
17
Business Day, and interest shall be payable for any principal so extended for
the period of such extension.
2.8 Borrowing Base Determinations. (a) The Borrowing Base as of the
Closing Date is acknowledged by the Borrower and the Lender to be $18,000,000.
(b) The Borrowing Base shall be redetermined semi-annually 45 days
after receipt of the Reserve Report delivered pursuant to Section 5.4 on the
basis of information supplied by the Borrower in compliance with the provisions
of this Credit Agreement, including, without limitation, Reserve Reports, and
all other information available to the Lender. In addition, the Lender shall,
in the normal course of business following a request of the Borrower,
redetermine the Borrowing Base; provided, however, the Lender shall not be
obligated to respond to more than two 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 Lender may at its discretion redetermine the Borrowing Base at
any time and from time to time.
(c) Upon each determination of the Borrowing Base by the Lender, the
Lender shall notify the Borrower orally (confirming such notice promptly in
writing) of the amount of the Borrowing Base resulting from such determination.
The Borrowing Base so communicated to the Borrower shall become effective upon
such written notification and shall remain in effect until notice of the next
subsequent determination of the Borrowing Base.
(d) The Borrowing Base shall represent the determination by the
Lender, in accordance with the applicable definitions and provisions herein
contained and its customary lending practices 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
Lender. 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 Lender.
2.9 Mandatory Prepayments. If at any time the sum of the Loan
Balance and the L/C Exposure exceeds the Borrowing Base then in effect, the
Borrower shall, within 60 days of notice from the Lender of such occurrence, (a)
prepay, or make arrangements acceptable to the Lender 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 Lender in its
sole discretion, to secure the Obligations by the execution and delivery to the
Lender of security instruments in form and substance satisfactory to the Lender,
or (c) effect any combination of the alternatives described in clauses (a) and
(b) of this Section and acceptable to the Lender in its 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 Lender, deposit with the Lender, 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
Lender in satisfaction of the requirement provided in this Section may be
invested, at the sole discretion of the Lender and then only at the express
18
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 Lender.
2.10 Voluntary Prepayments and Conversions of Loans. Subject to
applicable provisions of this Credit Agreement, the Borrower shall have the
right at any time or from time to time to prepay Loans and to convert Loans of
one type or with one Interest Period into Loans of another type or with a
different Interest Period; provided, however, that (a) the Borrower shall give
the Lender notice of each such prepayment or conversion of all or any portion of
a LIBO Rate Loan no less than two Business Days prior to prepayment or
conversion, (b) any LIBO Rate Loan may be prepaid or converted only on the last
day of an Interest Period for such Loan, (c) the Borrower shall pay all accrued
and unpaid interest on the amounts prepaid or converted, and (d) no such
prepayment or conversion shall serve to postpone the repayment when due of any
Obligation.
2.11 Commitment Fee. In addition to interest on the Note as provided
herein and all other fees payable 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 April, 2000, and on the first
day of each third calendar month thereafter during the Commitment Period, a fee
in the amount of three-eighths percent (3/8%) 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.
2.12 Engineering Fee. In addition to interest on the Note as
provided herein and all other fees payable hereunder and to compensate the
Lender for the costs of evaluating the Mortgaged Properties and reviewing the
Reserve Reports, the Borrower shall pay to the Lender, in immediately available
funds, on the date of each redetermination of the Borrowing Base, an engineering
fee in the amount of $7,500.
2.13 Facility Fee. In addition to interest on the Note as provided
herein and all other fees payable hereunder and to compensate the Lender for the
costs of the extension of credit hereunder, the Borrower shall pay to the Lender
on the Closing Date, in immediately available funds, a facility fee in the
amount of $90,000. Any future increases in the Borrowing Base shall entitle the
Lender to a one-half percent (1/2%) fee of the increase in the Borrowing Base
which shall be paid by the Borrower within two days of such notification.
2.14 Letter of Credit Fee. In addition to interest on the Note as
provided herein and all other fees payable hereunder, the Borrower agrees to pay
to the Lender, on the date of issuance of each Letter of Credit, a fee equal to
the greater of the Lender's minimum rate at the time of issuance of the Letter
of Credit or two and one-half percent (2 1/2%) per annum, calculated on the
basis of a year of 360 days 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
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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.
2.15 Security Interest in Accounts; Right of Offset. As security for
the payment and performance of the Obligations, the Borrower hereby transfers,
assigns, and pledges to the Lender and grants to the Lender a security interest
in all funds of the Borrower now or hereafter or from time to time on deposit
with the Lender, with such interest of the Lender to be retransferred,
reassigned, and/or released by the 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 upon the occurrence of any Event of Default,
regardless of whether the exercise of any such remedy would result in any
penalty or loss of interest or profit with respect to any withdrawal of funds
deposited in a time deposit account prior to the maturity thereof. Furthermore,
the Borrower hereby grants to the 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 Lender, regardless of whether the exercise
of any such remedy would result in any penalty or loss of interest or profit
with respect to any withdrawal of funds deposited in a time deposit account
prior to the maturity thereof.
2.16 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 303 of the Texas Finance Code (Vernon's 1999), the Borrower agrees that
the Highest Lawful Rate shall be the "weekly ceiling" as defined in such
Section, provided that the Lender 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 Lender, if greater.
(b) Notwithstanding anything herein or in the Note to the contrary,
during any Limitation Period, the interest rate to be charged on amounts
evidenced by the Note 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 Lender (i) the amount of interest in excess of that
accruing at the Highest Lawful Rate that the Lender 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 Lender but for the
effect of such Limitation Period.
(c) If, under any circumstances, the aggregate amounts paid on the
Note or under this Credit 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
Lender; and the Lender
20
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 Lender
or notice thereof from the Borrower. In the event that the maturity of any
Obligation is accelerated, by reason of an election by the Lender 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 Lender 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 Lender for the use,
forbearance and detention of the proceeds of any advance hereunder shall, to the
extent permitted by applicable law, be amortized, prorated, allocated, and
spread throughout the full term hereof until paid in full so that the actual
rate of interest is uniform but does not exceed the Highest Lawful Rate
throughout the full term hereof.
2.17 Yield Protection. (a) Without limiting the effect of the other
provisions of this Section (but without duplication), the Borrower shall pay to
the Lender from time to time such amounts as the Lender may determine are
necessary to compensate it for any Additional Costs incurred by the Lender.
(b) Without limiting the effect of the other provisions of this
Section (but without duplication), the Borrower shall pay to the Lender from
time to time on request such amounts as the Lender may determine are necessary
to compensate the Lender for any costs attributable to the maintenance by the
Lender (or any Applicable Lending Office), pursuant to any Regulatory Change, of
capital in respect of the Commitment, such compensation to include, without
limitation, an amount equal to any reduction of the rate of return on assets or
equity of the Lender (or any Applicable Lending Office) to a level below that
which the Lender (or any Applicable Lending Office) could have achieved but for
such Regulatory Change.
(c) Without limiting the effect of the other provisions of this
Section (but without duplication), in the event that any Requirement of Law or
Regulatory Change or the compliance by the Lender therewith shall (i) impose,
modify, or hold applicable any reserve, special deposit, or similar requirement
against any Letter of Credit or obligation to issue Letters of Credit, or (ii)
impose upon the Lender any other condition regarding any Letter of Credit or
obligation to issue Letters of Credit, and the result of any such event shall be
to increase the cost to the Lender of issuing or maintaining any Letter of
Credit or obligation to issue Letters of Credit or any liability with respect to
payments by the Lender under Letters of Credit, or to reduce any amount
receivable in connection therewith, then upon demand by the Lender, the Borrower
shall pay to the Lender, from time to time as specified by the Lender,
additional amounts which shall be sufficient to compensate the Lender for such
increased cost or reduced amount receivable.
(d) Without limiting the effect of the other provisions of this
Section (but without duplication), the Borrower shall pay to the Lender such
amounts as shall be sufficient in the reasonable opinion of the Lender to
compensate it for any loss, cost, or expense incurred by and as a result of:
21
(i) any payment, prepayment, or conversion by the Borrower of a LIBO Rate
Loan on a date other than the last day of an Interest Period for such Loan; or
(ii) any failure by the Borrower to borrow a LIBO Rate Loan from the
Lender on the date for such borrowing specified in the relevant Borrowing
Request;
such compensation to include, without limitation, with respect to any LIBO Rate
Loan, an amount equal to the excess, if any, of (A) the amount of interest which
would have accrued on the principal amount so paid, prepaid, converted, or not
borrowed for the period from the date of such payment, prepayment, conversion,
or failure to borrow to the last day of the then current Interest Period for
such Loan (or, in the case of a failure to borrow, the Interest Period for such
Loan which would have commenced on the date of such failure to borrow) at the
LIBO Rate of interest for such Loan provided for herein over (B) the interest
component (as reasonably determined by the Lender) of the amount (as reasonably
determined by the Lender) the Lender would have bid in the London interbank
market for Dollar deposits of amounts comparable to such principal amount and
maturities comparable to such period.
