EXHIBIT 10.3
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NOTE PURCHASE AGREEMENT
BETWEEN
ATP OIL & GAS CORPORATION,
a Texas corporation
AND
AQUILA ENERGY CAPITAL CORPORATION,
a Delaware corporation
JUNE 29, 2001
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TABLE OF CONTENTS
ARTICLE I DEFINITIONS AND REFERENCES................................ 1
Section 1.1 Defined Terms............................................. 1
Section 1.2 Exhibits and Schedules.................................... 9
Section 1.3 Amendment of Defined Instruments.......................... 9
Section 1.4 References and Titles..................................... 9
Section 1.5 Calculations and Determinations........................... 10
ARTICLE II PURCHASE AND SALE......................................... 10
Section 2.1 Purchase and Sale......................................... 10
Section 2.2 Use of Proceeds........................................... 10
Section 2.3 Payment of the Note....................................... 10
Section 2.4 Prepayment of the Note.................................... 11
Section 2.5 Payment Premium........................................... 11
Section 2.6 Redetermination of Available Credit Capacity and
Resulting Payment Obligations............................. 12
ARTICLE III SECURITY.................................................. 13
Section 3.1 Security.................................................. 13
Section 3.2 Perfection and Protection of Security Interests and Liens. 13
Section 3.3 Release of Collateral..................................... 13
ARTICLE IV REPRESENTATIONS AND WARRANTIES............................ 14
Section 4.1 Representations and Warranties of the Issuer.............. 14
ARTICLE V NOTICE OF CERTAIN EVENTS.................................. 18
Section 5.1 Notice of Certain Matters................................. 18
Section 5.2 Other Information......................................... 19
ARTICLE VI SPECIAL PROVISIONS RELATING TO EQUIPMENT.................. 19
Section 6.1 Disposition............................................... 19
Section 6.2 Maintenance............................................... 19
Section 6.3 Negotiation of Dispositions............................... 20
ARTICLE VII COVENANTS OF THE ISSUER................................... 20
Section 7.1 Affirmative Covenants..................................... 20
Section 7.2 Negative Covenants........................................ 27
ARTICLE VIII FURTHER RIGHTS OF THE PURCHASER AND THE ISSUER............ 30
Section 8.1 Maintenance of Security Interests......................... 30
Section 8.2 Performance of Obligations................................ 30
Section 8.3 Removal and Appointment of Operator....................... 31
Section 8.4 Set-Off Rights............................................ 31
ARTICLE IX CLOSING; CONDITIONS TO CLOSING............................ 31
Section 9.1 Closing................................................... 31
Section 9.2 Conditions to Closing..................................... 31
Section 9.3 Further Conditions Precedent to Funding................... 33
ARTICLE X EVENTS OF DEFAULT AND REMEDIES............................ 34
Section 10.1 Events of Default......................................... 34
Section 10.2 Acceleration.............................................. 36
Section 10.3 Remedies.................................................. 37
Section 10.4 Indemnity................................................. 37
ARTICLE XI MISCELLANEOUS............................................. 38
Section 11.1 Waivers and Amendments.................................... 38
Section 11.2 Survival of Agreements: Cumulative Nature................. 39
Section 11.3 Notices................................................... 39
Section 11.4 Parties in Interest, Transfers............................ 40
Section 11.5 Governing Law; Submission to Process...................... 42
Section 11.6 Limitation on Interest.................................... 43
Section 11.7 Termination; Limited Survival............................. 43
Section 11.8 Severability.............................................. 43
Section 11.9 Counterparts.............................................. 43
Section 11.10 Further Assurances........................................ 43
Section 11.11 Waiver of Punitive Damages, Etc........................... 43
Section 11.12 Representations and Warranties of the Purchaser........... 43
Section 11.13 Relationship to Senior Debt............................... 44
ARTICLE XII ARBITRATION............................................... 45
Section 12.1 Arbitration............................................... 45
EXHIBITS
Exhibit A Properties
Exhibit B Note
Exhibit C Compliance Certificate
SCHEDULES
Schedule 1.1(a) Senior Debt and Senior Liens
Schedule 1.1(b) Reserve Reports
Schedule 4.1(c) Certain Stockholders of Borrower and Stock Obligations
Schedule 4.1(g) Material Transactions
Schedule 4.1(h) Other Obligations and Restrictions
Schedule 4.1(k) ERISA Plans
Schedule 4.1(l) Places of Business
Schedule 4.1(m) Unpaid Bills
Schedule 4.1(o) Affiliates
Schedule 4.1(s) Non-Compliance with Law
Schedule 4.1(t) Locations of Equipment
Schedule 4.1(u) Purchasers of Hydrocarbons
Schedule 4.1(v) Hydrocarbon Sales Agreements
Schedule 4.1(w) Swap Agreements
Schedule 7.1(f)(i) Hydrocarbon Pricing Parameters
NOTE PURCHASE AGREEMENT
THIS NOTE PURCHASE AGREEMENT is made and entered into effective as of the
29th day of June 2001, by and between ATP OIL & GAS CORPORATION, a Texas
corporation (the "Issuer"), and AQUILA ENERGY CAPITAL CORPORATION, a Delaware
corporation (the "Purchaser").
WHEREAS, the Issuer desires to issue and sell to the Purchaser, and the
Purchaser desires to purchase from the Issuer, the Note (as hereinafter
defined);
NOW, THEREFORE, the parties hereto in consideration of the foregoing and
the terms, covenants, provisions and conditions hereinafter set forth hereby
agree as follows:
ARTICLE I Definitions and References
Section 1.1 Defined Terms. As used in this Agreement, each of the following
terms has the meaning given it in this Section 1.1 or in the sections and
subsections referred to below.
"AAA" has the meaning given to such term in Section 12.1(c).
"Adverse Effect" means (i) any changes or effects that individually or in
the aggregate impact the business, operations, prospects or condition (financial
or other) of the Issuer adversely and in an amount exceeding $1,000,000.00 or
impact the Collateral adversely and in an amount exceeding $1,000,000.00, (ii)
the impairment of the ability of the Issuer in any respect to perform its
obligations under any of the Transaction Documents to which it is a party, or
(iii) the impairment of the Purchaser's ability to realize the practical
benefits of the Security Documents, provided, however, that neither a general
decline in Hydrocarbon prices nor any reduction of the Issuer's Hydrocarbon
reserves shall constitute such a change, effect or impairment.
"AFE" means Authorization for Expenditures.
"Affiliate(s)"means, as to any Person (as hereinafter defined), any other
Person who directly or indirectly controls, is under common control with, or is
controlled by such Person. As used in this definition, "control" (including,
with its correlative meanings, "controlled by" and "under common control with")
shall mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise), provided
that, in any event (i) any Person who owns directly or indirectly 10% or more of
the securities having ordinary voting power for the election of directors or
other governing body of a corporation or 10% or more of the partnership or other
ownership interests of any other Person will be deemed to control such other
Person, (ii) any Subsidiary of the Issuer shall be deemed to be an Affiliate of
the Issuer, and (iii) the parent and any sister corporation of the Issuer shall
be deemed to be an Affiliate of the Issuer.
"Agreement" means this Note Purchase Agreement, as the same may be amended,
supplemented, restated or otherwise modified from time to time in compliance
with applicable provisions hereof.
"Arbitration Notice" has the meaning given to such term in Section 12.1(c).
"Available Credit Capacity" has the meaning given to such term in
Section 2.6.
"Business Day" means a day, other than a Saturday or Sunday, on which
commercial banks are open for business with the public in Houston, Texas.
"Closing" has the meaning given such term in Section 9.1.
"Closing Date" has the meaning given such term in Section 9.1.
"Collateral" means all property of any kind which, pursuant to any
Transaction Document, is subject to a Lien in favor or for the benefit of the
Purchaser or is purported or required to be subject to such a Lien, including,
without limitation, the Properties and related assets, the Issuer's interest in
the Hydrocarbons produced therefrom or attributable thereto, all real and
personal property, the Equipment (including, without limitation, any Fixtures),
gathering systems, goods, accounts, contract rights, money, deposit accounts,
claims, receivables, inventory, licenses, permits, well files, logs, the
Issuer's interests in the seismic, geological and geophysical data relating
thereto (to the extent assignable or transferable), the Issuer's books and
records relating thereto, engineering data, insurance proceeds and other general
intangibles, the Issuer's rights and interests in the contracts described in the
Collateral Assignment of Contract Rights, and all products and proceeds of any
of the foregoing.
"Collateral Assignment of Contract Rights" means that certain Assignment
dated of even date herewith executed by the Issuer in favor of the Purchaser
covering all of the Issuer's rights and interests in any contracts relating to
the Properties and the production of Hydrocarbons therefrom.
"Compliance Certificate" means each certificate of an authorized officer of
the Issuer submitted to the Purchaser on a quarterly basis pursuant to this
Agreement, each such certificate to be in the form attached hereto as Exhibit C.
"Debt" means all Indebtedness, liabilities and obligations of the Issuer,
whether matured or unmatured, liquidated or unliquidated, primary or secondary,
direct or indirect, absolute, fixed or contingent, and whether or not required
to be considered debt pursuant to GAAP, but excluding contingent abandonment
liabilities not yet accrued.
"Debt Service" means the principal and interest due pursuant to the Note or
this Agreement for any Interest Period.
"Deed of Trust" has the meaning given such term in Section 3.1.
"Defensible Title" means (i) with respect to the Properties, such title
that: (A) with respect to each well located on or Unit encompassing any of the
Leases entitles the Issuer to receive, free and clear of all royalties,
overriding royalties and net profits interests, or other burdens on or measured
by production of Hydrocarbons, not less than the Net Revenue Interest of the
Issuer reflected in Exhibit A for such well or Unit for the productive life of
such well or Unit (subject only to the Permitted Encumbrances); and (B) with
respect to each well located on
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or Unit encompassing any of the Leases obligates the Issuer to bear costs and
expenses relating to the maintenance, development and operation of such well or
Unit in an amount not greater than the Working Interest of the Issuer reflected
in Exhibit A for the productive life of such well or Unit (subject only to the
Permitted Encumbrances), in each case free and clear of any Lien, other than the
Permitted Encumbrances and any Liens in favor of the Purchaser and its
Affiliates or which are permitted hereunder.
"Engineers" means, unless specifically provided otherwise, the following
petroleum engineering firms: Ryder Scott Company and S.A. Holditch & Associates,
Inc. or such other petroleum engineering firms mutually agreeable to the Issuer
and the Purchaser.
"Environmental Laws" means any and all federal, state or local statutes,
laws (including common law), regulations, ordinances, rules, judgments, orders,
decrees, permits, grants, franchises, licenses, agreements or other governmental
restrictions relating to the environment or to emissions, discharges, releases
or threatened releases of pollutants, contaminants, chemicals or industrial,
toxic or hazardous substances or wastes into the environment, including ambient
air, surface water, ground water, or land, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, chemicals or industrial,
toxic or hazardous substances or wastes. For purposes of this definition,
"chemicals" includes all substances referred to in the second sentence of the
definition herein of "Hazardous Materials."
"Equipment" means the Issuer's undivided interest in all equipment of every
kind and nature used for or in the operation of the Properties, equivalent to
the undivided interest of the Issuer constituting the Property on which such
Equipment is used, including, but not limited to, pipelines, well and lease
equipment and surface equipment, casing, tubing, connections, rods, pipe,
machines, compressors, gathering systems, meters, motors, pumps, tankage,
fixtures, storage and handling equipment and all other equipment or movable
property of any kind and nature and wherever situated now or hereafter owned by
the Issuer or in which the Issuer may now or hereafter have any interest (to the
extent of such interest), together with all additions and accessions thereto,
all replacements and all accessories and parts therefor, all logs and records in
connection therewith, all rights against suppliers, warrantors, manufacturers,
sellers or others in connection therewith, and together with all substitutes for
any of the foregoing.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, together with all rules and regulations promulgated
with respect thereto.
"ERISA Plan" means any employee pension benefit plan which is maintained by
any Person subject to Title IV of ERISA.
"Event of Default" has the meaning given such term in Section 10.1;
"Fiscal Quarter" means a three-month period ending on March 31, June 30,
September 30 or December 31 of any calendar year.
"Fiscal Year" means a twelve-month period ending on December 31 of any
calendar year.
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"GAAP" means those generally accepted accounting principles and practices
which are recognized as such by the Financial Accounting Standards Board (or any
generally recognized successor).
"Gas Purchase and Sale Agreement" has the meaning given such term in
Section 7.1(b).
"Hazardous Materials" means any substances regulated under any
Environmental Law, whether as pollutants, contaminants or chemicals, or as
industrial, toxic or hazardous substances or wastes, or otherwise. "Hazardous
Materials" also includes (a) any petroleum, any fraction of petroleum, natural
gas, natural gas liquids, liquefied natural gas and synthetic gas usable for
fuel (including any mixtures of the foregoing) that has been or may be emitted,
discharged or released into the environment, and (b) any drilling fluids,
produced waters and other wastes associated with the exploration, development or
production of crude oil, natural gas or geothermal reserves.
"Hydrocarbons" means crude oil, condensate, natural gas, natural gas
liquids and other hydrocarbons.
"Indebtedness" means and includes (i) all obligations for borrowed money of
any kind or nature, including funded and unfunded debt or guarantees thereof and
contingent obligations in respect of any of the foregoing including, without
limitation, reimbursement obligations in respect of letters of credit, and (ii)
obligations for the acquisition or use of any fixed asset or improvements
thereto, including capitalized leases but excluding operating leases, which are
payable over a period longer than one year or guarantees thereof, regardless of
the term thereof or the Person or Persons (each as hereinafter defined) to whom
the same is payable; provided, however, that Indebtedness shall not include
trade payables incurred in the ordinary course of business so long as the same
are being paid within thirty (30) days after becoming due (or, with respect to
any vendor, within such longer period as is acceptable to such vendor) or are
being contested in good faith.
"Initial Reserve Report" means, collectively, those certain reserve reports
listed in Schedule 1.1(b).
"Intercreditor Agreement" means that certain agreement between the
Purchaser and the Senior Creditor, in form and substance satisfactory to the
Purchaser, entered into on the date of this Agreement.