(e) Determinations by the Lender for purposes of this Section of the
effect of any Regulatory Change on capital maintained, its costs or rate of
return, maintaining Loans, issuing Letters of Credit, its obligation to make
Loans and issue Letters of Credit, or on amounts receivable by it in respect of
Loans, Letters of Credit, or such obligations, and the additional amounts
required to compensate the Lender under this Section shall be conclusive, absent
manifest error, provided that such determinations are made on a reasonable
basis. The Lender shall furnish the Borrower with a certificate setting forth
in reasonable detail the basis and amount of increased costs incurred or reduced
amounts receivable as a result of any such event, and the statements set forth
therein shall be conclusive, absent manifest error. The Lender shall (i) notify
the Borrower, as promptly as practicable after the Lender obtains knowledge of
any Additional Costs or other sums payable pursuant to this Section and
determines to request compensation therefor, of any event occurring after the
Closing Date which will entitle the Lender to compensation pursuant to this
Section; provided that the Borrower shall not be obligated for the payment of
any Additional Costs or other sums payable pursuant to this Section to the
extent such Additional Costs or other sums accrued more than 90 days prior to
the date upon which the Borrower was given such notice; and (ii) designate a
different Applicable Lending Office for the Loans of the Lender affected by such
event if such designation will avoid the need for or reduce the amount of such
compensation and will not, in the sole opinion of the Lender, be disadvantageous
to the Lender. If the Lender requests compensation from the Borrower under this
Section, the Borrower may, by notice to the Lender, require that the Loans by
the Lender of the type with respect to which such compensation is requested be
converted into Floating Rate Loans in accordance with Section 2.10. Any
compensation requested by the Lender pursuant to this Section shall be due and
payable to the Lender within five days of delivery of any such notice by the
Lender to the Borrower.
(f) The Lender agrees that it shall not request, and the Borrower
shall not be obligated to pay, any Additional Costs or other sums payable
pursuant to this Section unless similar additional costs and other sums payable
are also generally assessed by the Lender against other customers of
22
the Lender similarly situated where such customers are subject to documents
providing for such assessment.
2.18 Limitation on Types of Loans. Anything herein to the contrary
notwithstanding, no more than 5 separate Loans shall be outstanding at any one
time, with, for purposes of this Section, all Floating Rate Loans constituting
one Loan and all LIBO Rate Loans for the same Interest Period constituting one
Loan. Anything herein to the contrary notwithstanding, if, on or prior to the
determination of any interest rate for any LIBO Rate Loan for any Interest
Period therefor:
(a) the Lender determines (which determination shall be conclusive)
that quotations of interest rates for the deposits referred to in the
definition of "LIBO Rate" in Section 1.2 are not being provided in the
relevant amounts or for the relevant maturities for purposes of determining
the rate of interest for such Loan as provided in this Credit Agreement; or
(b) the Lender determines (which determination shall be conclusive)
that the rates of interest referred to in the definition of "LIBO Rate" in
Section 1.2 upon the basis of which the rate of interest for such Loan for
such Interest Period is to be determined do not accurately reflect the cost
to the Lender of making or maintaining such Loan for such Interest Period,
then the Lender shall give the Borrower prompt notice thereof; and so long as
such condition remains in effect, the Lender shall be under no obligation to
make LIBO Rate Loans or to convert Loans of any other type into LIBO Rate Loans,
and the Borrower shall, on the last day of the then current Interest Period for
each outstanding LIBO Rate Loan, either prepay such LIBO Rate Loan or convert
such Loan into another type of Loan in accordance with Section 2.10. Before
giving such notice pursuant to this Section, the Lender will designate a
different available Applicable Lending Office for LIBO Rate Loans or take such
other action as the Borrower may request if such designation or action will
avoid the need to suspend the obligation of the Lender to make LIBO Rate Loans
hereunder and will not, in the opinion of the Lender, be disadvantageous to the
Lender.
2.19 Illegality. Notwithstanding any other provision of this Credit
Agreement, in the event that it becomes unlawful for the Lender or its
Applicable Lending Office to (a) honor its obligation to make any type of LIBO
Rate Loans hereunder, or (b) maintain any type of LIBO Rate Loans hereunder,
then the Lender shall promptly notify the Borrower thereof; and the obligation
of the Lender hereunder to make such type of LIBO Rate Loans and to convert
other types of Loans into LIBO Rate Loans of such type shall be suspended until
such time as the Lender may again make and maintain LIBO Rate Loans of such
type, and the outstanding LIBO Rate Loans of such type shall be converted into
Floating Rate Loans in accordance with Section 2.10. Before giving such notice
pursuant to this Section, the Lender will designate a different available
Applicable Lending Office for LIBO Rate Loans or take such other action as the
Borrower may request if such designation or action will avoid the need to
suspend the obligation of the Lender to make LIBO Rate Loans and will not, in
the opinion of the Lender, be disadvantageous to the Lender.
23
2.20 Regulatory Change. In the event that by reason of any
Regulatory Change, the Lender (a) incurs Additional Costs based on or measured
by the excess above a specified level of the amount of a category of deposits or
other liabilities of the Lender which includes deposits by reference to which
the interest rate on any LIBO Rate Loan is determined as provided in this Credit
Agreement or a category of extensions of credit or other assets of such Lender
which includes any LIBO Rate Loan, or (b) becomes subject to restrictions on the
amount of such a category of liabilities or assets which it may hold, then, at
the election of the Lender with notice to the Borrower, the obligation of the
Lender to make such LIBO Rate Loans and to convert Floating Rate Loans into such
LIBO Rate Loans shall be suspended until such time as such Regulatory Change
ceases to be in effect, and all such outstanding LIBO Rate Loans shall be
converted into Floating Rate Loans in accordance with Section 2.10.
2.21 Limitations on Interest Periods. Each Interest Period selected
by the Borrower (a) which commences on the last Business Day of a calendar month
(or, with respect to any LIBO Rate Loan, any day for which there is no
numerically corresponding day in the appropriate subsequent calendar month)
shall end on the last Business Day of the appropriate subsequent calendar month,
(b) which would otherwise end on a day which is not a Business Day shall end on
the next succeeding Business Day (or, if such next succeeding Business Day falls
in the next succeeding calendar month, on the next preceding Business Day), (c)
which would otherwise commence before and end after Final Maturity shall end on
Final Maturity, and (d) shall have a duration of not less than one month, as to
any LIBO Rate Loan, and, if any Interest Period would otherwise be a shorter
period, the relevant Loan shall be a Floating Rate Loan during such period.
2.22 Letters in Lieu of Transfer Orders. The Lender agrees that none
of the letters in lieu of transfer or division orders provided by the Borrower
pursuant to Section 3.1(g)(iii) or Section 5.7 will be sent to the addressees
thereof prior to the occurrence of an Event of Default, at which time the 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 pursuant to Section 7.1(a), (f)
and (g).
2.23 Power of Attorney. The Borrower hereby designates the Lender 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 Lender pursuant to Section 3.1(g)(iii) or Section 5.7,
including, without limitation, completing any blanks contained in such letters
and attaching exhibits thereto describing the relevant Collateral. The Borrower
hereby ratifies and confirms all that the Lender 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 Lender 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 Lender by this appointment are
solely to protect the interests of the Lender under the Loan Documents and shall
not impose any duty upon the Lender to exercise any such powers. The Lender
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.
24
ARTICLE III
CONDITIONS
The obligations of the Lender to enter into this Credit Agreement and
to make Loans and issue Letters of Credit are subject to the satisfaction of the
following conditions precedent:
3.1 Receipt of Loan Documents and Other Items. The Lender shall have
no obligation under this Credit Agreement unless and until all matters incident
to the consummation of the transactions contemplated herein, including, without
limitation, the review by the Lender or its counsel of the title of the Borrower
to its Oil and Gas Properties, shall be satisfactory to the Lender, and the
Lender 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 Lender and dated, where applicable, of even date
herewith or a date prior thereto and acceptable to the Lender:
(a) multiple counterparts of this Credit Agreement, the Guaranty, and
the Assignment, as requested by the Lender;
(b) the Existing Notes, endorsed payable to the Lender;
(c) the Note;
(d) copies of the Articles of Incorporation or Certificate of
Incorporation and all amendments thereto and the bylaws and all amendments
thereto of the Borrower and the Guarantor, accompanied by a certificate
issued by the secretary or an assistant secretary of the Borrower, to the
effect that each such copy is correct and complete;
(e) certificates of incumbency and signatures of all officers of the
Borrower and the Guarantor who are authorized to execute Loan Documents on
behalf of the Borrower, each such certificate being executed by the
secretary or an assistant secretary of the Borrower and the Guarantor;
(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 and the Guarantor, accompanied
by certificates of the secretary or an assistant secretary of the Borrower
and the Guarantor, 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 the Guarantor, 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 Lender in and to the Collateral:
25
(i) Amended and Restated Mortgage, Deed of Trust, Indenture,
Security Agreement, Assignment of Production, and Financing Statement
from the Borrower covering substantially all of the Oil and Gas
Properties of the Borrower and all improvements, personal property, and
fixtures related thereto;
(ii) Financing Statements from the Borrower, as debtors,
constituent to the instrument described in clause (i) above;
(iii) undated letters, in form and substance satisfactory to the
Lender, from the Borrower 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
Lender;
(h) unaudited Financial Statements of the Borrower as of September 30,
1999;
(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 Borrowers in their respective
jurisdictions of incorporation and in any other jurisdictions where they do
business;
(j) results of searches of the UCC Records of the Secretary of State
of the States of Colorado, Wyoming and Texas from a source acceptable to
the Lender and reflecting no Liens against any of the Collateral as to
which perfection of a Lien is accomplished by the filing of a financing
statement other than in favor of the Lender;
(k) confirmation, acceptable to the Lender, 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 Haynes and Boone, L.L.P., counsel to the Borrower,
in the form attached hereto as Exhibit IV, with such changes thereto as may
be approved by the Lender;
(o) the opinion of special counsel to the Borrower in the state of
Wyoming, in the form attached hereto as Exhibit V, with such changes
thereto as may be approved by the Lender;
26
(p) certificates evidencing the insurance coverage required pursuant
to Section 5.18; and
(q) such other agreements, documents, instruments, opinions,
certificates, waivers, consents, and evidence as the Lender may reasonably
request.
3.2 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 Lender 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 two Business Days
prior to the requested issuance date 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) no event shall have occurred which, in the reasonable opinion of
the Lender, could have a Material Adverse Effect;
(d) each of the representations and warranties contained in this
Credit Agreement shall be true and correct in all material respects 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 representations and warranties expressly refer to an earlier
date, in which case they shall be true and correct as of such date);
(e) the Guaranty and all of the Security Instruments shall be in full
force and effect and provide to the Lender the security intended thereby;
(f) 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;
(g) the Borrower shall have good and defensible title to all of its
Mortgaged Properties and to all other Oil and Gas Properties, except for
such defects in title as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect, free and clear of
all Liens except Permitted Liens.
(h) the Lender shall have received the payment of all Engineering
Fees, Facility Fees, Letter of Credit Fees, and other fees payable to the
Lender hereunder and reimbursement from the Borrower, or special legal
counsel for the Lender shall
27
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 Credit Agreement and for which
invoices have been presented as of or prior to the date of the relevant
Loan or Letter 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
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Credit Agreement and to make
the Loans and issue Letters of Credit, the Borrower represents and warrants to
the Lender (which representations and warranties shall survive the delivery of
the Note) that:
4.1 Due Authorization. The execution and delivery by the Borrower of
this Credit Agreement and the borrowings hereunder, the execution and delivery
by the Borrower of the Note, the repayment of the Note and interest and fees
provided for in the Note and this Credit 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 (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.
4.2 Corporate Existence. The Borrowers are corporations duly
organized, legally existing, and in good standing under the laws of their states
of incorporation and are duly qualified as a foreign corporations and are in
good standing in all jurisdictions wherein the ownership of Property or the
operation of their business necessitates same, other than those jurisdictions
wherein the failure to so qualify will not have a Material Adverse Effect.
4.3 Valid and Binding Obligations. All Loan Documents, when duly
executed and delivered by the Borrower, will be the legal, valid, and binding
obligations of the Borrower, enforceable against the Borrower in accordance with
their respective terms.
4.4 Security Instruments. The provisions of each Security Instrument
are effective to create in favor of the Lender, 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 of rights of
other
28
Persons, shall constitute fully perfected first-priority Liens subject to
Permitted Liens on all right, title, and interest of the Borrower in the
Collateral described therein.
4.5 Title to Assets. The Borrower has good and defensible title to
all of its Mortgaged Properties and to all other Oil and Gas Properties except
for such defects in title as would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect, free and clear of all
Liens except Permitted Liens.
4.6 Scope and Accuracy of Financial Statements. The Financial
Statements of the Borrower as of September 30, 1999, present fairly the
financial position and results of operations and cash flows of the 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 September
30, 1999, which could reasonably be expected to have a Material Adverse Effect.
4.7 No Material Misstatements. No information, exhibit, statement,
or report furnished to the Lender by or at the direction of the Borrower in
connection with this Credit 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.
4.8 Liabilities, Litigation, and Restrictions. Other than as listed
under the heading "Liabilities" on Exhibit VI attached hereto, 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 VI 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.
4.9 Authorizations; Consents. Except as expressly contemplated by
this Credit 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 Note
and interest and fees provided in the Note and this Credit Agreement, or the
performance by the Borrower of the Obligations.
4.10 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, 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.
29
4.11 ERISA. The Borrower does not maintain nor has it maintained any
Plan. The Borrower does not currently contribute to or have any obligation to
contribute to or otherwise have any liability with respect to any Plan.
4.12 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 VI 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.
4.13 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 T, U, or X.
4.14 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.
4.15 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.
4.16 Proper Filing of Tax Returns; Payment of Taxes Due. The Borrower
has duly and properly filed 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 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.
4.17 Refunds. Except as described on Exhibit VI under the heading
"Refunds," no orders of, proceedings pending before, or other requirements of,
the Federal Energy Regulatory
30
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.
4.18 Gas Contracts. Except as described on Exhibit VI 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.
4.19 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.
4.20 Casualties or Taking of Property. Except as disclosed on
Exhibit VI under the heading "Casualties," since September 30, 1999, 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.
4.21 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 8.3 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.
4.22 Subsidiaries. As of the Closing Date, the Borrowers have no
Subsidiaries except those described on Exhibit under the heading
"Subsidiaries".
4.23 Existing Indebtedness; No Defenses. As of the date hereof, (a)
the Borrower is indebted to the Existing Lender under the Existing Note in the
aggregate principal amount of $6,150,000 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 Lender.
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ARTICLE V
AFFIRMATIVE COVENANTS
So long as any Obligation remains outstanding or unpaid or any
Commitment exists, the Borrower shall:
5.1 Maintenance and Access to Records. Keep adequate records, in
accordance with GAAP, of all its transactions so that at any time, and from time
to time, its true and complete financial condition may be readily determined,
and 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.
5.2 Quarterly Financial Statements; Compliance Certificates. Deliver
to the Lender, (a) on or before the 60th day after the close of each of the
first three quarterly periods of each fiscal year of each Borrower, a copy of
the unaudited consolidated and consolidating Financial Statements of the
Borrowers and the Guarantor 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 Borrowers and the
Guarantor as having been prepared in accordance with GAAP consistently applied
and as a fair presentation of the condition of the Borrowers and the Guarantor,
subject to changes resulting from normal year-end audit adjustments, and (b) on
or before the 45th day after the close of each fiscal quarter, with the
exception of the last fiscal quarter, a Compliance Certificate.
5.3 Annual Financial Statements. Deliver to the Lender, on or before
the 120th day after the close of each fiscal year of the Borrowers, a copy of
the annual audited consolidated and consolidating Financial Statements of the
Borrowers and the Guarantor and a Compliance Certificate.
5.4 Oil and Gas Reserve Reports. (a) Deliver to the Lender no later
than April 1 of each year during the term of this Credit Agreement, engineering
reports in form and substance satisfactory to the Lender, 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 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 Lender no later than October 1 of each year during
the term of this Credit Agreement except for the first such report, which shall
be delivered by August 1, 2000, 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
32
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 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.
5.5 Title Opinions; Title Defects. Promptly upon the request of the
Lender, furnish to the Lender title opinions, in form and substance and by
counsel satisfactory to the Lender, or other information regarding title
acceptable to the Lender, covering Oil and Gas Properties constituting not less
than 81% of the value, determined by the Lender in its sole discretion, of the
Mortgaged Properties; and promptly, but in any event within 60 days after notice
by the Lender of any defect, material in the opinion of the Lender 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 Lender to do so.
5.6 Notices of Certain Events. Deliver to the 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 or the Guarantor 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 the Guarantor, or any litigation, investigation, or
proceeding between the Borrower or the Guarantor and any Governmental
Authority which, in either case, if not cured or if adversely determined,
as the case may be, could reasonably be expected to have a Material Adverse
Effect;
(c) any litigation or proceeding involving the Borrower or the
Guarantor as a defendant or in which any Property of the Borrower or the
Guarantor is subject to a claim and in which the amount involved is
$100,000 or more and which is not covered by insurance or in which
injunctive or similar relief is sought;
(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
33
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; and
(i) any other event or condition which could reasonably be expected to
have a Material Adverse Effect.
5.7 Letters in Lieu of Transfer Orders; Division Orders. Promptly
upon request by the Lender at any time and from time to time, and without
limitation on the rights of the Lender pursuant to Sections 2.23 and 2.24,
execute such letters in 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)(iii) 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.
5.8 Additional Information. Furnish to the 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 reasonably may from time to time request; and promptly notify the Lender
of any condition or event that may change the proper location for the filing of
any financing statement or other public notice or recording for the purpose of
perfecting a Lien in any Collateral, including, without limitation, any change
in its name or the location of its principal place of business or chief
executive office; and upon the request of the Lender, execute such additional
Security Instruments as may be necessary or appropriate in connection therewith.
5.9 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.