"Interest Period" means each period beginning on (and including) the
Payment Date in one Fiscal Quarter and ending on (but not including) the Payment
Date in the next following Fiscal Quarter, provided that the first Interest
Period for the Indebtedness evidenced by the Note shall begin on the Closing
Date and end on the day before the first Payment Date.
"Interest Rate" means that interest rate stated in the Note.
"Investment" in any Person means the amount paid or committed to be paid or
the value of property or wages contributed or committed to be contributed by the
Person making the Investment on its account for or in connection with its
acquisition of any stock, bonds, notes, debentures, partnership or other
ownership interest or any other security of the Person in whom
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such Investment is made or any evidence of Indebtedness of such Person in whom
the Investment is made.
"Lease" or "Leases" means, whether one or more, (i) those certain oil and
gas leases set forth in the description of each Property on Exhibit "A" and any
other interests in the Leases, whether now owned or hereafter acquired by the
Issuer, and any extensions, renewals, corrections, modifications, elections or
amendments of any such Lease or Leases, or (ii) other oil, gas and/or mineral
leases or other interests pertaining to the Properties which may now and
hereafter be made (or intended or purported to be made) subject to the lien of
any of the Security Documents and any extensions, renewals, corrections,
modifications, elections or amendments of any such Lease or Leases.
"Letters In Lieu" means those certain letters in lieu of transfer orders,
duly executed by Issuer in a form satisfactory to the Purchaser, to be delivered
by the Issuer to the Purchaser at the Closing pursuant to Section 9.2.
"Lien" means, with respect to the Properties or other Collateral, any right
or interest therein of a creditor to secure Debt owed to it or any other
arrangement with such creditor which provides for the payment of such Debt out
of such property or assets or which allows it to have such Debt satisfied out of
such property or assets prior to the satisfaction of general creditors of the
owner of such property or assets, including any lien, mortgage, security
interest, pledge, deposit, production payment, rights of a vendor under any
title retention or conditional sale agreement or lease substantially equivalent
thereto, tax lien, mechanic's or materialman's lien, or any other charge or
encumbrance for security purposes, whether arising by law or agreement or
otherwise, but excluding any right of offset which arises without agreement in
the ordinary course of business. "Lien" also means any filed financing
statement, any registration of a pledge (such as with an issuer of unregistered
securities), or any other arrangement or action which would serve to perfect a
Lien described in the preceding sentence, regardless of whether such financing
statement is filed, such registration is made, or such arrangement or action is
undertaken before or after such Lien exists.
"Maximum Rate" means the maximum non-usurious rate of interest that the
Purchaser is permitted under applicable law to contract for, take, charge, or
receive from the Issuer.
"Mortgage" has the meaning given such term in Section 3.1.
"Net Debt" means, at any point in time: (a) the sum of the outstanding
unpaid balance of (i) all the Obligations, (ii) all Senior Debt, (iii) all Swap
Settlement Payables, (iv) all sums payable by the Issuer and/or its Subsidiaries
pursuant to any final judgment of a court or arbitrators having jurisdiction,
and (v) all trade accounts payable of the Issuer and/or its Subsidiaries, minus
(b) the sum of: (i) all unrestricted cash and cash equivalents of the Issuer,
(ii) all trade accounts receivable of the Issuer that are not in dispute and not
more than ninety (90) days overdue, and (iii) all Swap Settlement Proceeds that
are payable to the Issuer.
"Net Revenue Interest" and "NRI" have the respective meanings given such
terms in the Mortgage or the Deed of Trust, as the case may be.
"Note" has the meaning given such term in Section 2.1.
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"Obligations" means all Debt and all other obligations from time to time
owing from the Issuer to the Purchaser or any of the Purchaser's Affiliates
under or pursuant to any of the Transaction Documents in connection with this
Agreement or any transaction contemplated hereby, including, without limitation,
all principal, interest, fees, expenses, costs and indemnities.
"Operating Agreements" means operating agreements relating to the
Properties, including, without limitation, all those certain operating
agreements which relate to or arise from the Properties pursuant to which the
Issuer is or hereafter becomes the operator, any of which that are entered into
or amended after the date of this Agreement that would result in an Adverse
Effect being subject to the Purchaser's prior written approval.
"Operating Expenses" means (a) direct lease operating, compression,
transportation and processing expenses and well maintenance expenses, which
arise from the Issuer's Working Interests constituting the Properties in the
wells that are subject to the Mortgage or the Deed of Trust, that are billed to
the Issuer by the Operator or incurred by the Issuer, as Operator, of the
Properties, (b) such Working Interest share of expenses incurred in the repair,
maintenance and replacement of damaged or obsolete Equipment, (c) such Working
Interest share of overhead charges payable to a third party Operator pursuant to
an applicable Operating Agreement in effect on the Closing Date with respect to
any of the Properties (or such new Operating Agreements or amendments to
existing Operating Agreements that are approved in writing by the Purchaser).
"Operator" means any operators, including contract operators, of the
Properties (as such terms are generally understood in the oil and gas industry)
and as approved by the Purchaser pursuant to Section 8.3 hereof
"Overadvance" has the meaning given such term in Section 2.6.
"Payment Date" means the last Business Day of each Fiscal Quarter,
beginning with September 28, 2001, with the last Payment Date being the
Redemption Date.
"Permitted Encumbrances" has the meaning given such term in the Mortgage
and the Deed of Trust and shall expressly include, but not be limited to, the
Senior Liens, so long as any Senior Debt remains outstanding or there exists a
commitment on the part of the Senior Creditor to advance additional sums
constituting Senior Debt.
"Person" means; an individual, corporation, partnership, limited liability
company, association, joint stock company, trust or trustee thereof, estate or
executor thereof, unincorporated organization or joint venture, court or
governmental unit or any agency or subdivision thereof, or any other legally
recognizable entity.
"Properties" means those certain properties described in Exhibit A attached
hereto and incorporated herein, to the extent of the specific undivided interest
of the Issuer in any such Property stated therein.
"Property Taxes" means taxes imposed annually on the Issuer which are based
on or measured by the estimated value (at the time such taxes are assessed) of
any Hydrocarbons
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underlying the lands covered by or pooled with the Leases attributable to the
undivided interests of the Issuer in the various Leases constituting the
Properties.
"Proved Developed Non-Producing Reserves" means Proved Reserves that are
estimated to be recoverable by existing wells that are not yet capable of
producing such reserves without completions or recompletions being conducted
within the existing wellbores thereof.
"Proved Developed Producing Reserves" means Proved Reserves that are
estimated to be recoverable by existing wells that are then capable of producing
such reserves.
"Proved Reserves" means, in accordance with any Reserve Report or Update
Report, the current estimated quantity of Hydrocarbons which analysis of
geologic and engineering data demonstrate with reasonable certainty to be
recoverable in the future from known oil and gas reservoirs under existing
economic and operating conditions based on either actual production or
conclusive formation tests, provided, that the determination of such estimations
are subject to the terms of Section 7.1(f) hereof.
"Proved Undeveloped Reserves" means Proved Reserves that are estimated to
be recoverable from wells to be drilled in the future.
"Purchaser" shall have the meaning given to such term in the first
paragraph of this Agreement, together with its successors and assigns as holders
of the Note, as permitted by Section 11.4 hereof.
"Purchasers of Hydrocarbons" shall mean the Persons listed on Schedule
4.1(u) attached hereto, and all other Persons who, now or in the future,
purchase Hydrocarbons attributable or allocable to the Issuer's Net Revenue
Interests constituting the Properties.
"PV 10" means the present value of future net income, discounted at the
rate of ten percent (10%) per annum, that is estimated to be realized from the
production and sale of Hydrocarbons attributable to the Issuer's interest in the
Properties, and being further limited, if so specified in this Agreement, to
certain categories of oil and gas reserves, such as, by way of example, but not
limitation, Proved Reserves or Proved Developed Producing Reserves.
"Redemption Date" means the earlier of (a) June 29, 2005 or any extension
of such date agreed to by the Purchaser, (b) the date of payment and performance
in full of all the Obligations of the Issuer under the Transaction Documents and
(c) the date on which the Purchaser notifies the Issuer, as provided in Section
10.2, of the acceleration of payment of all Obligations because of the
occurrence of an Event of Default.
"Repayment Premium" has the meaning given such term in Section 2.5.
"Reserve Report" means, unless specifically denoted otherwise, the
petroleum engineering report defined in Section 7.1(f) hereof.
"Rules" has the meaning given such term in Section 12.1(c).
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"Security Agreement" means a security agreement (Accounts, Equipment,
General Intangibles and Inventory) executed by the Issuer as debtor in favor of
the Purchaser as secured party dated as of the date hereof, in form and
substance mutually satisfactory to the Purchaser and the Issuer, as the same may
be modified, amended or supplemented pursuant to the terms of this Agreement.
"Security Documents" means the Mortgage, the Deed of Trust, the Security
Agreement, the Collateral Assignment of Contract Rights, and all other security
agreements, deeds of trust, mortgages, chattel mortgages, pledges, guaranties,
financing statements, continuation statements, extension agreements and other
agreements or instruments now, heretofore, or hereafter delivered by the Issuer
to the Purchaser in connection with this Agreement or any transaction
contemplated hereby to secure or guarantee the payment of any part of the
Obligations.
"Senior Creditor" means, collectively, BNP Paribas, Union Bank of
California, N.A., and their respective successor holders of the Senior Debt.
"Senior Debt" means the Debt described on Schedule 1.1(a) and any
additional sums advanced by the Senior Creditor in compliance with the
Intercreditor Agreement in connection with any redetermination by the Senior
Creditor of the Debt which may be incurred by the Issuer under the documentation
of such Debt on the basis of the value of the assets of the Issuer securing such
Debt, including, but not limited to, in connection with the commitment by the
Issuer of additional assets of the Issuer as security for such Debt.
"Senior Liens" means the Liens described on Schedule 1.1(a) and Liens
against additional assets of the Issuer, so long as the Purchaser holds a Lien
against each such additional asset of the Issuer which is subordinate to the
Lien against such asset of the Issuer in favor or for the benefit of the Senior
Creditor.
"Severance Taxes" means taxes imposed on the Issuer or such production at
the time Hydrocarbons are produced from a well situated on any of the Leases or
on lands pooled therewith which are based on or measured by the amount or value
of such Hydrocarbon production allocable to the Properties.
"Subsidiary" means for any Person any corporation of which more than fifty
percent (50%) of the issued and outstanding securities having ordinary voting
power for the election of directors is owned, directly or indirectly, by such
Person and/or one or more of its subsidiaries.
"Swap Agreement" means any swap agreement, cap, collar, floor, exchange
transaction, forward agreement or exchange or protection agreement related to
Hydrocarbons or any option with respect to such transaction, as more
specifically provided in those certain master swap agreements on International
Swap Dealers Association forms and the schedules thereto and any confirmations
thereunder which the Issuer enters into with or through the Purchaser of even
date herewith and any other confirmations which the Issuer may hereafter enter
into with or through the Purchaser.
"Swap Settlement Payables" means any settlement amounts payable by the
Issuer under the terms of any executed Swap Agreement.
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"Swap Settlement Proceeds" means any settlement amounts paid to the Issuer
under the terms of any executed Swap Agreement.
"Tax Claim" means any claim by a taxing authority that the Issuer owes any
amount of taxes of any kind other than claims for Severance Taxes and Property
Taxes.
"Title Opinions" means those certain title opinions addressed to the Issuer
and the Purchaser and dated on or prior to the Closing Date, as the same may be
or are required to be updated under this Agreement, covering all of the
Properties.
"Transaction Documents" means this Agreement, the Note, the Mortgage, the
Deed of Trust, the Security Agreement, the Collateral Assignment of Contract
Rights, all other Security Documents, the Gas Purchase and Sale Agreement, the
Swap Agreement, and all other agreements or instruments now, heretofore or
hereafter delivered by the Issuer to the Purchaser in connection with this
Agreement or any transaction contemplated hereby to secure or guarantee the
payment of any part of the Obligations.
"Unit" means a pooled unit or proration unit as designated by an effective
designation of unit, proration unit plan, or other instrument of similar impact
properly filed with the appropriate governmental authority.
"Unmatured Event of Default" means any event or condition which would, with
the giving of any requisite notices and/or the passage of any requisite periods
of time, constitute an Event of Default.
"Update Report" means, unless specifically denoted otherwise, the petroleum
engineering report defined in Section 7.1(f) hereof.
"Working Interest" and "WI" have the respective meanings given such terms
in the Mortgage or the Deed of Trust, as the case may be.
Section 1.2 Exhibits and Schedules. All exhibits and schedules attached to
this Agreement are incorporated herein by reference and made a part hereof for
all purposes.
Section 1.3 Amendment of Defined Instruments. Unless the context otherwise
requires or unless otherwise provided herein, the terms defined in this
Agreement which refer to a particular agreement, instrument or document also
refer to and include all renewals, extensions, modifications, amendments and
restatements of such agreement, instrument or document; provided, that nothing
contained in this section shall be construed to authorize any such renewal,
extension, modification, amendment or restatement.
Section 1.4 References and Titles. All references in this Agreement to
exhibits, schedules, articles, sections, subsections and other subdivisions
refer to the exhibits, schedules, articles, sections, subsections and other
subdivisions of this Agreement unless otherwise expressly provided. Section and
subdivision headings are for convenience only, do not constitute any part of
such sections or subdivisions and shall be disregarded in construing the
language contained in such sections or subdivisions. The words "this Agreement,"
"this instrument," "herein," "hereof," "hereby," "hereunder," and words of
similar import refer to this Agreement
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as a whole and not to any particular sections or subdivisions unless expressly
so limited. The phrases "this section" and "this subsection" and similar phrases
refer only to the sections or subsections hereof in which such phrases occur.
The word "or" is not exclusive, and the word "including" (in its various forms)
means "including without limitation". Pronouns in masculine, feminine and neuter
genders shall be construed to include any other gender, and words in the
singular form shall be construed to include the plural and vice versa, unless
the context otherwise requires.