5.10 Payment of Assessments and Charges. Pay all taxes, assessments,
governmental charges, rent, and other Indebtedness which, if unpaid, might
become a Lien against
34
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.
5.11 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.
5.12 Payment of Notes; Performance of Obligations. Pay the Note
according to the reading, tenor, and effect thereof, as modified hereby, and do
and perform every act and discharge all of its other Obligations.
5.13 Further Assurances. 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.
5.14 Initial Fees and Expenses of Counsel to Lender. Upon request by
the Lender, promptly reimburse the Lender for all reasonable fees and expenses
of Jackson Walker L.L.P., special counsel to the Lender, in connection with the
preparation of this Credit Agreement and all documentation contemplated hereby,
the satisfaction of the conditions precedent set forth herein, the filing and
recordation of Security Instruments, and the consummation of the transactions
contemplated in this Credit Agreement.
5.15 Subsequent Fees and Expenses of Lender. Upon request by the
Lender, promptly reimburse the Lender (to the fullest extent permitted by law)
for all amounts reasonably expended, advanced, or incurred by or on behalf of
the Lender 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 Lender 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 Lender
and which amounts shall include, but not be limited to (a) all court costs, (b)
reasonable attorneys' fees, (c) reasonable fees and expenses of auditors and
accountants incurred to protect the interests of the Lender, (d) fees and
expenses incurred in connection with the participation by the Lender as a member
of the creditors' committee in a case commenced under any Insolvency Proceeding,
(e) fees and expenses incurred in connection with lifting the automatic stay
prescribed in (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 Lender in connection with
the collection of any sums due under the Loan Documents, together with interest
at the per annum interest rate equal to the Floating Rate, calculated on a basis
of a calendar year of 365 or 366 days, as the case may be, counting the actual
number of days elapsed, on each such amount from the date of notification that
the same was expended, advanced, or incurred by the Lender until the date it is
repaid to the Lender, with the obligations under this Section surviving the non-
assumption of this Credit Agreement in a case commenced under any Insolvency
Proceeding
35
and being binding upon the Borrower and/or a trustee, receiver, custodian, or
liquidator of the Borrower appointed in any such case.
5.16 Operation of Oil and Gas Properties. Develop, maintain, and
operate its Oil and Gas Properties in a prudent and workmanlike manner in
accordance with industry standards.
5.17 Maintenance and Inspection of Properties. Maintain all of 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
Lender to visit and inspect, at the expense of the Borrower, any tangible
Property of the Borrower.
5.18 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 Lender and, within 30 days of the Closing Date for property
damage insurance covering Collateral and business interruption insurance, if
any, maintained by Borrower, naming the Lender as loss payee, and, upon any
renewal of any such insurance and at other times upon request by the Lender,
furnish to the Lender evidence, satisfactory to the Lender, of the maintenance
of such insurance. The Lender shall have the right to collect, and the Borrower
hereby assigns to the Lender, 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 $1,000,000, the Lender may, at its option,
apply all such sums or any part thereof received by it toward the payment of the
Obligations, whether matured or unmatured, application to be made first to
interest and then to principal, and shall deliver to the Borrower 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 $1,000,000 or less,
provided that no Default or Event of Default has occurred and is continuing, the
Lender shall deliver any such proceeds received by it to the Borrower. In the
event the Lender receives insurance proceeds not attributable to Collateral or
business interruption, the Lender shall deliver any such proceeds to the
Borrower.
5.19 INDEMNIFICATION. INDEMNIFY AND HOLD THE LENDER AND ITS
SHAREHOLDERS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT, AND
AFFILIATES AND EACH TRUSTEE FOR THE BENEFIT OF THE LENDER (EACH AN "INDEMNIFIED
PERSON") 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,
36
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 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 LENDER OF A CLAIM OR DRAFT PRESENTED
THEREUNDER, OR ANY OTHER ACT OR OMISSION IN CONNECTION WITH OR RELATED TO ANY
LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING, WITHOUT
LIMITATION, ANY OF THE FOREGOING IN THIS SECTION ARISING FROM NEGLIGENCE,
WHETHER SOLE OR CONCURRENT, ON THE PART OF THE LENDER OR ANY OF ITS
SHAREHOLDERS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ATTORNEYS-IN-FACT, OR
AFFILIATES OR ANY TRUSTEE FOR THE BENEFIT OF THE LENDER UNDER ANY SECURITY
INSTRUMENT; PROVIDED THAT THE BORROWER SHALL HAVE NO OBLIGATION HEREUNDER TO ANY
INDEMNIFIED PERSON WITH RESPECT TO ANY OF THE FOREGOING IN THIS SECTION TO THE
EXTENT SAME ARISE FROM THE GROSS NEGLIGENCE OR WILFUL MISCONDUCT OF ANY
INDEMNIFIED PERSON WITH THE FOREGOING INDEMNITY SURVIVING SATISFACTION OF ALL
OBLIGATIONS AND THE TERMINATION OF THIS CREDIT 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 LENDER AND ITS SHAREHOLDERS, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS,
ATTORNEYS-IN-FACT AND AFFILIATES AND EACH TRUSTEE FOR THE BENEFIT OF THE LENDER
UNDER ANY SECURITY INSTRUMENT WITH RESPECT TO ANY PROPERTY THROUGH THE EXERCISE
OF LENDER'S REMEDIES HEREUNDER OR UNDER ANY OF THE SECURITY DOCUMENTS SUBSEQUENT
TO THE 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 LENDER OR OTHER PERSON.
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ARTICLE VI
NEGATIVE COVENANTS
So long as any Obligation remains outstanding or unpaid or any
Commitment exists, the Borrower will not without the prior written consent of
Lender:
6.1 Indebtedness. Create, incur, assume, or suffer to exist any
Indebtedness, whether by way of loan or otherwise; provided, however, the
foregoing restriction shall not apply to (a) the Obligations, (b) unsecured
accounts payable incurred in the ordinary course of business, which are not
unpaid in excess of 60 days beyond invoice due date or are being contested in
good faith and as to which such reserve as is required by GAAP has been made,
(c) loans owing to the Guarantor which are subordinate to the Lender; (d)
capital leases and Indebtedness incurred to finance the acquisition of equipment
in an amount not to exceed $1,000,000 in the aggregate, (d) Subordinated Debt,
(e) taxes, assessments and government charges or levies incurred in the ordinary
course of business or (h) additional Indebtedness not to exceed $100,000 in the
aggregate.
6.2 Contingent Obligations. Create, incur, assume, or suffer to
exist any Contingent Obligation; provided, however, the foregoing restriction
shall not apply to (a) performance guarantees and performance surety or other
bonds, letters of credit, endorsements for collection or deposit provided in the
ordinary course of business, including without limitation, plugging and
abandonment bonds, appeal bonds and environmental indemnities associated with
the acquisition or divestiture of Oil and Gas Properties, (b) trade credit
incurred or operating leases entered into in the ordinary course of business,
(c) those arising under this Agreement or in favor of Lender, (d) Commodity
Hedge Agreements, as permitted by Section 6.17, (e) Rate Management
Transactions, or (f) additional Contingent Obligations of Borrower not to exceed
$100,000 in the aggregate.
6.3 Liens. Create, incur, assume, or suffer to exist any Lien on any
of its Oil and Gas Properties or any other Property, whether now owned or
hereafter acquired; provided, however, the foregoing restrictions shall not
apply to Permitted Liens.
6.4 Sales of Assets. Without the prior written consent of the
Lender, sell, transfer, or otherwise dispose of, in one or any series of
transactions, assets, whether now owned or hereafter acquired, provided,
however, the foregoing restriction shall not apply to (a) the sale of
hydrocarbons or inventory in the ordinary course of business provided that no
contract for the sale of hydrocarbons shall obligate the Borrower to deliver
hydrocarbons produced from any of the Mortgaged Property at some future date
without receiving full payment therefor within 90 days of delivery, (b) the sale
or other disposition of Property destroyed, lost, worn out, damaged, or having
only salvage value or no longer used or useful in the business of the Borrower,
(c) sales not exceeding an aggregate of $1,000,000 (based on Lender's Borrowing
Base value) between Borrowing Base reviews with the proceeds applied as a
prepayment of principal.
6.5 Leasebacks. Enter into any agreement to sell or transfer any
Property and thereafter rent or lease as lessee such Property or other Property
intended for the same use or purpose as the Property sold or transferred.
38
6.6 Loans or Advances. Make or agree to make or allow to remain
outstanding any loans or advances to any Person in excess of $100,000; provided,
however, the foregoing restrictions shall not apply to (a) advances or
extensions of credit in the form of accounts receivable incurred in the ordinary
course of business and upon terms common in the industry for such accounts
receivable, (b) advances to employees of the Borrower for the payment of
expenses in the ordinary course of business, or (c) loans or advances to
Affiliates of the Borrower which are senior obligations and shall not exceed
$1,500,000 including any investment in Affiliates of the Borrower allowed by
Section 6.7.
6.7 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 Lender 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,
(e) Commodity Hedge Agreements, as permitted by Section 6.17, (f) Rate
Management Transactions, or (g) investments in Affiliates of the Borrower not to
exceed $1,500,000 which shall include the loans allowed in Section 6.6.