Section 1.5 Calculations and Determinations. All calculations pursuant to
the Transaction Documents of fees and of interest shall be made on the basis of
actual days elapsed (including the first day but excluding the last) and a year
of 365 or 366 days, as the case may be. Unless otherwise expressly provided
herein or the Purchaser otherwise consents in writing, all financial statements
and reports to be furnished to the Purchaser under the Transaction Documents
shall be prepared and all financial computations and determinations made
pursuant to the Transaction Documents, and with respect to the financial
statements, shall be made in accordance with GAAP.
ARTICLE II Purchase and Sale
Section 2.1 Purchase and Sale. In accordance with the terms and subject to
the conditions set forth herein, at the Closing the Issuer shall sell to the
Purchaser, and the Purchaser shall purchase the Issuer's promissory note in the
original face amount of Thirty-One Million, Two Hundred Fifty Thousand and
No/100 Dollars ($31,250,000.00) in the form attached to this Agreement as
Exhibit "B" (the "Note") for a purchase price of Thirty Million and No/100
Dollars ($30,000,000.00). The Interest Rate on the Indebtedness evidenced by
such Note shall be as specified therein. The Purchase Price shall be advanced to
the Issuer in U.S. Dollars by wire transfer. The Note shall be secured by the
Mortgage, the Deed of Trust, and the other Security Documents executed and
delivered by the Issuer to or for the benefit of the Purchaser. During the
period from the Closing until July 25, 2002, the Issuer shall have the right to
offer for sale to the Purchaser and the Purchaser shall have the right to
purchase from the Issuer (but neither shall be obligated to do so) the Issuer's
additional promissory note(s) in the aggregate original face amount(s) of up to
Three Million, Seventy Thousand and No/100 Dollars ($3,070,000.00) in
substantially the form attached to this Agreement as Exhibit "B," but dated as
of the date of the purchase and sale of such Note. References in this Agreement
to the Note shall mean, individually and collectively, not only the Note sold by
the Issuer to the Purchaser at Closing, but each Note subsequently sold by the
Issuer to the Purchaser pursuant to this Section 2.1.
Section 2.2 Use of Proceeds. All proceeds of the Purchase Price advanced by
the Purchaser to the Issuer pursuant to Section 2.1 shall be used by the Issuer
solely for the acquisition and development of oil and gas properties, payment of
expenses and fees pursuant to the Transaction Documents, and general working
capital needs.
Section 2.3 Payment of the Note. Interest on the outstanding balance of the
Indebtedness evidenced by the Note shall accrue at the Interest Rate, and it
shall be compounded monthly. Accrued, unpaid interest shall be paid by the
Issuer to the Purchaser on each Payment Date. In the absence of any Event of
Default and except as provided in Section 2.6, no
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repayment of the outstanding principal balance of the Indebtedness evidenced by
the Note shall be required until the Redemption Date, whereupon the entire,
unpaid principal balance of the Indebtedness evidenced by the Note and all
accrued, unpaid interest thereon shall be payable in full.
Section 2.4 Prepayment of the Note. The Issuer may not prepay the Note, in
whole or in part, without the Purchaser's advance written consent, which consent
shall not be unreasonably withheld or delayed. Any principal prepaid pursuant to
this section shall be in addition to, and not in lieu of, all payments otherwise
required to be paid under the Transaction Documents at the time of such
prepayment; provided, however, that the Issuer will bear responsibility for the
resulting Swap Settlement Payables associated with any Swap Agreements that must
be terminated as the result of such prepayment. With respect to any Swap
Agreements that are not terminated as the result of such prepayment and which
the Issuer elects to maintain in effect, notwithstanding the prepayment of the
Note, so long as any Swap Agreements remain outstanding, the Security Documents
shall remain in force and effect (and shall be promptly amended by the Issuer
and the Purchaser to the extent necessary) to secure the Issuer's obligation to
pay any Swap Settlement Payables associated with such Swap Agreements.
Similarly, in the event of any such prepayment after which any Swap Agreement
remains outstanding, the Issuer shall be entitled to receive and retain any Swap
Settlement Proceeds associated with the relevant Swap Agreement, subject to the
terms of any applicable Security Documents.
Section 2.5 Payment Premium. In addition to the obligation of the Issuer to
repay the amount of the Indebtedness evidenced by the Note and to pay interest,
expenses, and other fees in accordance with applicable provisions of this
Agreement, the Issuer shall pay to the Purchaser, at such time as any principal
amount of the Indebtedness evidenced by the Note is repaid to the Purchaser, the
following additional fee (the "Repayment Premium"):
Repayment Premium
(percentage of the
principal amount paid or
Cause/Purpose of Payment Timing of Payment payable)
------------------------ ----------------- ------------------------
Scheduled payment at maturity June 29, 2005 16.5%
Payment made at the option of On or before June 29, 2002 8.0%
the Issuer pursuant to Section 2.4
Payment made at the option of After June 29, 2002 and on or 10.0%
the Issuer pursuant to Section 2.4 before June 29, 2003
Payment made at the option of After June 29, 2003 and on or 12.5%
the Issuer pursuant to Section 2.4 before June 29, 2004
Payment made at the option of After June 29, 2004 16.5%
the Issuer pursuant to Section 2.4
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Repayment Premium
(percentage of the
principal amount paid or
Cause/Purpose of Payment Timing of Payment payable)
------------------------ ----------------- ------------------------
Payment required by Section 2.6 On or before June 29, 2002, if 4.5%
made timely pursuant to Section 2.6
Payment required by Section 2.6 After June 29, 2002 and on or 8.5%
before June 29, 2003, if made
timely pursuant to Section 2.6
Payment required by Section 2.6 After June 29, 2003 and on or 12.5%
before June 29, 2004, if made
timely pursuant to Section 2.6
Payment required by Section 2.6 After June 29, 2004, if made 16.5%
timely pursuant to Section 2.6
Payment required by Section 2.6 Payment not timely made when due 16.5%
Payment demanded by Purchaser At any and all times 16.5%
pursuant to Article X
Section 2.6 Redetermination of Available Credit Capacity and Resulting
Payment Obligations. At least once every six months, based on the Reserve
Reports provided by the Issuer to the Purchaser pursuant to Section 7.1(f), and
at any time that the Senior Creditor notifies the Issuer of a redetermination of
the Borrowing Base that supports the Senior Debt (a copy of which notification
the Issuer shall promptly provide to the Purchaser), the Purchaser shall have
the right to make a redetermination of the maximum Indebtedness evidenced by the
Note that the Purchaser considers to be adequately secured by the Collateral,
applying the Purchaser's then-current credit criteria and taking to
consideration the maximum amount of Senior Debt that is secured by the
Collateral (the amount so determined being hereinafter called the "Available
Credit Capacity"). If the Purchaser determines at any time that the Available
Credit Capacity is less than the outstanding balance of the Issuer's Obligations
to the Purchaser (the amount of such difference being herein called a
"Overadvance") then if payment of such Overadvance by the Issuer to the
Purchaser is either permitted under the terms of the Intercreditor Agreement or
is consented to by the Senior Creditor, the Purchaser shall have the right to
require the Issuer to repay the amount of the Overadvance by sending written
notice of such election to the Issuer. Within ten (10) days after the receipt of
any such notice from the Purchaser, the Issuer shall pay the full amount of any
such Overadvance to the Purchaser. If the Issuer's payment of such Overadvance
is not permitted by the terms of the Intercreditor Agreement and has not
otherwise been consented to by the Senior Creditor, then the Purchaser
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shall have the right to require the Issuer to repay to the Senior Creditor so
much of the outstanding balance of the Senior Debt as is necessary, based on
Purchaser's determination of the Available Credit Capacity in the manner
provided above in this Section 2.6, to result in the Available Credit Capacity
under this Agreement equaling the outstanding principal balance of the
Indebtedness evidenced by Note, by sending written notice of such election to
the Issuer. Within ten (10) days after receipt of such notice from the
Purchaser, the Issuer shall repay to the Senior Creditor the amount of principal
of the Senior Debt that is specified in the Purchaser's notice (the "Senior Debt
Repayment Amount"). If the Issuer is required by the Purchaser to pay the Senior
Debt Repayment Amount, the Issuer agrees that it shall not thereafter, without
the Purchaser's prior written consent, borrow or reborrow any additional funds
or accept any additional advances from the Senior Creditor that would cause the
outstanding principal balance of the Senior Debt to be greater than the maximum
permissible balance of Senior Debt specified by the Purchaser in its notice to
the Issuer regarding the Senior Debt Repayment Amount.
ARTICLE III Security
Section 3.1 Security. The Obligations will be secured by Liens against the
Collateral which are expressly subordinate and junior to the Senior Liens as set
forth in the various Security Documents concurrently or hereafter delivered by
the Issuer, including an Act of Mortgage, Assignment of Production, Security
Agreement, Fixture Filing and Financing Statement (the "Mortgage") executed by
the Issuer in favor of the Purchaser and a Deed of Trust, Mortgage, Assignment
of Production, Security Agreement and Financing Statement (the "Deed of Trust")
covering, collectively, the Properties, each in form and substance mutually
satisfactory to the Purchaser and the Issuer. Pursuant to certain of the
Transaction Documents, the Issuer will grant to the Purchaser a mortgage lien on
and a perfected security interest in the Collateral, which shall be subject to
the terms of the Intercreditor Agreement and Permitted Encumbrances.
Section 3.2 Perfection and Protection of Security Interests and Liens. The
Issuer will from time to time deliver to the Purchaser any security agreements,
financing statements, continuation statements, extension agreements, amendments,
confirmations and other documents, properly completed and executed (and
acknowledged when required) by the Issuer in form and substance mutually
satisfactory to the Purchaser and the Issuer, which the Purchaser reasonably
requests for the purpose of perfecting, confirming, protecting or establishing
the priority of any Liens or other rights in the Collateral securing any
Obligations.
Section 3.3 Release of Collateral. Upon the payment and performance in full
by the Issuer of all Obligations under the Transaction Documents, the Purchaser
shall deliver or cause to be delivered to the Issuer, at the Issuer's expense,
releases and satisfactions of all financing statements, mortgages and other
registrations of security with respect to the Collateral and the Issuer shall
deliver to the Purchaser a general release of all of the Purchaser's liabilities
and obligations under the Transaction Documents, and an acknowledgment that the
same have been terminated.
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ARTICLE IV Representations and Warranties
Section 4.1 Representations and Warranties of the Issuer. To confirm the
Purchaser's understanding concerning the Issuer and the Issuer's businesses,
properties and obligations, and to induce the Purchaser to enter into this
Agreement and to purchase the Note, the Issuer represents and warrants to the
Purchaser that:
(a) No Default. No event has occurred and is continuing which would
constitute an Event of Default or an Unmatured Event of Default.
(b) Organization and Good Standing. The Issuer is a corporation duly
organized, validly existing and in good standing under the laws of Texas,
having all powers necessary to carry on its businesses and to enter into
and consummate the transactions contemplated by the Transaction Documents.
The Issuer is duly qualified, in good standing, and authorized to do
business in all other jurisdictions wherein the character of the properties
owned or held by it or the nature of the business transacted by it makes
such qualification necessary or desirable and the failure to be so
qualified could reasonably be expected to have an Adverse Effect. The
Issuer is qualified under applicable Minerals Management Service
regulations to act as Operator of the Leases.
(c) Capitalization; Compliance with Security Laws. To the knowledge of
the Issuer after due inquiry, the stockholders of the Issuer who own, as of
the effective date of this Agreement, greater than 5.0% of the issued and
outstanding common stock of the Issuer consist exclusively of those Persons
listed on Schedule 4.1(c) attached hereto. The Issuer is not subject to any
agreement under which there may become outstanding, nor are there currently
outstanding, any rights to purchase, or securities convertible into or
exchangeable for, any stock of the Issuer including, but not limited to,
options, warrants or rights that are not terminable at the Issuer's will or
outstanding under the 1998 Stock Option Plan or the 2000 Stock Plan of the
Issuer, other than in favor of a party listed in Schedule 4.1(c). Except as
disclosed on Schedule 4.1(c) or pursuant to the 1998 Stock Option Plan or
the 2000 Stock Plan of the Issuer, the Issuer is under no obligation
(contingent or otherwise) to purchase or otherwise acquire or retire any of
its stock. Except as contemplated by this Agreement or as disclosed on
Schedule 4.1(c), there are no agreements, understandings, plans or
arrangements in existence which require the Issuer to elect any person on
its board of directors or otherwise pertain to the distribution rights,
voting, sale or transfer of any stock of the Issuer. The Issuer has
complied with all applicable federal and state securities laws and has
obtained enforceable releases from any Persons who may have had federal or
state securities law claims against the Issuer.
(d) Authorization. The Issuer has taken all actions necessary to
authorize the execution and delivery of the Transaction Documents and to
authorize the consummation of the transactions contemplated thereby and the
performance of its obligations thereunder. The Issuer is duly authorized to
borrow funds hereunder.
(e) No Conflicts or Consents. The execution and delivery by the Issuer
of the Transaction Documents, the performance of its obligations under the
Transaction Documents, and the consummation of the transactions
contemplated by the various
14
Transaction Documents does not and will not (i) conflict with any provision
of (A) any domestic or foreign law, statute, rule or regulation, (B) the
Articles of Incorporation or Bylaws of the Issuer, or (C) any agreement,
judgment, license, order or permit applicable to or binding upon the
Issuer, (ii) result in the acceleration of any Debt owed by the Issuer, or
(iii) result in or require the creation of any Lien upon any assets or
properties of the Issuer except as expressly contemplated in the
Transaction Documents. Except as expressly contemplated in the Transaction
Documents, no consent, approval, authorization or order of, and no notice
to or filing with (other than routine filings of certain of the Security
Documents), any court or governmental authority or third party is required
in connection with the execution, delivery or performance by the Issuer of
any Transaction Document or to consummate any transactions contemplated by
the Transaction Documents.
(f) Enforceable Obligations. This Agreement is, and the other
Transaction Documents when executed and delivered by the Issuer will be,
legal, valid and binding obligations of the Issuer, enforceable in
accordance with their terms except as such enforcement may be limited by
bankruptcy, insolvency or similar laws of general application relating to
the enforcement of creditors' rights or by principles of equity applicable
to the enforcement of creditors' rights generally.