6.8 Dividends. 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; provided,
however, the foregoing restriction shall not apply to dividends paid in capital
stock of the Borrower.
6.9 Issuance of Stock; Changes in Corporate Structure. Issue or
agree to issue additional shares of capital stock, in one or any series of
transactions; enter into any transaction of consolidation, merger, or
amalgamation; liquidate, wind up, or dissolve (or suffer any liquidation or
dissolution); provided, however, (a) any Person may merge with the Borrower,
provided the Borrower shall be the continuing or surviving entity, or (b) any
Subsidiary may sell, convey, transfer, lease or otherwise dispose of all or
substantially all of its assets to the Borrower.
6.10 Transactions with Affiliates. Directly or indirectly, enter
into any transaction (including the sale, lease, or exchange of Property or the
rendering of service) with any of 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.
39
6.11 Lines of Business. Expand, on its own or through any
Subsidiary, into any line of business other than the business of the exploration
for and development, acquisition, production and upstream marketing of Oil and
Gas.
6.12 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.
6.13 Current Ratio. Permit, as of the close of any fiscal quarter,
the ratio of Current Assets to Current Liabilities on a consolidated basis, to
be less than 1.00 to 1.00 for each quarterly reporting period through September
30, 2000, and 1.25 to 1.00 for the reporting period ending December 31, 2000,
and thereafter.
6.14 Debt Service. Permit, on a consolidated basis, as of the close
of any fiscal quarter, the ratio of Cash Flow to Debt Service to be less than
1.25 to 1.00.
6.15 Tangible Net Worth. Permit, on a consolidated basis, Tangible
Net Worth as of the close of any fiscal quarter to be less than $24,000,000,
plus 75% of positive consolidated Net Income and 100% of net proceeds of equity
contributions on a consolidated basis for all fiscal periods ending subsequent
to March 31, 2000.
6.16 General and Administrative Expenses. Permit, on a consolidated
basis, General and Administrative Expenses to be more than 35% of gross
production revenue for each quarterly reporting period through September 30,
2000, and 25% thereafter.
6.17 Commodity Hedge Agreements. Enter into or in any manner be
liable on any Commodity Hedging Agreement except those (a) approved by the
Lender, (b) constituting not more than 75% of month production of proven
producing reserves as forecast in Lender's most recent engineering evaluation,
(c) where the strike prices in such agreements are not less than the prices used
by the Lender in its most recent Borrowing Base determination, (d) where the
maturities of such agreements shall be 24 months or less, and (e) where the
Lender shall receive a security interest in the Commodity Hedge Agreements.
6.18 Subsidiaries. Borrowers will not form any subsidiaries.
ARTICLE VII
EVENTS OF DEFAULT
7.1 Enumeration of Events of Default. Any of the following events
shall constitute an Event of Default:
(a) default shall be made in the payment when due of any installment
of principal or interest under this Credit Agreement or the Note or in the
payment when
40
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 or the Guarantor in the due
observance or performance of any of their respective obligations under the
Loan Documents, and such default shall continue for 30 days after the
earlier of notice thereof to the Borrower by the Lender or knowledge
thereof by a Responsible Officer of the Borrower;
(c) any representation or warranty made by the Borrower or the
Guarantor 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 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;
(d) default shall be made by the Borrower or the Guarantor (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, 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 or the Guarantor 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;
(f) an order, judgment, or decree shall be entered against either the
Borrower or the Guarantor 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 30 days;
(g) the levy against any significant portion of the Property of the
Borrower or the Guarantor, 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;
(h) a final and non-appealable order, judgment, or decree shall be
entered against the Borrower or the Guarantor for money damages and/or
Indebtedness due
41
(to the extent not covered by independent third-party insurance as to which
the insurer does not dispute coverage) in an amount in excess of $500,000,
and such order, judgment, or decree shall not be dismissed or stayed within
30 days;
(i) any charges are filed or any other action or proceeding is
instituted by any Governmental Authority against either the Borrower or the
Guarantor 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 Lien, or (ii) such forfeiture or transfer of such
Property being expressly made subject to such Lien;
(j) either the Borrower or the Guarantor 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;
(k) any Security Instrument shall for any reason not, or cease to,
create valid and perfected first-priority Liens subject to Permitted Liens
against the Collateral purportedly covered thereby;
(l) Michael D. Watford shall cease to be the Chairman and Chief
Executive officer of the Guarantor;
(m) Guarantor shall cease to be the sole stockholder of the Borrowers;
(n) if one party or an Affiliate of that party obtains 51% of the
combined voting power of the securities of the Guarantor which are entitled
to vote generally in the election of directors and which are outstanding on
the date immediately prior to the date such party or Affiliate of such
party obtains such voting power of Guarantor;
(o) the occurrence of a Material Adverse Effect and the same shall
remain unremedied for in excess of 30 days after notice given by the
Lender.
7.2 Remedies. (a) Upon the occurrence of an Event of Default
specified in Sections 7.1(f) or 7.1(g), immediately and without notice, (i) all
Obligations shall automatically become immediately due and payable, without
presentment, demand, protest, notice of protest, default, or dishonor, notice of
intent to accelerate maturity, notice of acceleration of maturity, or other
notice of any kind, except as may be provided to the contrary elsewhere herein,
all of which are hereby expressly waived by the Borrower; (ii) the Commitment
shall immediately cease and
42
terminate unless and until reinstated by the Lender in writing; and (iii) the
Lender is 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 Lender and any and all other indebtedness at
any time owing by the Lender 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 Lender 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 Lender
in writing; and (iii) the Lender is 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 Lender and any and all other
indebtedness at any time owing by the Lender 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 Lender may, in
addition to the foregoing in this Section, exercise any or all of its rights and
remedies provided by law or pursuant to the Loan Documents.
ARTICLE VII
MISCELLANEOUS
8.1 Successors and Assigns. The terms and provisions of the Loan
Documents shall be binding upon and inure to the benefit of the Borrower and the
Lender and their respective successors and assigns, except that (i) the Borrower
shall not have the right to assign its rights or obligations under the Loan
Documents and (ii) any assignment by the Lender must be made in compliance with
Section 8.3. Notwithstanding clause (ii) of this Section, the Lender may at any
time, without the consent of the Borrower, assign all or any portion of its
rights under this Agreement and any Note to a Federal Reserve bank; provided,
however, that no such assignment to a Federal Reserve Bank shall release the
transferor Lender from its obligations hereunder. Any assignee or transferee of
the rights to any Loan or any Note agrees by acceptance thereof to be bound by
all the terms and provisions of the Loan Documents. Any request, authority or
consent of any Person, who at the time of making such request or giving such
authority or consent is the owner of the rights to any Loan (whether or not a
Note has been issued in evidence thereof), shall be conclusive and binding on
any subsequent holder, transferee or assignee of the rights to such Loan.
8.2 Participations. The Lender may, in the ordinary course of its
business and in accordance with applicable law, at any time sell to one or more
banks or other entities ("Participants") participating interests in any Loan
owing to it, any Note held by it, the Commitment
43
or any other interest of the Lender under the Loan Documents. In the event of
any such sale by the Lender of participating interests to a Participant, the
Lender's obligations under the Loan Documents shall remain unchanged, the Lender
shall remain solely responsible to the other parties hereto for the performance
of such obligations, the Lender shall remain the owner of its Loans and the
holder of any Note issued to it in evidence thereof for all purposes under the
Loan Documents, all amounts payable by the Borrower under this Agreement shall
be determined as if the Lender had not sold such participating interests, and
the Borrower and the Lender shall continue to deal solely and directly with each
other in connection with the Lender's rights and obligations under the Loan
Documents. The Borrower agrees that each Participant shall be deemed to have the
right of setoff in respect of its participating interest in amounts owing under
the Loan Documents to the same extent as if the amount of its participating
interest were owing directly to it as a Lender under the Loan Documents,
provided that the Lender shall retain the right of setoff with respect to the
amount of participating interests sold to each Participant. The Lender agrees to
share with each Participant, and each Participant, by exercising the right of
setoff agrees to share with the Lender, any amount received pursuant to the
exercise of its right of setoff, such amounts to be shared in accordance as if
each Participant were a Lender.
8.3 Assignments. The Lender may, in the ordinary course of its
business and in accordance with applicable law, at any time assign to one or
more banks or other entities ("Purchasers") all or any part of its rights and
obligations under the Loan Documents. Each Borrower and the Lender hereby agree
to execute any amendment and/or any other document that may be necessary to
effectuate such an assignment. Such documents shall be in form and substance
reasonably acceptable to each Borrower and the Lender. Such assignment shall be
evidenced by the Lender's standard form (to be supplied upon request). The
consent of the Borrower shall be required prior to an assignment becoming
effective with respect to a Purchaser that is not a Lender or an affiliate
thereof; provided, however, that if a Default has occurred and is continuing,
the consent of the Borrower shall not be required. Upon delivering to the
Borrower a notice of assignment, together with any required consent, such
assignment shall become effective on the effective date specified in such notice
of assignment. On and after the effective date of such assignment, such
Purchaser shall for all purposes be a Lender party to the other Loan Documents
and shall have all the rights and obligations of a Lender under the Loan
Documents, to the same extent as if it were an original party hereto, and no
further consent or action by the Borrower shall be required to release the
Lender with respect to the percentage of the Commitment and Loans assigned to
such Purchaser. Upon the consummation of any such assignment to a Purchaser,
the transferor Lender, the Lender and the Borrower shall, if the Lender or the
Purchaser desires, make appropriate arrangements so that new Notes or, as
appropriate, replacement Notes, are issued to the Lender and Purchaser, in each
case in principal amounts reflecting their respective Commitments, as adjusted
pursuant to such assignment.
8.4 Dissemination of Information; Tax Treatment. The Borrower
authorizes the Lender to disclose to any Participant or Purchaser or any other
Person acquiring an interest in the Loan Documents by operation of law (each a
"Transferee") and any prospective Transferee any and all information in the
Lender's possession concerning the creditworthiness of the Borrower and its
Subsidiaries. If any interest in any Loan Document is transferred to any
Transferee which is organized under the laws of any jurisdiction other than the
United States or any State thereof, the transferor Lender shall cause such
Transferee, concurrently with the effectiveness of such transfer,
44
to deliver to the Lender such completed forms with respect to withholding taxes
as the Borrower may reasonably require.
8.5 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 Note and the
Security Instruments and shall remain in force and effect so long as any
Obligation is outstanding or any Commitment exists.
8.6 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 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
(b) if to the Borrower and Guarantor, to:
Ultra Petroleum Corporation
Ultra Petroleum (USA) Inc.
Ultra Resources, Inc.
16801 Greenspoint Park, Suite 370
Houston, Texas 77060
Attention: Mr. Michael D. Watford
Telecopy: (281) 876-2831
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.
8.7 Parties in Interest. Subject to the restrictions on changes in
corporate structure set forth in Section 6.9 and other applicable restrictions
contained herein, all covenants and agreements herein contained by or on behalf
of the Borrower or the Lender shall be binding upon and inure to the benefit of
the Borrower or the Lender, as the case may be, and their respective legal
representatives, successors, and assigns.
45
8.8 Rights of Third Parties. All provisions herein are imposed
solely and exclusively for the benefit of the Lender 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, and any or all of such provisions may be freely
waived in whole or in part by the Lender at any time if in its sole discretion
it deems it advisable to do so.
8.9 Renewals; Extensions. All provisions of this Credit Agreement
relating to the Note 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 Credit
Agreement, the Note, or any other Loan Document.
8.10 No Waiver; Rights Cumulative. No course of dealing on the part
of the Lender, its officers or employees, nor any failure or delay by the Lender
with respect to exercising any of its rights under any Loan Document shall
operate as a waiver thereof. The rights of 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.
8.11 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.
8.12 Amendments; Waivers. Neither this Credit 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.
8.13 Controlling Agreement. In the event of a conflict between the
provisions of this Credit Agreement and those of any other Loan Document, the
provisions of this Credit Agreement shall control.
8.14 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.
46
8.15 GOVERNING LAW. THIS CREDIT AGREEMENT AND THE NOTE SHALL BE
DEEMED TO BE CONTRACTS MADE UNDER AND SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF TEXAS WITHOUT GIVING EFFECT TO PRINCIPLES
THEREOF RELATING TO CONFLICTS OF LAW; PROVIDED, HOWEVER, THAT CHAPTER 345 OF THE
TEXAS FINANCE CODE (WHICH REGULATES CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND
REVOLVING TRIPARTY ACCOUNTS) SHALL NOT APPLY.
8.16 JURISDICTION AND VENUE. ALL ACTIONS OR PROCEEDINGS WITH RESPECT
TO, ARISING DIRECTLY OR INDIRECTLY IN CONNECTION WITH, OUT OF, RELATED TO, OR
FROM THIS CREDIT AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE LITIGATED, AT THE
SOLE DISCRETION AND ELECTION OF THE LENDER, 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.
8.17 WAIVER OF RIGHTS TO JURY TRIAL. THE BORROWER AND THE LENDER
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 CREDIT
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 CREDIT AGREEMENT OR
ANY OTHER LOAN DOCUMENT OR OTHERWISE WITH RESPECT THERETO. THE PROVISIONS OF
THIS SECTION ARE A MATERIAL INDUCEMENT FOR THE LENDER ENTERING INTO THIS CREDIT
AGREEMENT.
8.18 ENTIRE AGREEMENT. THIS CREDIT AGREEMENT AMENDS, RESTATES, AND
REPLACES THE EXISTING CREDIT AGREEMENT AND CONSTITUTES THE ENTIRE CREDIT
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, INCLUDING, WITHOUT LIMITATION, THE
EXISTING CREDIT AGREEMENT AND THE CORRESPONDENCE DATED JANUARY 7, 2000, FROM THE
LENDER TO THE BORROWER AND THE TERM SHEET ENCLOSED THEREWITH. FURTHERMORE, IN
THIS REGARD, THIS CREDIT AGREEMENT AND THE OTHER WRITTEN LOAN DOCUMENTS
REPRESENT, COLLECTIVELY, THE FINAL CREDIT 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.
47
8.19 Release by Borrower. Notwithstanding the assignment made and
evidenced by the Assignment and the assumption by the Lender of certain
obligations and liabilities of the Existing Lender pursuant thereto, the
Borrower hereby releases and discharges the Lender 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 Lender 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 Lender from its obligations and
liabilities under the Loan Documents (other than the Assignment) to which it is
a party.
8.20 Counterparts. For the convenience of the parties, this Credit
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 Credit Agreement.
IN WITNESS WHEREOF, this Credit Agreement is deemed executed effective
as of the date first above written.
BORROWER:
ULTRA PETROLEUM (USA) INC.
By: /s/ Michael D. Watford
---------------------------------------
Michael D. Watford
Chairman and Chief Executive Officer
ULTRA RESOURCES, INC.
By: /s/ Michael D. Watford
---------------------------------------
Michael D. Watford
Chairman and Chief Executive Officer
GUARANTOR:
ULTRA PETROLEUM CORPORATION
By: /s/ Michael D. Watford
---------------------------------------
Michael D. Watford
Chairman and Chief Executive Officer
48
LENDER:
BANK ONE, TEXAS, NATIONAL
ASSOCIATION
By: /s/ Stephen Shatto
----------------------------------
Stephen Shatto
Vice President
49
EXHIBIT I
FORM OF NOTE
PROMISSORY NOTE
$40,000,000 Houston, Texas March 22, 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 FORTY
MILLION DOLLARS ($40,000,000), 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.
ULTRA PETROLEUM (USA) INC.
By:
-----------------------------------------
Printed Name:
Title:
(Page One of Two Page Note)
I-i
ULTRA RESOURCES, INC.
By:
-----------------------------------------
Printed Name:
Title:
(Page Two of Two Page Note)
I-ii
EXHIBIT II
FORM OF BORROWING REQUEST
Bank One, Texas, National Association
910 Travis
Houston, Texas 77002-5860
Attention: Energy Group, 6th Floor
Re: Credit Agreement dated as of March 22, 2000, by and between BANK ONE,
TEXAS, NATIONAL ASSOCIATION, ULTRA PETROLEUM (USA) INC., and ULTRA
RESOURCES, INC. (as amended, restated, or supplemented from time to
time, the "Credit Agreement")
Ladies and Gentlemen:
Pursuant to the Credit Agreement, the Borrower hereby makes the
requests indicated below:
[ ] 1. Loans
(a) Amount of new Loan: $________________
(b) Requested funding date: ___________, 20___
(c) $________________ of such Loan is to be a Floating Rate Loan;
$________________ of such Loan is to be a LIBO Rate Loan.
(d) Requested Interest Period for LIBO Rate Loan: ____ months.
[ ] 2. Continuation or conversion of LIBO Rate Loan maturing on __________:
(a) Amount to be continued as a LIBO Rate Loan is $______________________,
with an Interest Period of ____ months;
(b) Amount to be converted to a Floating Rate Loan is $________________;
and
[ ] 3. Conversion of Floating Rate Loan:
(a) Requested conversion date: __________, 20____.
(b) Amount to be converted to a LIBO Rate Loan is $________, with an
Interest Period of _____ months.
II-i
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 borrowing, continuation, or conversion under the terms
and conditions of the Credit Agreement.
Each capitalized term used but not defined herein shall have the
meaning assigned to such term in the Credit Agreement.
ULTRA PETROLEUM (USA) INC.
By:
--------------------------------------
Printed Name:
Title:
ULTRA RESOURCES, INC.