(g) Financial Statements. The financial statements of the Issuer
provided to the Purchaser in connection with the negotiation of this
Agreement present fairly the financial condition of the Issuer as of the
dates thereof and the results of operations for the period then ended, and
are in accordance with the books and records of the Issuer. Except as
disclosed in Schedule 4.1(g), there have been no material transactions
other than in the ordinary course of business since the date of such
financial statements. As of the date of such financial statements, (i) the
Issuer has no material liabilities of any nature (matured or unmatured,
fixed or contingent) required to be provided for therein or described in
the notes thereto which were not provided for therein or described in the
notes thereto, and (ii) all reserves established by the Issuer and set
forth therein are adequate for the purposes for which they were
established.
(h) Other Obligations and Restrictions. Except as reflected in the
financial statements of the Issuer most recently provided to the Purchaser
or as disclosed on Schedule 4.1(h), the Issuer has no outstanding Debt of
any kind (including contingent obligations, tax assessments, and forward or
long-term commitments), other than Debt under the Transaction Documents and
unaccrued plugging and abandonment Obligations, which is material to the
Issuer. No Tax Claim or other claim for past due Property Taxes or
Severance Taxes exists. The Issuer is not subject to or restricted by any
franchise, contract, deed, charter restriction or other instrument or
restriction which could reasonably be expected to have an Adverse Effect.
(i) Full Disclosure. No certificate, statement or other information
delivered herewith or heretofore by the Issuer to the Purchaser in
connection with the negotiation of this Agreement or in connection with any
transaction contemplated hereby contains any untrue statement of a material
fact or omits to state any material fact known to the Issuer necessary to
make the statements contained herein or therein not misleading as of the
date
15
made or deemed made. No facts are known to the Issuer that have not been
disclosed to the Purchaser in writing which could reasonably be expected to
have an Adverse Effect.
(j) Litigation. There are no actions, suits or legal, equitable,
arbitrative or administrative proceedings pending, or to the knowledge of
the Issuer threatened, against the Issuer before any federal, state,
municipal or other court, department, commission, body, board, bureau,
agency or instrumentality, domestic or foreign which could reasonably be
expected to have an Adverse Effect, and there are no outstanding judgments,
injunctions, writs, rulings or orders by any such governmental entity
against the Issuer which could reasonably be expected to have an Adverse
Effect.
(k) ERISA Liabilities. Except as disclosed in Schedule 4.1(k), there
are no ERISA Plans with respect to which the Issuer has any fixed or
contingent liability, and the Issuer is in compliance with ERISA in all
material respects.
(l) Names and Places of Business. The Issuer has not during the
preceding three (3) years had, been known by or used any other corporate,
trade or fictitious name. The principal office and principal place of
business of the Issuer is set forth in Section 11.3 hereof. Except as
disclosed on Schedule 4.1(1), the Issuer does not now have and has not had
during the preceding three (3) years any other office or place of business.
The Issuer is not and has not engaged in any business or activity other
than the acquisition, ownership, operation and development of oil and gas
leases and interests therein.
(m) Unpaid Bills. Except: (i) as disclosed to the Purchaser in
Schedule 4.1(m), and (ii) bills incurred in the ordinary course of business
which are not more than thirty (30) days beyond the date due (or, with
respect to any particular vendor, such longer period that is acceptable to
such vendor), the Issuer has no knowledge of any unpaid bills with respect
to improvements to any of the Collateral which may give rise to mechanic's,
materialman's or other similar liens arising by operation of applicable law
should such bills remain unpaid.
(n) Title. Subject to Permitted Encumbrances, (i) the Issuer will have
all beneficial rights, title and interest in and to all production from or
allocable to the Issuer's interest in the Properties and have the exclusive
right to sell the same subject to any right in the owners of royalty
interests, overriding royalty interests and other interests payable out of
or measured by production of Hydrocarbons to take their interests in kind,
and (ii) the Issuer will have good and marketable title to the Properties,
the Equipment and to any other Collateral. The Collateral will be owned by
the Issuer free and clear of any security interest, lien, encumbrance,
mortgage, security agreement or other charge (other than the Senior Liens
and other Permitted Encumbrances).
(o) Affiliates. Except as disclosed in Schedule 4.1(o), the Issuer
does not have, as of the Closing Date, any Affiliate or own any stock in
any other corporation or association, nor is the Issuer a member of any
joint venture or association of any type whatsoever.
16
(p) Omissions and Misstatements. To the Issuer's knowledge after due
inquiry, all written data, reports and information which the Issuer has
supplied to the Purchaser or caused to be supplied by a third party on its
behalf in connection with the obtaining of the credit facility provided for
in this Agreement or in connection with the business transactions giving
rise to the Issuer's seeking such credit are, taken as a whole, complete
and accurate in all material respects and contain no material omission or
misstatement. The Initial Reserve Report furnished to the Purchaser prior
to the execution of this Agreement, to the best of the Issuer's knowledge,
was prepared in accordance with customary oil and gas engineering practices
and in accordance with the standards promulgated by the Society of
Petroleum Engineers. The Initial Reserve Report is based on historical
information which, to the best of the Issuer's knowledge, is complete and
accurate in all material respects and contains no material omission or
misstatement; provided, however, that the Issuer makes no representation or
warranty regarding the accuracy of the forecasts, projections or quantity
of reserves or productivity thereof reflected by such Initial Reserve
Report.
(q) Holding Company. The Issuer is not a "holding company" or a
"subsidiary company" of a "holding company" or an "affiliate" of a "holding
company" or a "public utility" within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
(r) Investment Company. The Issuer is not an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
(s) Environmental and Other Laws. Except as disclosed in Schedule
4.1(s) and except where non-compliance would not reasonably be expected to
have an Adverse Effect, (i) the Issuer is conducting its business in
compliance with all applicable federal, state or local laws, including
Environmental Laws, and has been and is in compliance with any licenses and
permits required under any such laws which affect or relate to the
Collateral; (ii) none of the operations or properties of the Issuer is the
subject of federal, state or local investigation evaluating whether any
remedial action is needed to respond to a release of any Hazardous
Materials into the environment or to the improper storage or disposal
(including storage or disposal at offsite locations) of any Hazardous
Materials; (iii) the Issuer has not filed or received any notice under any
federal, state or local law indicating that the Issuer is or may be
responsible for the improper release into the environment, or the improper
storage or disposal, of any Hazardous Materials or that any Hazardous
Materials has been improperly released, or is or has been improperly stored
or disposed of, upon the Properties; and (iv) the Issuer is not aware of
contingent liability under any Environmental Laws or in connection with the
release into the environment, or the storage or disposal, of any Hazardous
Materials, upon the Properties.
(t) Equipment. Schedule 4.1(t) sets forth the location, as of the date
of this Agreement, of all Equipment owned by the Issuer as of such date or
to be acquired by the Issuer using proceeds of the Purchase Price.
(u) Purchasers of Hydrocarbons. All of the Purchasers of Hydrocarbons
produced from or allocated to the Properties, and the most recent address
of each such
17
Persons as shown in the Issuer's records, as of the date of this Agreement,
are set forth on Schedule 4.1(u).
(v) Hydrocarbon Sales and Related Agreements. All agreements in effect
on the date of this Agreement that are binding on the Issuer or the
Properties and that are not terminable upon 30 days or less notice for the
sale, purchase, (including, but not limited to, calls on production and
preferential rights to purchase production) gathering, transportation,
handling, processing, treating and/or storage of Hydrocarbons are described
on Schedule 4.1(v).
(w) Swap Agreements. All Swap Agreements or other hedge agreements to
which the Issuer is a party or by which the Issuer is bound, as of the date
of this Agreement, are described on Schedule 4.1(w).
(x) Employees. The Issuer is not a party to any existing employment
agreements, deferred compensation, stock option, bonus, consulting or
retirement agreements or plans, or other employee benefit plans of any
kind, including, without limitation, any pension or welfare benefit plans
with any employee of the Issuer whose employment is not terminable at-will.
Except as disclosed on Schedule 4.1(k), Issuer does not maintain nor has it
ever maintained an Employee Pension Benefit Plan as defined in Section 3(a)
of ERISA, or a multi employer plan as defined in Section 3(37) of ERISA. No
employees of the Issuer are represented by any labor union or collective
bargaining agreement nor is any union organization effort pending or
threatened against the Issuer.
ARTICLE V Notice of Certain Events
So long as any Obligations are owing to the Purchaser under this Agreement
or any other Transaction Documents, the Issuer shall deliver to the Purchaser or
notify the Purchaser, as the case may be, of the following items:
Section 5.1 Notice of Certain Matters. The Issuer shall notify the
Purchaser within five (5) Business Days after becoming aware of the existence of
any Unmatured Event of Default or Event of Default under this Agreement or after
becoming aware of any developments or other information which may have an
Adverse Effect, including, without limitation, the following:
(a) any dispute (including tax liability disputes) that may arise
between the Issuer and any governmental regulatory body or law enforcement
authority;
(b) the commencement of any litigation or proceeding affecting the
Issuer (whether by the filing of a complaint, service of process or by
attachment or arrest of any asset);
(c) any labor dispute or controversy resulting in or threatening to
result in a strike or work stoppage against the Issuer;
(d) any proposal by any public authority to acquire any assets or
business of the Issuer;
18
(e) the location of Collateral other than at the places indicated in
or as permitted under the Transaction Documents and not in accordance with
reasonable and ordinary practice of the Issuer;
(f) any proposed or actual change of the name, identity or structure
of the Issuer;
(g) any material loss or damage to any of the Issuer's business or
operations or to any of the Collateral;
(h) any environmental situation, circumstance or condition that causes
or may cause Section 4.1(s) to be false; or
(i) any other matter which has resulted or may result in an Adverse
Effect. The Issuer shall provide the Purchaser with telephonic and written
notice specifying and describing the nature of such Unmatured Event of
Default, Event of Default, development or information, and anticipated
effect thereof, which notice shall be given as soon as reasonably possible.
Section 5.2 Other Information. The Issuer shall provide such other
information respecting the respective financial condition of the Issuer or any
Property or other Collateral as the Purchaser reasonably may request in writing
from time to time.
ARTICLE VI Special Provisions Relating to Equipment
Section 6.1 Disposition. Except where any disposition of Equipment,
individually or in the aggregate, would have an Adverse Effect and so long as no
Unmatured Event of Default or Event or Default shall have occurred and be
continuing, the Issuer may dispose of Equipment in accordance with the terms of
the applicable Operating Agreements and may dispose of obsolete, broken or worn
Equipment, in any case without the Purchaser's consent or prior notice to the
Purchaser; provided that the proceeds of any such disposition shall be used to
purchase substantially similar Equipment, to purchase other Collateral or used
to enhance or develop any Collateral. Following the occurrence and during the
continuation of an Event of Default or an Unmatured Event of Default or where
any disposition of Equipment, individually or in the aggregate, would have an
Adverse Effect, the Issuer may dispose of Equipment in accordance with the terms
of the applicable Operating Agreements only with the Purchaser's prior written
consent upon ten (10) days' prior written notice to the Purchaser, which consent
shall not be unreasonably withheld. All of the records of the Issuer regarding
the Equipment shall be available during the Issuer's usual business hours to any
officer, employee, agent or representative of the Purchaser following reasonable
advance written notice from the Purchaser.
Section 6.2 Maintenance. The Issuer, acting in accordance with the prudent
operator standard, will keep its Equipment in a good state of repair and good
operating condition, will make repairs and replacements when and where
necessary, will not waste or destroy it or any part thereof, and will not be
negligent in the care or use thereof the Issuer shall repair and maintain its
Equipment in a manner sufficient to continue the operation of the Properties.
The Issuer shall use its Equipment in accordance with law and the manufacturer's
instructions.
19
Section 6.3 Negotiation of Dispositions. Where the Issuer is permitted to
dispose of any Equipment under this Agreement or by consent thereto hereafter
given by the Purchaser, the Issuer shall do so in an arm's length transaction,
in good faith and by obtaining the maximum amount of recovery practicable
therefor and without impairing the operating integrity of its remaining
Equipment or the Properties.
ARTICLE VII Covenants of the Issuer
Section 7.1 Affirmative Covenants. The Issuer warrants, covenants and
agrees that until full and final repayment of the Obligations and the
termination of each of the Transaction Documents, it will comply with the
following covenants:
(a) Payment and Performance. The Issuer will pay all amounts due to
the Purchaser under the Transaction Documents in accordance with the terms
thereof and will observe, perform and comply with every covenant, term and
condition expressed or implied in the Transaction Documents.
(b) Preferential Right To Purchase Hydrocarbons. Subject to those
agreements (if any) for the sale of Hydrocarbons which are in effect as of
the date hereof and which are identified on Schedule 4.1(v), the Issuer
grants to the Purchaser the right, exercisable at any time and from time to
time and in accordance with the further provisions of this Section and no
less than thirty (30) days prior to the first day of each month, to
purchase, in accordance with a form of gas purchase and sale agreement or
other agreement mutually satisfactory to the Purchaser and the Issuer (the
"Gas Purchase and Sale Agreement"), all or any part of the Hydrocarbons
produced from or allocable to the Properties proposed by the Issuer to be
committed to an agreement with a term of more than ninety (90) days;
provided, however, that the Purchaser shall not be obligated to exercise
any such right. The Issuer shall notify the Purchaser in writing of each
proposed sale of oil or gas for a term of more than ninety (90) days to a
party other than the Purchaser, including all pertinent terms and
conditions thereto, as far in advance as reasonably possible. The Purchaser
shall then have twenty-four (24) hours after receiving written notice of
the pertinent terms and conditions of each such proposed sale in which to
notify the Issuer of the Purchaser's election either to exercise or waive
its preferential right to purchase under the same terms and conditions. The
rights granted to the Purchaser in this Section 7.1(b) may be assigned, in
whole or in part, to one or more Affiliates of the Purchaser and shall
continue in full force and effect until the later of the full and final
payment and performance of all of the Issuer's Obligations or two (2) years
from the Closing Date.
(c) Compliance with Tax Laws. The Issuer shall comply with all
federal, state or local laws and regulations regarding the collection,
payment and deposit of employee' income, employment, and social security
and sales and use taxes and taxes related to royalty payments.