By:
--------------------------------------
Printed Name:
Title:
II-ii
EXHIBIT III
FORM OF COMPLIANCE CERTIFICATE
______________, 20__
Bank One, Texas, National Association
910 Travis
Houston, Texas 77002-5860
Attention: Energy Group, 6th Floor
Re: Credit Agreement dated as of March 22, 2000, by and between BANK ONE,
TEXAS, NATIONAL ASSOCIATION, ULTRA PETROLEUM (USA) INC., and ULTRA
RESOURCES, INC. (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 6.13: Current Ratio. Permit, as of the close of any fiscal
quarter, the ratio of Current Assets to Current Liabilities, on a
consolidated basis, to be less than 1.00 to 1.00 for each quarterly
reporting period through September 30, 2000, and 1.25 to 1.00 for the
reporting period ending December 31, 2000, and thereafter.
Actual
to 1.0
III-i
(b) Section 6.14: Debt Service. Permit, on a consolidated basis, as of the
close of any fiscal quarter, the ratio of Cash Flow to Debt Service to be
less than 1.25 to 1.00.
Actual
to 1.0
(c) Section 6.15: Tangible Net Worth. Permit, on a consolidated basis,
Tangible Net Worth as of the close of any fiscal quarter to be less than
$24,000,000, plus 75% of positive consolidated Net Income and 100% of net
proceeds of equity contributions on a consolidated basis for all fiscal
periods ending subsequent to March 31, 2000.
Required Actual
(d) Section 6.16: General and Administrative Expenses. Permit, on a
consolidated basis, General and Administrative Expenses to be more than 35%
of production revenue for each quarterly reporting period through September
30, 2000, and 25% thereafter.
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.
ULTRA PETROLEUM (USA) INC.
By:
-------------------------------------
Printed Name:
Title:
ULTRA RESOURCES, INC.
By:
-------------------------------------
Printed Name:
Title:
III-ii
EXHIBIT IV
FORM OF OPINION OF COUNSEL
Closing Date
Bank One, Texas, National Association
910 Travis
Houston, Texas 77002-5860
Attention: Energy Group, 6th Floor
Re: Credit Agreement dated as of March 22, 2000, by and between BANK ONE,
TEXAS, NATIONAL ASSOCIATION, ULTRA PETROLEUM (USA) INC., and ULTRA
RESOURCES, INC. (as amended, restated, or supplemented from time to
time, the "Credit Agreement")
Ladies and Gentlemen:
We have acted as counsel to Ultra Petroleum (USA) Inc. and Ultra
Resources, Inc. (collectively, the "Borrower") and Ultra Petroleum Corporation.
(the "Guarantor") in connection with the transactions contemplated in the Credit
Agreement. This Opinion is delivered pursuant to Section 3.1(n) of the Credit
Agreement, and the Lender is hereby authorized to rely upon this Opinion in
connection with the transactions contemplated in the Credit Agreement. Each
capitalized term used but not defined herein shall have the meaning assigned to
such term in the Credit Agreement.
In our representation of the Borrower and the Guarantor, we have
examined an executed counterpart of each of the following (the "Loan
Documents"):
(a) the Credit Agreement;
(b) the Note;
(c) the Guaranty;
(d) Mortgage, Deed of Trust, Indenture, Security Agreement, Assignment
of Production, and Financing Statement dated of even date herewith from the
Borrower in favor of the Lender (the "Mortgage"); and
(e) Financing Statements from the Borrower, as debtors, constituent to
the Mortgage (the "Financing Statement").
We have also examined the originals, or copies certified to our
satisfaction, of such other records of the Borrower and the Guarantor,
certificates of public officials and officers of the
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Borrower and the Guarantor, agreements, instruments, and documents as we have
deemed necessary as a basis for the opinions hereinafter expressed.
In making such examinations, we have, with your permission, assumed:
(a) the genuineness of all signatures to the Loan Documents other than
those of the Borrower and the Guarantor;
(b) the authenticity of all documents submitted to us as originals and
the conformity with the originals of all documents submitted to us as
copies;
(c) the Lender is authorized and has the power to enter into and
perform its obligations under the Credit Agreement;
(d) the due authorization, execution, and delivery of all Loan
Documents by each party thereto other than the Borrower and the Guarantor;
and
(e) the Borrower has title to all Property covered or affected by the
Mortgage.
Based upon the foregoing and subject to the qualifications set forth
herein, we are of the opinion that:
1. The Borrower and the Guarantor are corporations duly organized,
legally existing, and in good standing under the laws of its their
respective states of incorporation and is are duly qualified as a foreign
corporations and is are in good standing in all jurisdictions wherein the
ownership of its their respective Property or the operation of its their
respective businesses necessitates same.
2. The execution and delivery by the Borrower of the Credit Agreement
and the borrowings thereunder, the execution and delivery by the Borrower
of the other Loan Documents to which the Borrower is a party, and the
payment and performance of all Obligations of the Borrower thereunder are
within the power of the Borrower, have been duly authorized by all
necessary corporate action, and do not (a) require the consent of any
Governmental Authority, (b) contravene or conflict with any Requirement of
Law, (c) to our knowledge after due inquiry, contravene or conflict with
any indenture, instrument, or other agreement to which the Borrower 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 upon any Property of the Borrower other than as contemplated by the
Loan Documents.
3. The execution and delivery of the Guaranty and the other Loan
Documents executed by the Guarantor and the performance of all Obligations
of the Guarantor thereunder are within the power of the Guarantor, have
been duly authorized by all necessary corporate action, and do not (a)
require the consent of any Governmental Authority, (b) contravene or
conflict with any Requirement of Law,
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(c) to our knowledge after due inquiry, contravene or conflict with any
indenture, instrument, or other agreement to which the Guarantor is a party
or by which any Property of the Guarantor may be presently bound or
encumbered, or (d) result in or require the creation or imposition of any
Lien upon any Property of the Guarantor other than as contemplated by the
Loan Documents.
4. The Loan Documents to which the Borrower is a party constitute
legal, valid, and binding obligations of the Borrower, enforceable against
the Borrower in accordance with their respective terms.
5. The Loan Documents to which the Guarantor is a party constitute
legal, valid, and binding obligations of the Guarantor, enforceable against
the Guarantor in accordance with their respective terms.
6. The forms of the Mortgage and the Financing Statement and the
description of the Mortgaged Property (as such term is defined in the
Mortgage and so used herein) situated in the State of Texas (the "State")
satisfy all applicable Requirements of Law of the State and are legally
sufficient under the laws of the State to enable the Lender to realize the
practical benefits purported to be afforded by the Mortgage.
7. The Mortgage creates a valid lien upon and security interest in
all Mortgaged Property situated in the State to secure the Indebtedness (as
such term is defined in the Mortgage and so used herein).
8. The Mortgage and the Financing Statement are in satisfactory form
for filing and recording in the offices described below.
9. The filing and/or recording, as the case may be, of (a) the
Mortgage in the office of the county clerk of each county in the State in
which any portion of the Mortgaged Property is located, and as a financing
statement and utility security instrument in the office of the Secretary of
State of the State, and (b) the Financing Statement in the Uniform
Commercial Code records in each county in the State in which any portion of
the Mortgaged Property is located are the only recordings or filings in the
State necessary to perfect the liens and security interests in the
Mortgaged Property created by the Mortgage or to permit the Lender to
enforce in the State its rights under the Mortgage. No subsequent filing,
re-filing, recording, or re-recording will be required in the State in
order to continue the perfection of the liens and security interests
created by the Mortgage except that (a) a continuation statement must be
filed with respect to the Mortgage filed as a financing statement in the
office of the Secretary of State of the State and with respect to the
Financing Statement in the Uniform Commercial Code records in each county
in the State in which any portion of the Mortgaged Property is located,
each within six months prior to the expiration of five years from the date
of the relevant initial financing statement filing, (b) a subsequent
continuation statement must be filed within six months prior to the
expiration of each subsequent five-year period from the date of each
initial
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financing statement filing, and (c) amendments or supplements to the
Mortgage filed as a financing statement and the Financing Statement and/or
additional financing statements may be required to be filed in the event of
a change in the name, identity, or structure of the Borrower or in the
event the financing statement filing otherwise becomes inaccurate or
incomplete.
10. To our knowledge after due inquiry, except as disclosed in
Exhibit VI to the Credit Agreement, no litigation or other action of any
nature affecting the Borrower or the Guarantor is pending before any
Governmental Authority or threatened against the Borrower or the Guarantor.
To our knowledge after due inquiry, no unusual or unduly burdensome
restriction, restraint, or hazard exists by contract, Requirement of Law,
or otherwise relative to the business or operations of the Borrower or the
Guarantor or the ownership and operation of any Properties of the Borrower
or the Guarantor other than such as relate generally to Persons engaged in
business activities similar to those conducted by the Borrower or the
Guarantor, as the case may be.
11. No authorization, consent, approval, exemption, franchise, permit
or license of, or filing (other than filing of Security Instruments in
appropriate filing offices) with, any Governmental Authority or any other
Person is required to authorize or is otherwise required in connection with
the valid execution and delivery by the Borrower and the Guarantor of the
Loan Documents or any instrument contemplated thereby, or the payment
performance by the Borrower and the Guarantor of the Obligations.
12. 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.
13. 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.
14. 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.
The opinions expressed herein are subject to the following
qualifications and limitations:
A. We are licensed to practice law only in the State and other
jurisdictions whose laws are not applicable to the opinions expressed
herein; accordingly, the foregoing opinions are limited solely to the laws
of the State, applicable United States federal law, and the corporation
laws of the State of _______________.