(d) Books, Financial Statements and Reports. The Issuer will at all
times maintain full and accurate books of account and records and a
standard system of
20
accounting and will furnish the following statements and reports to the
Purchaser at the Issuer's expense:
(i) As soon as available, and in any event within one hundred
twenty (120) days after the end of each Fiscal Year, complete audited
financial statements of the Issuer and its consolidated Subsidiaries,
prepared in reasonable detail in accordance with GAAP. These financial
statements shall contain a balance sheet as of the end of such Fiscal
Year and statements of earnings, of cash flows, and of changes in
shareholders equity for such Fiscal Year, each setting forth in
comparative form the corresponding figures for the preceding Fiscal
Year.
(ii) As soon as available, and in any event within sixty (60)
days after the end of each Fiscal Quarter, the Issuer's consolidated
balance sheet as of the end of such Fiscal Quarter and statements of
the Issuer's consolidated earnings and cash flows for the period from
the beginning of the then current Fiscal Year to the end of such
Fiscal Quarter, all in reasonable detail and prepared in accordance
with GAAP, subject to changes resulting from normal year-end
adjustments.
(iii) As and when furnished, copies of all reports and other
information provided by any Person (other than the Purchaser) to the
Issuer in connection with the Transaction Documents, except such as
are subject to attorney-client privilege, attorney work product
privilege or any other privilege. The Issuer may arrange for such
reports and information to be provided directly to the Purchaser by
the Person providing the same to the Issuer.
(iv) Within ten (10) Business Days after the end of each Fiscal
Quarter, a report setting forth any change in the list of Purchasers
of Hydrocarbons listed on Schedule 4.1(u).
(v) With each delivery of financial statements pursuant to
clauses (i) and (ii) of this Section 7.1(d), a completed Compliance
Certificate, provided that the Purchaser shall have the right to make
any good faith recalculation of any ratio or ratios or other
information set forth in any such Compliance Certificate, at any time
and from time to time, and such recalculations, so long as made in
good faith, shall be conclusive as between the Issuer and the
Purchaser.
(e) Other Information and Inspections. The Issuer will furnish to the
Purchaser any information which the Purchaser may from time to time
reasonably request in writing concerning any covenant, provision or
condition of the Transaction Documents or any matter in connection with the
Issuer's assets, business and/or operations (other than geological,
geophysical and other technical data relating to assets other than the
Properties). The Issuer will permit representatives appointed by the
Purchaser (including independent accountants, agents, attorneys, appraisers
and any other Persons), at the risk and expense of the Purchaser or such
representatives, to visit and inspect, during reasonable business hours and
upon reasonable prior written notice, its books of account and other books
and records relating to the Properties and other Collateral, and any
21
facilities or other business assets relating to the Collateral, and to make
photocopies and/or photographs thereof, and to write down and record any
information such representatives obtain, and the Issuer shall permit the
Purchaser or its representatives to investigate and verify the accuracy of
the information furnished to the Purchaser in connection with the
Transaction Documents and to discuss all such matters with its officers,
employees and representatives. In addition, the Issuer will permit any such
representatives appointed by the Purchaser, at the risk and expense of the
Purchaser or such representatives, to visit and inspect, during reasonable
hours and upon similar advance written notice, the Properties and other
Collateral. The Purchaser agrees that it will take all reasonable steps to
keep confidential any proprietary information given to it by the Issuer;
provided, however, that this restriction shall not apply to information
which (i) is at the time in question publicly available, (ii) is required
to be disclosed by law or by any order, rule or regulation (whether valid
or invalid) of any court or governmental agency, or authority, (iii) is
disclosed to the Purchaser's Affiliates, auditors, attorneys, Purchasers or
agents, or (iv) is disclosed in the course of the defense or enforcement of
the Transaction Documents or the defense or enforcement of the Purchaser's
exercise of its rights thereunder, provided that with respect to
information finished to Persons identified in clause (iii) (except when
furnished pursuant to clause (iv)) such Person shall be subject to the
foregoing confidentiality obligations applicable to the Purchaser.
(f) Reserve Reports. On or before each March 31 after the Closing Date
until the Redemption Date, the Issuer shall cause the preparation and
delivery to the Purchaser of petroleum engineering reports, in a form
reasonably satisfactory to the Purchaser, relating to the Properties and
prepared as of the preceding December 31 (collectively, the "Reserve
Reports" and individually, a "Reserve Report"). On or before each September
30 after the Closing Date until the Loan Terminate Date, the Issuer shall
cause the preparation and delivery to the Purchaser of a semi-annual update
of the preceding annual Reserve Report (or in the case of the update to be
provided on or before September 30, 2001, an update of the Initial Reserve
Report), such update to be effective as of the preceding June 30
(collectively, the "Update Reports" and individually, an "Update Report").
Each annual Reserve Report required hereby shall be prepared by Engineers
and shall be prepared at the Issuer's sole expense. Each semi-annual Update
Report required hereby shall be prepared by or under the supervision of the
Issuer's chief petroleum engineer. At the time that the Issuer delivers or
causes to be delivered to Purchaser each Reserve Report and each Update
Report, the Issuer shall also deliver to the Purchaser a certificate of an
authorized officer of the Issuer attesting to facts sufficient to establish
whether the Issuer is in compliance with the ratios set forth in Sections
7.1(y) and 7.2(q) and (r). Either party may request additional Reserve
Reports. Any additional Reserve Reports shall be prepared by Engineers but
at the expense of the requesting party. Each Reserve Report shall set forth
updated estimates of Proved Developed Producing Reserves, Proved Developed
Non-producing Reserves, Proved Undeveloped Reserves, projected production
profiles and overall economics of the Properties. Each Reserve Report and
Update Report will be based on the following assumptions:
22
(i) Hydrocarbon pricing used will be determined by the
Purchaser, in its sole discretion, using the parameters set forth on
Schedule 7.1(f)(i) attached hereto.
(ii) Operating Expenses and production taxes will be derived by
the Engineers who prepare such report from the Operator's best
estimate and historical Operating Expenses.
(iii) If within 30 days after the receipt of any Reserve Report
or Update Report the Purchaser sends written notice to the Issuer of
any objections that the Purchaser has to the methodology or
assumptions used in preparing such Reserve Report or Update Report or
with respect to the Operating Expenses or production taxes utilized
therein, the Issuer shall cause the Engineers in the case of a Reserve
Report or the Issuer's chief petroleum engineer in the case of an
Update Report to make such modifications to the Reserve Report or
Update Report as the Purchaser may reasonably request, and to resubmit
such modified Reserve Report or Update Report within 30 days after the
Purchaser's request.
(iv) Notwithstanding subsections (i), (ii) and (iii) above, any
estimations of Proved Reserves in any Reserve Report or Update Report
are subject to good faith modification by the Purchaser, in it sole
discretion, at any time and from time to time, based on information
available to the Purchaser and, so long as made in good faith, such
modifications shall be conclusive as between the Issuer and the
Purchaser.
(g) Notice of Investigations or Proceedings. The Issuer shall give the
Purchaser prompt written notice of any proceeding at law or in equity
against the Issuer, or any investigation or proceeding before or by any
administrative or governmental agency relating to the Issuer or any of the
Collateral if, in any case, such could reasonably be expected to have an
Adverse Effect.
(h) Notice of Damage to Collateral. The Issuer shall give the
Purchaser prompt written notice of any destruction or substantial damage to
any material portion of the Collateral and of the occurrence of any
condition or event which has caused, or may cause, material loss or
depreciation in the value of any property subject to the Purchaser's Liens
or the Mortgage.
(i) Maintenance of Licenses. The Issuer shall maintain all licenses,
permits, charters and registrations which are required for the conduct of
its business and where the failure to have such could reasonably be
expected to have an Adverse Effect.
(j) Maintenance of Rights. The Issuer will maintain, preserve, protect
and keep all of its contractual and property rights with respect to the
Collateral, other than those released to the Purchaser in connection with
the Transaction Documents, and will not waive, amend or release any such
rights, except when to do so could not reasonably be expected to have an
Adverse Effect.
23
(k) Maintenance of Existence and Qualifications. The Issuer will
maintain and preserve its corporate existence and its rights and
franchises in full force and effect and will qualify and/or remain
qualified to do business as a foreign corporation in all states or
jurisdictions where required by applicable law and the failure to do so
could reasonably be expected to have an Adverse Effect.
(l) Payment of Taxes and Trade Debt. Except to the extent being
contested in good faith, the Issuer will (i) timely pay all taxes,
assessments and other governmental charges or levies imposed upon it or
upon its income, profits or property; (ii) within thirty (30) days after
the same becomes due (or, with respect to any vendor within such longer
period as is acceptable to such vendor) pay all Debt (other than the
Obligations) owed by it; and (iii) maintain appropriate accruals and
reserves for all of the foregoing Debt in accordance with GAAP.
(m) Creditors. The Issuer shall notify the Purchaser promptly if the
Issuer fails to make any payment to lessors, suppliers, vendors, owners of
royalty interest, tax authorities or other Persons, where such nonpayment
could reasonably be expected to result in any Lien, other than a Permitted
Encumbrance, against any item of Collateral or otherwise have an Adverse
Effect. At any time such notification is due, the Issuer shall also provide
the Purchaser with a statement showing the identity of such creditors, the
amount due to each and the date each payment was due.
(n) Interest. The Issuer hereby promises to pay interest to the
Purchaser pursuant to the terms and at the rate stated in the Note on all
Obligations (including Obligations to pay fees or to reimburse or indemnify
the Purchaser) after such Obligations become due. The Issuer further agrees
that any interest which has accrued and is not paid when due shall be added
to and become part of the Indebtedness evidenced by the Note.
(o) Compliance with Agreements and Law. The Issuer will perform all
material obligations it is required to perform under the terms of the
Transaction Documents. The Issuer will conduct its business and affairs in
compliance with all laws, regulations and orders applicable thereto,
including Environmental Laws, except where the failure to do so would not
have an Adverse Effect.
(p) Insurance. The Issuer shall keep or cause to be kept all of the
Mortgaged Properties (as that term is defined in the Mortgage) that are
fixtures or personal property insured by insurance companies having a
rating no lower than "A+ VIII" by A.M. Best Company or otherwise acceptable
to the Purchaser against loss or damage by fire or other risk usually
insured against by owners or users of similar properties in similar
businesses under extended coverage endorsement and against theft, burglary
and pilferage, in amounts in accordance with industry standards. The Issuer
shall deliver to the Purchaser certificates of insurance at the time of
execution hereof, and on or before the renewal date of each such policy of
insurance. If and when the Purchaser so requests in writing, the Issuer
shall also deliver to the Purchaser copies of the policy or policies of
such insurance. All such insurance shall contain endorsements in form
satisfactory to the Purchaser showing the Purchaser as an additional party
insured as its interest may appear.
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In furtherance of the foregoing, the following types of insurance covering
the Collateral and the interest and liabilities incident to the ownership,
possession and operation thereof shall be secured by the Issuer:
(i) Worker's compensation insurance and employer's liability
insurance covering the employees of the Issuer engaged in operations
contemplated hereunder in compliance with all applicable state and
federal law and endorsed to provide all states coverage and
occupational disease coverage, as follows:
Workers Compensation Statutory
Employers Liability $500,000 Each Accident
$500,000 Disease Each Employee
(ii) Comprehensive general liability insurance with combined
single limit of not less than $20,000,000 per occurrence and endorsed
to provide coverage for explosion, collapse and underground damage
hazards to property of others, contractual liability, products and
completed operations, and for damage to underground resources, and
accidental pollution, bodily injury and property damage coverage in
sufficient amounts to meet umbrella underlying requirements;
(iii) Excess umbrella liability insurance with a combined single
limit of not less than $40,000,000 per occurrence and policy
aggregate;
(iv) Property insurance fully covering the personal property and
fixtures subject to this Agreement.
During the period of the drilling of wells and the construction of any
other improvements comprising a part of the Collateral, the Issuer shall, or as
applicable, shall cause its contractors or subcontractors to, obtain and
maintain well control insurance (including coverage for costs of redrilling) and
builder's risk insurance, as applicable, in such form and amounts as the
Purchaser may from time to time reasonably request in writing and worker's
compensation insurance covering all persons employed by the Issuer or its agents
or subcontractors of any tier in connection with any construction affecting the
Collateral, including, without limitation, all agents and employees of the
Issuer and the Issuer's subcontractors with respect to whom death or bodily
injury claims could be asserted against the Issuer.
(q) Certificates of Insurance. The Issuer shall deliver to the
Purchaser valid certificates of all insurance policies and all endorsements
thereto which are required hereunder to be obtained and maintained by the
Issuer.
(r) Prudent Operations. The Issuer shall prudently develop, and cause
the Properties to be prudently operated and maintained to produce the
output from or allocable to such property in a good and workmanlike manner
consistent with prudent operator practices to maximize production from or
allocable over the productive life thereof.
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(s) Maintenance of Leases. The Issuer shall use commercially
reasonable efforts to keep and perform all of the terms, conditions and
covenants of the Properties' Leases which are to be kept and performed by
the lessee for the benefit of the Purchaser.
(t) Monthly Reports. The Issuer shall provide the Purchaser with
monthly reports by telecopy or e-mail setting forth the quantities, types
and specifications of Hydrocarbons produced from or allocable to each of
the Properties, in form and substance satisfactory to the Purchaser.
(u) Legal Fees. The Issuer will pay on or before the Closing Date, all
reasonable legal expenses incurred by the Purchaser in connection with this
Agreement and the other Transaction Documents; and, thereafter, will
reimburse the Purchaser for all reasonable legal expenses incurred in
connection with any subsequent amendment, mortgage, extension or renewal of
any Transaction Document or the legal expenses attributable to the
enforcement of the same.
(v) Working Capital. The Issuer shall maintain at all times positive
working capital, as defined by GAAP; provided that the working capital
calculation shall include unused portions of the credit availability under
the Senior Debt and exclude, for future periods, mark to market amounts
under any Swap Agreements.
(w) Protection Against Drainage. Until the Obligations have been fully
and finally paid and performed, (i) to the extent that Properties are
operated by the Issuer, the Issuer shall act as a prudent operator in an
effort to identify and prevent the occurrence of any drainage of
Hydrocarbons from the Properties and (ii) to the extent that Properties are
not operated by the Issuer, the Issuer shall utilize its property and
contractual rights as a prudent owner in an effort to identify and prevent
the occurrence of any drainage of Hydrocarbons from the Properties.
(x) Interest on Purchaser's Third Party Costs, Expenses and Fees. All
third-party costs, fees and expenses incurred by the Purchaser for which
the Issuer is obligated to pay or reimburse the Purchaser pursuant to the
provisions of this Agreement which are not paid on or before the Closing
Date shall be payable within 15 days after the Issuer's receipt of an
invoice therefor from either the Purchaser or its third-party consultants
or vendors and the Issuer shall pay interest at the rate of twelve percent
(12%) from the date payable until paid on all such amounts.
(y) Proved Reserves to Net Debt Ratio. If the Issuer fails at any time
to maintain a ratio of the PV 10 of its Proved Reserves to its Net Debt of
at least 1.75 to 1, then: (a) the Issuer will within 30 days thereafter
implement a commodity price risk management plan (the "Plan") pursuant to
which it will hedge its Hydrocarbon price risk exposure through swaps,
collars or floors based on daily notional volumes equal to sixty-five
percent (65%) of the projected daily production of the Issuer's Proved
Developed Producing Reserves for a term of twelve months, and such Plan
shall continue to be implemented until such ratio rises above 1.75 to 1.
26
(z) Observation Rights. The Issuer shall notify the Purchaser at least
forty-five (45) days in advance of the time and place of each annual
meeting of shareholders of the Issuer, and the Purchaser shall be entitled
to have its designated representative attend and observe each such annual
meeting of shareholders that occurs prior to the full and final repayment
and performance of the Obligations; provided, however, that following the
occurrence and during the continuation of any Event of Default, the
Purchaser shall be entitled to designate one observer to attend and observe
all aspects of the Issuer's board of directors meetings, other than any
portions designated by a majority of the members of the Issuer's board of
directors as constituting an "executive session." Following the occurrence
and during the continuation of any Event of Default, the Issuer shall
provide the Purchaser with at least ten days advance written notice of the
time and place of each such board of directors meeting; provided, however,
that if the Issuer or any member of its board of directors, acting in
accordance with the Issuer's bylaws, determines that a meeting of the
Borrower's directors will be called with less than ten days advance written
notice, then the Issuer shall provide, or shall cause such director to
provide, written notice to the Purchaser of the time and place of such
meeting, either simultaneously with any written or oral notice given to the
members of the board of directors generally or on the next business day
after the party initiating such meeting made the decision to do so,
whichever is earlier.
(aa) Purchasers of Production. Issuer shall notify Purchaser promptly of any
changes to the list of Persons who purchased Hydrocarbons produced from or
allocated to the Properties, as set forth on Schedule 4.1(u) hereto, if, as
and when there is any change in the Persons who purchased such Hydrocarbons
and, in connection therewith, shall execute and deliver to the Purchaser
such additional Letters in Lieu as the Purchaser may reasonably request in
writing.
Section 7.2 Negative Covenants. The Issuer warrants, covenants and agrees
that until the full and final repayment of the Obligations and the termination
of each of the Transaction Documents:
(a) Limitation on Sales of Collateral. The Issuer will not sell,
transfer, lease, exchange, alienate or dispose of any Collateral or any
interest therein, except for the sale of Hydrocarbons in the ordinary
course of business and/or other sales to the extent pursuant to or as
expressly allowed under this Agreement and the Security Documents
encumbering such Collateral.
(b) Compensation. The Issuer shall not, directly or indirectly, enter
into any employment agreement or other arrangement with or for the benefit
of an officer, director or employee of the Issuer other than for reasonable
compensation for services as an officer, director or employee.
(c) Limitation on Credit Extensions. Neither the Issuer nor any of its
Affiliates will extend credit, make advances or make loans to any Person
except in the ordinary course of business.
27
(d) Certain Contracts: Amendments. The Issuer shall not amend or
permit any amendment to any contract or lease with respect to the
Collateral which releases, qualifies, limits, makes contingent or otherwise
modifies in a manner reasonably expected to have an Adverse Effect.
(e) Liabilities. Except as expressly provided herein, the Issuer shall
not assume, guaranty, or endorse or otherwise become directly or
contingently liable in connection with any other liability of any other
Person other than majority owned Affiliates, except for the indemnification
contained herein; provided, however, that the foregoing shall not prohibit
the endorsement of negotiable instruments for deposit or collection or
incurrence of obligations under operating agreements and similar
transactions in the ordinary course of business, For the purposes hereof,
"guaranty" shall include any agreement, whether such agreement is on a
contingency basis or otherwise, to purchase, repurchase or otherwise
acquire any obligation or liability of any other Person, or to purchase,
sell or lease, as lessee or lessor, property or services in any such case
primarily for the purpose of enabling another Person to make payment of any
such debt or liability, or to make any payment (whether as a capital
contribution, purchase of any equity interest or otherwise) to assure a
minimum equity, asset base, working capital or other balance sheet or
financial condition, in connection with Debt or liability of another
Person, or to supply funds to or in any manner invest in another Person in
connection with such Person's Debt or liability.
(f) Cancellation of Claims. Without the Purchaser's written consent,
prior to the full and final payment and performance of all of the
Obligations the Issuer shall not cancel any claims or debts relating to the
Properties in excess of a total of $50,000 except for reasonable
consideration and in the ordinary course of its business.
(g) Defaults. Except as previously disclosed to the Purchaser, the
Issuer shall not cause a default under any lease, mortgage, deed of trust
or lien with respect to the Properties.
(h) Security Interests and Liens. Subject to the Issuer's right to
contest in good faith or cure within 30 days of the filing of any Lien, the
Issuer shall not suffer to exist any valid Lien against the Properties or
consent to the filing of any financing statements on any of the Collateral,
other than the Liens created by the Security Documents and other Permitted
Encumbrances.
(i) Certain Changes. The Issuer shall not transfer its principal
office or its registered offices outside of the State of Texas or keep
Collateral at any location(s) other than those set forth in Schedule 4.1(t)
without prior written notice to the Purchaser and the execution and
delivery to the Purchaser of such additional Security Documents as may be
reasonably required by the Purchaser in connection therewith.
(j) Transaction Documents. The Issuer shall not alter, amend or cause
the alteration or amendment of any of the Transaction Documents without the
prior written consent of the Purchaser.
28
(k) Compensation. Issuer shall not, directly or indirectly, enter into
any employment agreement or other arrangement with or for the benefit of an
officer, director or employee of Issuer other than reasonable compensation
for services as an officer, director or employee.
(l) Acquisition. Except in connection with the formation of any
Subsidiary wholly owned by the Issuer, the Issuer shall not acquire or
commit or agree to acquire any of the stock, securities or assets of any
other Person other than as disclosed in writing to, and approved by, the
Purchaser in connection with the Issuer's acquisition of any of the
Properties.
(m) Creation of Subsidiary. The Issuer shall not (i) create any direct
or indirect Subsidiary, other than a wholly owned Subsidiary and then only
with prior written notice to the Purchaser, or divest itself of any
material assets by transferring them to any future Subsidiary or by
entering into a partnership, joint venture or similar arrangement, (ii)
make any material change in its capital structure, other than through the
issuance of equity securities having no mandatory redemption, or (iii)
enter into any management contract permitting a third party any management
rights with respect to the Issuer's business.
(n) Amendments to Formation Documents. The Issuer shall not adopt any
amendment, modification or waiver of any provision of its Articles of
Incorporation, other than in connection with the issuance of equity
securities having no mandatory cash redemption.
(o) Investments. Without the Purchaser's prior written consent, the
Issuer will not make, or suffer to exist, any Investment except as
permitted in clause (k) and (l) above and Investments in certificates of
deposit or other obligations of a bank or trust company having capital,
surplus and undivided profits of at least $100,000,000, or obligations of
the United States government or any agency thereof.
(p) Change of Operator. The Issuer shall not resign or be removed as
Operator of any of the Properties and shall not take any action to appoint,
remove or replace any other Operator without prior written notification to
the Purchaser.
(q) PV 10 of Proved Reserves to Net Debt. The Issuer shall not cause
or permit the ratio of the PV 10 of its Proved Reserves to its Net Debt, at
any time, to be less than 1.6 to 1.0.
(r) PV 10 Proved Developed Reserves to Net Debt. The Issuer shall not
cause or permit the ratio of the PV 10 of its Proved Developed Reserves to
its Net Debt, at any time, to be less than .8 to 1.0.
(s) Amendment of Senior Debt. With the exception of amendments entered
into between the Issuer and the Senior Creditor at or prior to the Closing
Date in connection with the Senior Creditor granting its consent to the
Issuer's entry into this Agreement and the other Transaction Documents, the
Issuer, without advance written consent from the Purchaser, shall not amend
any of the agreements and/or other
29
instruments relating to the Senior Debt and/or the Senior Liens in any
respect that may reasonably be expected to have an Adverse Effect,
including, but not limited to, any amendment that would permit the Issuer
to increase the maximum the Senior Debt available to be incurred and owing
to the Senior Creditor and the successors and assigns of the Senior
Creditor.
ARTICLE VIII Further Rights of the Purchaser and the Issuer
Section 8.1 Maintenance of Security Interests. Until the Obligations are
repaid in full, the Issuer, at its own expense, shall do all things and shall
deliver all instruments reasonably requested by the Purchaser in writing to
protect or perfect any security interest, mortgage or lien given hereunder or
under any Security Documents, including, without limitation, financing
statements under the Uniform Commercial Code. The Issuer hereby authorizes the
Purchaser, during the continuation of any Event of Default, to appoint such
Person or Persons as the Purchaser may designate as its attorney-in-fact to: (a)
complete any blanks contained in any Letter in Lieu delivered by the Issuer and
sign the Issuer's name to any additional Letters in Lieu, (b) endorse the name
of the Issuer on any checks, notes, drafts or other forms of payment or security
that may rightfully come into the possession of either the Purchaser or any
Affiliate of the Purchaser, (c) sign the Issuer's name on invoices or bills of
lading, drafts against customers, notices of assignment verifications and
schedules that relate exclusively to the Collateral and (d) generally, do all
things necessary to carry out this Agreement and the Security Documents to the
extent required of the Issuer pursuant to this Section 8.1 and Section 11.10.
The powers granted herein, being coupled with an interest, are irrevocable so
long as any Obligations are outstanding. Neither the Purchaser nor the attorney-
in-fact shall be liable for any act or omission, error in judgment or mistake of
law so long as the same is not malicious or grossly negligent. Upon payment and
performance of all Obligations of the Issuer to the Purchaser, such power of
attorney will become null and void. The Purchaser agrees that none of the
Letters in Lieu provided by the Issuer pursuant to this Agreement will be sent
to the addressees thereof unless an Event of Default has occurred and is
continuing, at which time the Purchaser may, at its option and in addition to
the exercise of any of its other rights and remedies, but recognizing the prior
right of the Senior Creditor under the documentation of the Senior Debt
(including, but not limited to, the documentation establishing the Senior
Liens), send any or all of such Letters in Lieu.
Section 8.2 Performance of Obligations. In the event that the Issuer fails
to purchase or maintain insurance in accordance with the requirements of this
Agreement or to pay any tax, assessment, government charge or levy, except as
the same may be otherwise permitted hereunder, or in the event that any Lien
prohibited hereby shall not be paid in full or discharged, or in the event that
the Issuer shall fail to perform or comply with any other covenant, promise or
Obligation to the Purchaser hereunder or under any Transaction Document, which
failure may reasonably be expected to cause an Adverse Effect the Purchaser may,
following written notice to the Issuer affording the Issuer ten (10) days after
the date of such notice to cure the relevant circumstance, but shall not be
required to, perform, pay, satisfy, discharge or bond the same for the account
of the Issuer, and all monies so paid by the Purchaser, including, without
limitation, reasonable attorneys' fees and disbursements, shall, at the
Purchaser's option, be treated as an additional Obligation of the Issuer to the
Purchaser hereunder and under the other Transaction
30
Documents. If the Purchaser has attempted to send the notice required hereby but
as the result of inadvertence not constituting gross negligence or willful
misconduct, such notice is improperly addressed or is not timely delivered, the
failure of the Issuer to have timely received such notice shall not in any way
prohibit or otherwise limit the exercise by the Purchaser of its rights under
this Section.
Section 8.3 Removal and Appointment of Operator. Upon the occurrence and
during the continuation of an Event of Default, the Purchaser shall, in its
reasonable discretion, have the right to approve or disapprove any action taken
by the Issuer to appoint, remove or replace the Operator of any of the
Properties.
Section 8.4 Set-Off Rights. Upon the occurrence and during the continuation
of an Event of Default, the Purchaser shall have the right to set-off and apply
against the Obligations in such manner as the Purchaser may determine, upon
written notice at any time to the Issuer, any and all deposits (general or
special, time or demand, provisional or final) or other sums at any time
credited by or owing from the Purchaser or any depositary to the Issuer whether
or not the Obligations are then due, except there shall not be such right
against any amounts owing to third-party working interest and royalty interest
holders of which the Purchaser shall have been notified. the Purchaser shall
provide notice to the Issuer not later than five (5) days following any
application of such funds.
ARTICLE IX Closing; Conditions to Closing
Section 9.1 Closing. Subject to the conditions set forth in this Agreement,
the closing of the transactions contemplated by this Agreement (the "Closing")
occurred at the offices of Porter & Hedges. L.L.P. in Houston, Texas, effective
on June 29, 2001. The date on which Closing actually occurred is referred to
herein as the "Closing Date."