IV-iv
B. The validity, binding effect, and enforceability of the Loan
Documents may be limited or affected by bankruptcy, insolvency, moratorium,
reorganization, or other similar laws affecting rights of creditors
generally, including, without limitation, statutes or rules of law which
limit the effect of waivers of rights by a debtor or grantor; provided,
however, that the limitations and other effects of such statutes or rules
of law upon the validity and binding effect of the Loan Documents should
not differ materially from the limitations and other effects of such
statutes or rules of law upon the validity and binding effect of credit
agreements, promissory notes, guaranties, and security instruments
generally.
C. The enforceability of the respective obligations of the Borrower
under the Loan Documents is subject to general principles of equity
(whether such enforceability is considered in a suit in equity or at law).
This Opinion is furnished by us solely for the benefit of the Lender
in connection with the transactions contemplated by the Loan Documents and is
not to be quoted in whole or in part or otherwise referred to or disclosed in
any other transaction.
Very truly yours,
IV-v
EXHIBIT V
FORM OF OPINION OF LOCAL COUNSEL
Closing Date
Bank One, Texas, National Association
910 Travis
Houston, Texas 77002-5860
Attention: Energy Group, 6th Floor
Re: Credit Agreement dated as of March 22, 2000, by and between BANK ONE,
TEXAS, NATIONAL ASSOCIATION, ULTRA PETROLEUM (USA) INC., and ULTRA
RESOURCES, INC. (as amended, restated, or supplemented from time to
time, the "Credit Agreement")
Ladies and Gentlemen:
We have acted as special counsel in the State of Wyoming (the "State")
to Ultra Petroleum Corporation, Ultra Petroleum (USA) Inc., and Ultra Resources,
Inc. (collectively, the "Borrower") in connection with the transactions
contemplated in the Loan Documents described below which were executed pursuant
to the Credit Agreement. In such capacity, we furnish this Opinion with the
intention and understanding that it is to be relied upon by ________________
(the "Lender") in the closing of the transactions contemplated in the Credit
Agreement.
In our representation of the Borrower, we have examined an executed
counterpart of each of the following (the "Loan Documents"):
(a) Mortgage, Deed of Trust, Indenture, Security Agreement, Assignment
of Production and Financing Statement dated of even date herewith from the
Borrower in favor of the Lender (the "Mortgage"); and
(b) Non-Standard Financing Statement constituent to the Mortgage (the
"Financing Statement").
In making such examination, we have, with your permission, assumed:
(a) the genuineness of all signatures to the Loan Documents;
(b) the authenticity of all documents submitted to us as originals and
the conformity with the originals of all documents submitted to us as
copies;
V-i
(c) each party to any Loan Document is authorized and has the power to
enter into and perform its obligations under such Loan Document;
(d) the due authorization, execution, and delivery of all Loan
Documents by each party thereto;
(e) the Borrower is a duly organized and validly existing corporation
validly formed limited partnership under the laws of the State of
___________;
(f) the Borrower has title to all Mortgaged Property (as such term is
defined in the Mortgage and so used herein) situated in the State.
Based upon the foregoing and subject to the qualifications set forth
herein, we are of the opinion that:
1. No consent, approval, or other authorization of, or filing or
registration (other than as described in paragraph A.7 hereof) with, any
court, governmental agency, commission, or other authority of the State or
any subdivision thereof is required for the due execution and delivery of
the Loan Documents or for the enforceability, performance, or observance of
the terms thereof.
2. The execution and delivery by the Borrower of each Loan Document
to which it is a party, compliance with the provisions thereof, and the
consummation of the transactions contemplated thereby will not conflict
with or result in a violation of any law or governmental rule or regulation
of the State or any subdivision thereof.
3. The Loan Documents to which the Borrower is a party constitute
legal, valid, and binding obligations of the Borrower, enforceable against
the Borrower in accordance with their respective terms.
4. The forms of the Mortgage and the Financing Statement and the
description of the Mortgaged Property situated in the State satisfy all
applicable laws of the State and are legally sufficient under the laws of
the State to enable the Lender to realize the practical benefits purported
to be afforded by the Mortgage.
5. The Mortgage (a) creates a lien upon and a security interest in
all Mortgaged Property situated in the State to secure the Indebtedness (as
such term is defined in the Mortgage and so used herein), and (b) provides
for nonjudicial foreclosure remedies customarily used in the State.
6. The Mortgage and the Financing Statement are in satisfactory form
for filing and recording in the offices described below.
7. The filing and/or recording, as the case may be, of (a) the
Mortgage in the office of the county clerk of each county in the State in
which any portion of the Mortgaged Property is located and as a financing
statement in the office of the
V-ii
Secretary of State of the State, and (b) the Financing Statement in the
Uniform Commercial Code records in each county in the State in which any
portion of the Mortgaged Property is located are the only recordings or
filings in the State necessary to perfect the liens and security interests
in the Mortgaged Property created by the Mortgage or to permit the Lender
to enforce in the State its rights under the Mortgage. No subsequent
filing, re-filing, recording, or re-recording will be required in the State
in order to continue the perfection of the liens and security interests
created by the Mortgage except that (a) a continuation statement must be
filed with respect to the Mortgage filed as a financing statement in the
office of the Secretary of State of the State and with respect to the
Financing Statement in the Uniform Commercial Code records in each county
in the State in which any portion of the Mortgaged Property is located,
each within six months prior to the expiration of five years from the date
of the relevant initial financing statement filing, (b) a subsequent
continuation statement must be filed within six months prior to the
expiration of each subsequent five-year period from the date of each
initial financing statement filing, and (c) amendments or supplements to
the Mortgage filed as a financing statement and the Financing Statement
and/or additional financing statements may be required to be filed in the
event of a change in the name, identity, or structure of the Borrower or in
the event the financing statement filing otherwise becomes inaccurate or
incomplete.
8. No state or local mortgage recording tax, stamp tax, or other
similar fee, tax, or governmental charge (other than statutory filing and
recording fees to be paid upon filing) is required to be paid to the State
or any subdivision thereof in connection with the execution, delivery,
filing, or recording of any of the Loan Documents or the consummation of
the transactions contemplated therein.
9. It is not necessary for the Lender to qualify to do business in
the State or file in the State any designation for service of process or
reports solely by reason of the interests conveyed or assigned to it or for
its benefit under the Mortgage, nor will such conveyances or assignments
alone result in the imposition upon the Lender of any taxes by the State or
by any subdivision thereof, including, without limitation, franchise,
license, tax on interest received or income taxes, other than recording and
filing fees in connection with the filings referred to in paragraph A.7
above and taxes which the Lender may owe in the event it becomes the actual
and record owner of any Mortgaged Property situated in the State.
10. The foreclosure of, or exercise of the power of sale under, the
Mortgage will not in any manner restrict, affect or impair the liability of
the Borrower with respect to the indebtedness or the rights and remedies of
the Lender with respect to the foreclosure or enforcement of any other
security interests or liens securing the Indebtedness to the extent any
deficiency remains unpaid after application to the Indebtedness of the
proceeds of such foreclosure or the exercise of such power of sale.
V-iii
11. The priority of the liens and security interests created by the
Mortgage with respect to Indebtedness incurred by the Borrower on or before
the date on which the Mortgage is filed in the appropriate recording
offices referred to hereinabove will be determined by the date of such
filings. The priority of the lien created by the Mortgage with respect to
Indebtedness incurred by the Borrower after the date the Mortgage is
recorded will be determined by the dates the Mortgage is filed.
12. The priority of the lien created by the Mortgage will not be
affected by any prepayment of a portion, but less than all, of the
Indebtedness, or any reduction or increase of the outstanding amount of the
Indebtedness from time to time.
13. The limitations period for enforcement of the Mortgage in the
State is ______________.
The opinions expressed herein are subject to the following qualifications
and limitations:
A. We are licensed to practice law only in the State and other
jurisdictions whose laws are not applicable to the opinions expressed
herein; accordingly, the foregoing opinions are limited solely to the laws
of the State and applicable United States federal law.
B. The validity, binding effect, and enforceability of the Loan
Documents may be limited or affected by bankruptcy, insolvency, moratorium,
reorganization, or other similar laws affecting rights of creditors
generally, including, without limitation, statutes or rules of law which
limit the effect of waivers of rights by a debtor or grantor; provided,
however, that the limitations and other effects of such statutes or rules
of law upon the validity and binding effect of the Loan Documents should
not differ materially from the limitations and other effects of such
statutes or rules of law upon the validity and binding effect of
assignments and security instruments generally.
C. The enforceability of the respective obligations of the Borrower
under the Loan Documents to which it is a party is subject to general
principles of equity (whether such enforceability is considered in a suit
in equity or at law).
This Opinion is furnished by us solely for the benefit of the Lender
in connection with the transactions contemplated by the Loan Documents and is
not to be quoted in whole or in part or otherwise referred to or disclosed in
any other transaction.
Very truly yours,
V-iv
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, 4.23 Subsidiaries
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