Section 9.2 Conditions to Closing. As conditions precedent to Purchaser's
purchase of the Note, the Issuer shall deliver to the Purchaser (except as
otherwise provided below) the following documents duly executed and in form and
substance satisfactory to the Purchaser:
(a) the Note, and multiple counterparts of this Agreement dated
effective as of the Closing;
(b) a certificate of the secretary or assistant secretary of the
Issuer dated the Closing Date, certifying the incumbency of its officers
executing this Agreement and any other documents required hereby and
certifying resolutions adopted by the board of directors of the Issuer
authorizing the Issuer's execution and delivery of this Agreement, the
Note, the Mortgage, the Deed of Trust, the Security Agreement, the
Collateral Assignment of Contract Rights, and all other documents and
instruments contemplated by this Agreement;
(c) a certificate of the president or a vice president of the Issuer
dated the Closing Date certifying the truth and accuracy of the
representations and warranties of the Issuer set forth in this Agreement
and the Issuer's performance and compliance with
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all agreements and covenants required by this Agreement to be performed or
complied with prior to the purchase and sale of the Note;
(d) a copy of the Articles of Incorporation of the Issuer certified by
the Secretary of State of the State of Texas and a copy of its bylaws
certified by the secretary or an assistant secretary of the Issuer;
(e) certificates, as of the most recent dates practicable, of the
Secretary of State of the State of Texas attesting to the Issuer's
existence, and from the appropriate governmental authority of each state in
which the Issuer is qualified to do business as a foreign corporation
attesting to such qualification, and from the office of the comptroller of
public accounts, department of revenue or taxation, or other appropriate
governmental authority of each of the foregoing states, attesting to the
good standing of the Issuer;
(f) the Mortgage dated effective as of the Closing and in as many
counterparts as the Purchaser may require;
(g) the Deed of Trust dated effective as of the Closing and in as many
counterparts as the Purchaser may require;
(h) Letters in Lieu in as many counterparts as the Purchaser may
require;
(i) U.C.C.-1 financing statements to be filed under the Uniform
Commercial Code;
(j) a Swap Agreement, if requested by the Purchaser;
(k) the Security Agreement;
(l) the Gas Purchase and Sale Agreement;
(m) the Collateral Assignment of Contract Rights;
(n) the written opinion of the Issuer's counsel dated the Closing Date
and addressed to the Purchaser in form and substance satisfactory to the
Purchaser;
(o) evidence that the Issuer has obtained insurance in accordance with
Sections 7.1(p) and (q) hereof,
(p) the Initial Reserve Report;
(q) Title Opinions or other evidence satisfactory to the Purchaser
establishing that the Issuer has Defensible Title to the Properties,
subject only to Permitted Encumbrances;
(r) the results of Uniform Commercial Code searches showing all
financing statements and other documents or instruments on file against the
Issuer, in the Offices of the Secretaries of State of the State of Texas
and Louisiana and in the counties or parishes
32
in which the Properties are deemed to be located for recording purposes,
such search to be as of a date no more than ten days prior to the date of
the advance of the Purchase Price;
(s) any and all fees required under this Agreement as of the Closing
Date are paid in full; and
(t) such other documents and instruments as the Purchaser may
reasonably request.
Section 9.3 Further Conditions Precedent to Funding. Further to the
foregoing, the Purchaser shall not be obligated to purchase the Note unless the
following conditions precedent have been satisfied.
(a) there is no Event of Default, Unmatured Event of Default or Tax
Claim under this Agreement, the Mortgage, the Deed of Trust or any other
Transaction Document;
(b) all of the Issuer's representations and warranties made in any
Transaction Document shall be true and correct as if made on the date of
such advance (except to the extent that the facts upon which such
representation are based have been changed by the extension of credit
hereunder);
(c) the Issuer shall have performed and complied with all agreements
and conditions in the Transaction Documents which are required to be
performed or complied with by it on or prior to the Closing Date;
(d) no law, regulation, order, judgment or decree of any governmental
authority is in effect or pending which shall enjoin, prohibit or restrain
such loan or impose, or result in the imposition of, any adverse condition
upon the Purchaser;
(e) the Purchaser shall have received all documents and instruments
which the Purchaser has then reasonably requested as to (i) the accuracy
and validity of or compliance with all representations, warranties and
covenants made by the Issuer in any Transaction Document, (ii) the
satisfaction of all conditions contained herein or therein, and (iii) all
other matters pertaining hereto and thereto. All such additional documents
and instruments shall be satisfactory to the Purchaser (in reasonable
exercise of its discretion) in form, substance, and date;
(f) the Purchaser shall have received satisfactory due diligence
analysis including, but not limited to, financial and operational data,
title and environmental review, all such data to be provided by the Issuer;
and
(g) the Purchaser shall have received satisfactory information
regarding existing gas sales and oil sales with respect to production of
Hydrocarbons from or allocable to the Properties, which will include, for
gas sales on a well-by-well basis, where applicable, transportation costs,
gathering costs, processing costs, gas strewn heating content, then-current
market prices for gas of similar quality and copies of
33
existing sales contracts and for oil sales, individual well specific
gravity of produced oil, transportation costs, sulfur content, purchase
bonuses, then-current market prices for oil of similar quality, and copies
of existing sales contracts.
ARTICLE X Events of Default and Remedies
Section 10.1 Events of Default. Each of the following events constitutes an
Event of Default under this Agreement:
(a) the Issuer fails to pay any Obligation for principal or interest
owing under the Note when the same is due and payable, whether at a date
for the payment of a fixed installment or as a contingent or other payment
becomes due and payable or as a result of acceleration or otherwise;
(b) any Transaction Document at any time ceases to be valid, binding
and enforceable against the Issuer for any reason other than its release or
subordination made with the consent of the Purchaser, and such cessation is
not remedied in full within fifteen (15) days after the Issuer receives
written notice thereof;
(c) any "Event of Default," as defined in the Mortgage or the Deed of
Trust (other than an event which is referred to in subsection (a) or (b) of
this Section 10.1), occurs under the Mortgage, or the Deed of Trust and the
same is not remedied within the applicable period of grace (if any)
provided in the Mortgage or the Deed of Trust;
(d) the Issuer fails (other than as referred to in subsections (a)
through (c) of this Section 10.1) to duly observe, perform or comply with
any covenant, agreement, condition or provision of any Transaction Document
and such failure is not remedied within 30 days of the time at which the
Issuer receives written notice from the Purchaser or otherwise knows or
should have known of such failure;
(e) any representation or warranty previously, presently or hereafter
made in writing by or on behalf of the Issuer in connection with any
Transaction Document shall prove to have been false or incorrect in any
material respect on any date on or as of which made;
(f) any Lien against any of the Properties resulting from a Tax Claim
for $500,000 or more is asserted against the Issuer and such Tax Claim is
not withdrawn, formally disputed in good faith, or otherwise disposed of
within 30 days thereafter;
(g) subject to Permitted Encumbrances, and except for such resulting
from any failure by the Purchaser to duly file applicable Security
Documents executed and delivered by the Issuer or applicable UCC-3
continuation filings not required to be executed by the Issuer, the
Purchaser shall at any time not have a perfected first priority security
interest and/or Lien on all or any part of the Collateral;
(h) the Issuer's Working Interest and/or Net Revenue Interest
constituting any Property is decreased from those set forth in Exhibit A to
the Mortgage or the Deed of
34
Trust, as the case may be, other than pursuant to a Permitted Encumbrance
or with the prior written consent of the Purchaser;
(i) the Issuer:
(A) has entered against it a judgment, decree or order for
relief by a court of competent jurisdiction in an involuntary
proceeding commenced under any applicable bankruptcy, insolvency or
other similar law of any jurisdiction now or hereafter in effect,
including the federal Bankruptcy Code, as from time to time amended,
or has any such proceeding commenced against it which remains
undismissed for a period of 90 days; or
(B) commences a voluntary case under any applicable bankruptcy,
insolvency or similar law now or hereafter in effect, including the
federal Bankruptcy Code, as from time to time amended; or applies for
or consents to the entry of an order for relief in an involuntary case
under any such law; or makes a general assignment for the benefit of
creditors; or fails generally to pay (or admits in writing its
inability to pay) debts as such debts become due; or takes corporate
or other action to authorize any of the foregoing; or
(C) suffers the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of all or a substantial part of its assets or of any
part of the Collateral in a proceeding brought against or initiated by
it, and such appointment or taking possession is neither made
ineffective nor discharged within 60 days after the making thereof, or
such appointment or taking possession is at any time consented to,
requested by or acquiesced to by it; or
(D) suffers the entry against it of one or more final judgments
for the payment of money in excess of $1,000,000 in the aggregate,
unless the same is covered by insurance or is discharged within 30
days after the date of entry thereof or an appeal or appropriate
proceeding for review thereof is taken within such period and a stay
of execution pending such appeal is obtained; or
(E) suffers a writ or warrant of attachment or any similar
process to be issued by any court against all or any substantial part
of its assets or any part of the Collateral, and such writ or warrant
of attachment or any similar process is not stayed or released within
60 days after the entry or levy thereof or after any stay is vacated
or set aside; or
(F) fails to pay any Indebtedness in excess of $500,000.00
relating to the Properties (other than Indebtedness hereunder) or any
interest or premium thereon when due (whether at scheduled maturity or
by acceleration, demand or otherwise) and such failure shall continue
after any applicable grace period specified in the agreement or
instrument relating to such Indebtedness or any other event shall
occur and continue after any applicable grace period specified in such
agreement or instrument, if the effect of such default or event is to
accelerate
35
or permit the acceleration of, the maturity of such Indebtedness (in
excess of $500,000.00), or if, as the result of such a default, any
such Indebtedness (in excess of $500,000.00) shall be declared to be
due and payable, or is required to be prepaid, prior to the stated
maturity thereof; or
(j) two or more of T. Paul Bulmahn, Al Reese and Gerald W. Schlief
cease to be involved actively in the management of the Issuer.
Section 10.2 Acceleration.
(a) Automatic Acceleration. Upon the occurrence of an Event of Default
described in subsection (i)(A), (i)(B) or (i)(C) of Section 10.1, all of
the Obligations shall thereupon be immediately due and payable, without
demand, presentment, notice of demand or of dishonor and nonpayment,
protest, notice of protest, notice of intention to accelerate, declaration
or notice of acceleration, or any other notice or declaration of any kind,
all of which are hereby expressly waived by the Issuer and each obligor who
at any time ratifies or approves this Agreement. After any acceleration
under this subsection, any obligation of the Purchaser, if any, to make any
advances of any kind under any Transaction Document shall at the option of
the Purchaser be permanently terminated.
(b) Partial Acceleration. Upon the occurrence and during the
continuance of any Event of Default described in subsection (a), (c), (d)
or (e) of Section 10.1 with respect to any Obligation owing or Transaction
Document executed in connection therewith, the Purchaser at any time and
from time to time may declare any and a such Obligations immediately due
and payable, without demand, presentment, notice of demand or of dishonor
and nonpayment, protest, notice of protest, notice of intention to
accelerate, declaration or notice of acceleration, or any other notice or
declaration of any kind, all of which are hereby expressly waived by the
Issuer. Upon the Purchaser's acceleration of any or all of the Obligations,
it shall use commercially reasonable efforts to give the Issuer reasonably
contemporaneous written notice thereof, but any inadvertent error in the
timing or manner of giving such notice shall not affect, in any way, the
otherwise proper acceleration under the terms of this Agreement of such
Obligations.
(c) Tax Claims. Upon the occurrence and during the continuance of an
Event of Default described in subsection (g) of Section 10.1, the Purchaser
may at any time and from time to time and without notice to the Issuer,
except as may otherwise be required hereunder, declare any or all of the
Obligations associated with such Tax Claim (or which the Purchaser in its
reasonable discretion believes will be likely to become associated with
such Tax Claim or any similar future Tax Claim) immediately due and
payable, and all such Obligations shall thereupon be immediately due and
payable, without demand, presentment, notice of demand or of dishonor and
nonpayment, protest, notice of protest, notice of intention to accelerate,
declaration or notice of acceleration, or any other notice or declaration
of any kind, all of which are hereby expressly waived by the Issuer. Upon
the Purchaser's acceleration of any or all of the Obligations, it shall use
commercially reasonable efforts to give the Issuer reasonably
contemporaneous written notice thereof, but any inadvertent error in the
timing or manner of giving such notice shall not affect, in
36
any way, the otherwise proper acceleration under the terms of this
Agreement of such Obligations.
(d) Other Acceleration. Upon the occurrence and during the continuance
of any Event of Default not described in the preceding subsections (a), (b)
or (c) of this Section 10.2, the Purchaser may at any time and from time to
time and without notice to the Issuer, except as may otherwise be required
hereunder, declare any or all of the Obligations immediately due and
payable, and all such Obligations shall thereupon be immediately due and
payable, without demand, presentment, notice of demand or of dishonor and
nonpayment, protest, notice of protest, notice of intention to accelerate,
declaration or notice of acceleration, or any other notice or declaration
of any kind, all of which are hereby expressly waived by the Issuer. Upon
the Purchaser's acceleration of any or all of the Obligations, it shall use
commercially reasonable efforts to give the Issuer reasonably
contemporaneous written notice thereof, but any inadvertent error in the
timing or manner of giving such notice shall not affect, in any way, the
otherwise proper acceleration under the terms of this Agreement of such
Obligations.
Section 10.3 Remedies. If any Event of Default shall occur and be
continuing, the Purchaser may protect and enforce its rights under the
Transaction Documents by any appropriate proceedings, including proceedings for
specific performance of any covenant or agreement contained in any Transaction
Document, and the Purchaser may enforce the payment of any Obligations due or
enforce any other legal or equitable right. All rights, remedies and powers
conferred upon the Purchaser under the Transaction Documents shall be deemed
cumulative and not exclusive of any other rights, remedies or powers available
under the Transaction Documents or at law or in equity.
Section 10.4 Indemnity. Except to the extent expressly provided otherwise
in another Transaction Document, the Issuer agrees to indemnify the Purchaser,
upon written demand, from and against any and all liabilities, obligations,
claims, losses, damages, penalties, fines, actions, judgments, suits,
settlements, costs, expenses or disbursements (including reasonable fees of
attorneys, experts and advisors) of any kind or nature whatsoever (in this
section collectively called "liabilities and costs") which to any extent (in
whole or in part) may be imposed on, incurred by or asserted against the
Purchaser growing out of, resulting from or in any other way associated with any
of the Collateral, the Transaction Documents or the transactions and events
including the enforcement or defense thereof at any time associated therewith or
contemplated therein (including any violation or noncompliance with any
Environmental Laws by any Person or any liabilities or duties of any Person with
respect to Hazardous Materials found in or released into the environment). THE
FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH LIABILITIES AND COSTS
ARE IN ANY WAY OR TO ANY EXTENT CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT
ACT OR OMISSION OF ANY KIND BY THE PURCHASER PROVIDED THAT NO PERSON SHALL BE
ENTITLED UNDER THIS SECTION TO RECEIVE INDEMNIFICATION FOR THAT PORTION, IF ANY,
OF ANY LIABILITIES AND COSTS WHICH IS CAUSED BY SUCH PERSON'S GROSS NEGLIGENCE
OR WILLFUL MISCONDUCT. As used in this section the term The "Purchaser" shall
refer not only to the Person designated as such in Section 1.1, but also to its
Purchaser(s) and members and, with respect to each of the
37
foregoing, each director, officer, agent, attorney, employee, representative and
Affiliate of such Person.
ARTICLE XI Miscellaneous
Section 11.1 Waivers and Amendments. Acknowledgments and Admissions.
(a) Waivers and Amendments. No failure or delay (whether by course of
conduct or otherwise) by the Purchaser in exercising any right, power or
remedy which the Purchaser may have under any of the Transaction Documents
shall operate as a waiver thereof or of any other right, power or remedy,
nor shall any single or partial exercise by the Purchaser of any such
right, power or remedy preclude any other or further exercise thereof or of
any other right, power or remedy. No waiver of any provision of any
Transaction Document and no consent to any departure therefrom shall ever
be effective unless it is in writing and signed by the Purchaser, and then
such waiver or consent shall be effective only in the specific instances
and for the purposes for which given and to the extent specified in such
writing. No notice to or demand on the Issuer shall in any case of itself
entitle the Issuer to any other or further notice or demand in similar or
other circumstances. This Agreement and the other Transaction Documents set
forth the entire understanding and agreement of the parties hereto and
thereto with respect to the transactions contemplated herein and therein
and supersede all prior discussions and understandings with respect to the
subject matter hereof and thereof, and no modification or amendment of or
supplement to this Agreement or the other Transaction Documents shall be
valid or effective unless the same is in writing and signed by the party
against whom it is sought to be enforced.
(b) Acknowledgments and Admissions. The Issuer hereby represents,
warrants and acknowledges that (i) it has been advised by counsel in the
negotiation, execution and delivery of the Transaction Documents to which
it is a party, (ii) it has made independent decisions to enter into this
Agreement and the other Transaction Documents to which it is a party,
without reliance on any representation, warranty, covenant or undertaking
by the Purchaser, whether written, oral or implicit, other than as
expressly set out in this Agreement or in another Transaction Document
delivered on or after the date hereof, (iii) there are no representations,
warranties, covenants, undertakings or agreements by the Purchaser to the
Issuer as to the Transaction Documents except as expressly set out in this
Agreement or in another Transaction Document delivered on or after the date
hereof, (iv) the Purchaser owes no fiduciary duty to the Issuer with
respect to any Transaction Document or the transactions contemplated
thereby, (v) the relationship pursuant to the Transaction Documents between
the Issuer, on one hand, and the Purchaser, on the other hand, is and shall
be solely that of debtor and creditor, respectively, (vi) no partnership or
joint venture exists with respect to the Transaction Documents between the
Issuer and the Purchaser, (vii) should an Event of Default or Unmatured
Event of Default occur or exist the Purchaser will determine in its sole
discretion and for its own reasons what remedies and actions it will or
will not exercise or take at that time, (viii) without limiting any of the
foregoing, the Issuer is not relying upon any representation or covenant by
the Purchaser, or any representative
38
thereof, and no such representation or covenant has been made, that the
Purchaser will, at the time of an Event of Default or Unmatured Event of
Default, or at any other time, waive, negotiate, discuss or take or refrain
from taking any action permitted under the Transaction Documents with
respect to any such Event of Default or Unmatured Event of Default or any
other provision of the Transaction Documents, and (ix) the Purchaser has
relied upon the truthfulness of the acknowledgments in this section in
deciding to execute and deliver this Agreement and to purchase the Note.
THIS WRITTEN AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS REPRESENT THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN AGREEMENTS BETWEEN THE PARTIES.
Section 11.2 Survival of Agreements: Cumulative Nature. The Purchaser may
assign and/or transfer its rights and privileges under the Transaction Documents
at any time and from time to time; provided that the Purchaser shall remain
liable to perform, or cause to be performed, its obligations to the Issuer under
the terms of the Transaction Documents. All of the various representations,
warranties, covenants and agreements of the Issuer in the Transaction Documents
shall survive the execution and delivery of this Agreement and the other
Transaction Documents and the performance hereof and thereof, including the sale
and delivery of the Note and the other Transaction Documents, and shall further
survive until all of the Obligations are paid in full to the Purchaser and all
of the Purchaser's obligations to the Issuer are terminated. The
representations, warranties and covenants made by the Issuer in the Transaction
Documents, and the rights, powers and privileges granted to the Purchaser in the
Transaction Documents, are cumulative, and, except for expressly specified
waivers and consents, no Transaction Document shall be construed in the context
of another to diminish, nullify or otherwise reduce the benefit to the Purchaser
of any such representation, warranty, covenant, right, power or privilege. In
particular and without limitation, no exception set out in this Agreement to any
representation, warranty or covenant herein contained shall apply to any similar
representation, warranty or covenant contained in any other Transaction
Document, and each such similar representation, warranty or covenant shall be
subject only to those exceptions which are expressly made applicable to it by
the terms of the various Transaction Documents.
Section 11.3 Notices. All notices, requests, consents, demands and other
communications required or permitted under any Transaction Document shall be in
writing, unless otherwise specifically provided in such Transaction Document,
and shall be deemed sufficiently given or furnished if delivered by personal
delivery, by telecopy, by delivery service with proof of delivery or by
registered or certified United States mail, postage prepaid, (unless changed by
similar notice in writing given by the particular Person whose address is to be
changed). Any such notice or communication shall be deemed to have been given
(a) in the case of personal delivery or delivery service, as of the date of
delivery at the address and in the manner provided herein, (b) in the case of
telecopy, upon receipt, or (c) in the case of registered or certified United
States mail three (3) business days after deposit in the mail.
39
For mail delivery to:
ATP Oil and Gas Corporation
Attn: T. Paul Bulmahn, President
4600 Post Oak Place, Suite 200
Houston, Texas 77027
with copies to:
David G. Dunlap
Jackson Walker L.L.P.
1100 Louisiana, Suite 4200
Houston, Texas 77002
For mail delivery to:
Aquila Energy Capital Corporation
909 Fannin, Suite 1850
Two Houston Center
Houston, Texas 77010-1007
with copies to:
Michael L. Grove
Porter & Hedges, L.L.P.
700 Louisiana, Suite 3500
Houston, Texas 77002
Section 11.4 Parties in Interest, Transfers. All grants, covenants and
agreements contained in the Transaction Documents shall bind and inure to the
benefit of the parties thereto and their respective successors and assigns;
provided, however, that the Issuer shall not assign or transfer any of its
rights or delegate any of its duties or obligations under any Transaction
Document without the prior written consent of the Purchaser, which consent shall
not unreasonably be withheld or delayed. The Purchaser, at its option, may
assign or transfer any or all of its rights and delegate any and all of its
duties or obligations under any Transaction Document to any Affiliate of the
Purchaser at any time without the Issuer's consent, but the Purchaser shall not
assign or transfer any of its rights or delegate any of its duties or
obligations under any Transaction Document to any Person that is not an
Affiliate of the Purchaser without the prior written consent of the Issuer,
which consent shall not unreasonably be withheld or delayed. It shall be deemed
unreasonable for the Issuer to withhold or delay its consent to any such
proposed assignment, transfer or delegation by the Purchaser if the Purchaser
expressly agrees in writing to remain primarily liable to the Issuer for the
performance by such assignee or transferee of any and all of the duties and
obligations of the Purchaser under the Transaction Documents. Nothing expressed
or referred to in this Agreement shall be construed to give any Person other
than the parties to this Agreement and their permitted successors and assigns
any legal or equitable right, remedy, or claim under or with respect to this
Agreement or any
40
provision of this Agreement. This Agreement and all of its
provisions and conditions are for the sole and exclusive benefit of the parties
to this Agreement and their permitted successors and assigns.
41
Section 11.5 Governing Law, Submission to Process. This Agreement has been
entered into in Houston, Texas and shall be performable for all purposes in
Harris County, Texas, except that the Indebtedness evidenced by the Note shall
be payable by Issuer to Purchaser in the State of New York at the address and to
the account specified in or pursuant to the Note. Subject to the provisions of
Article XII, courts within the State of Texas shall have jurisdiction over any
and all disputes between the Issuer and the Purchaser, whether in law or equity,
including, but not limited to, any and all disputes arising out of or relating
to this Agreement or any other Transaction Document; and venue in any such
dispute whether in federal or state court shall be laid in Harris County, Texas.
Notwithstanding the forgoing provisions of this Section, however, the Issuer and
the Purchaser hereby acknowledge and stipulate that the transactions
contemplated by this Agreement and the other Transaction Documents have a
substantial relationship to the State of New York, and the Issuer and the
Purchaser agree that, except to the extent that the law of another jurisdiction
is expressly elected in a Transaction Document or mandatorily governs a
Transaction Document, the Transaction Documents shall be deemed contracts and
instruments made under the laws of the State of New York, and shall be construed
and enforced in accordance with and governed by the laws of the State of New
York, without regard to principles of such laws relating to conflicts of law.
Section 11.6 Limitation on Interest. The Purchaser, the Issuer and any
other parties to any Transaction Documents intend to contract in strict
compliance with applicable usury law from time to time in effect. In furtherance
thereof, the parties stipulate and agree that none of the terms and provisions
contained in the Transaction Documents shall ever be construed to create a
contract to pay, for the use, forbearance or detention of money, interest in
excess of the maximum amount of interest permitted to be charged by applicable
law from time to time in effect. Neither the Issuer nor any present or future
guarantors, endorsers or other Persons hereafter becoming liable for payment of
any Obligation shall ever be liable for unearned interest thereon or shall ever
be required to pay interest thereon in excess of the maximum amount that may be
lawfully charged under applicable law from time to time in effect, and the
provisions of this section shall control over all other provisions of the
Transaction Documents which may be in conflict or apparent conflict herewith.
The Purchaser expressly disavows any intention to charge or collect excessive
unearned interest or finance charges in the event the maturity of any Obligation
is accelerated. If (a) the maturity of any Obligation is accelerated for any
reason, (b) any Obligation is prepaid and as a result any amounts held to
constitute interest are determined to be in excess of the legal maximum, or (c)
the Purchaser or any other holder of any or all of the Obligations shall
otherwise collect moneys which are determined to constitute interest which would
otherwise increase the interest on any or all of the Obligations to an amount in
excess of that permitted to be charged by applicable law then in effect, then
all such sums determined to constitute interest in excess of such legal limit
shall, without penalty, be promptly applied to reduce the then outstanding
principal of the related Obligations or, at the Purchaser's or such holder's
option, promptly returned to the Issuer or the other payor thereof upon such
determination. In determining whether or not the interest paid or payable under
any specific circumstance exceeds the maximum amount permitted under applicable
law, the Purchaser and the Issuer (and any other payors thereof) shall to the
greatest extent permitted under applicable law, (x) characterize any non-
principal payment as an expense, fee or premium rather than as interest, (y)
exclude voluntary prepayments and the effects thereof, and (z) amortize,
prorate, allocate and spread the total amount of interest throughout the entire
contemplated term of the instruments evidencing the Obligations in accordance
with the amounts outstanding from time to
42
time thereunder and the maximum legal rate of interest from time to time in
effect under applicable law in order to lawfully charge the maximum amount of
interest permitted under applicable law.
Section 11.7 Termination; Limited Survival. In their sole and absolute
discretion, the Issuer and the Purchaser may each, at any time that no
Obligations are owing, elect in a notice delivered to the other to terminate
this Agreement. Upon receipt of such a notice, if no Obligations are then owing,
this Agreement and all other Transaction Documents shall thereupon be terminated
and the parties thereto released from any prospective obligations thereunder.
Notwithstanding the foregoing or anything herein to the contrary, any waivers or
admissions made by the Issuer or the Purchaser in any Transaction Documents, and
any obligations which any Person may have to indemnify or compensate the
Purchaser shall survive any termination of this Agreement or any other
Transaction Document. At the request and expense of the Issuer, the Purchaser
shall prepare and execute all necessary instruments to release and effect such
termination of the Transaction Documents.
Section 11.8 Severability. If any term or provision of any Transaction
Document shall be determined to be illegal or unenforceable, all other terms and
provisions of the Transaction Documents shall nevertheless remain effective and
shall be enforced to the fullest extent permitted by applicable law.
Section 11.9 Counterparts. This Agreement may be separately executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to constitute one and the same
Agreement.
Section 11.10 Further Assurances. The parties agree (a) to furnish upon
written request to each other such information, (b) to execute and deliver to
each other such documents, and (c) to do such other acts and things, all as the
other party may reasonably request for the purpose of carrying out the intent of
this Agreement and the Transaction Documents.
Section 11.11 Waiver of Punitive Damages, Etc. THE ISSUER AND THE PURCHASER
HEREBY (a) IRREVOCABLY WAIVE, TO THE MAXIMUM EXTENT PERMITTED BY LAW ANY RIGHT
THEY MAY HAVE TO CLAIM OR RECOVER IN ANY ARBITRATION ANY SPECIAL, EXEMPLARY,
PUNITIVE OR CONSEQUENTIAL DAMAGES OR DAMAGES OTHER THAN, OR IN ADDITION TO,
ACTUAL DAMAGES; (b) CERTIFY THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT
OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE OR
IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF ARBITRATION, SEEK TO ENFORCE
THE FOREGOING WAIVERS, AND (c) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER
INTO THIS AGREEMENT, THE OTHER TRANSACTION DOCUMENTS AND THE TRANSACTIONS
CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS CONTAINED IN THIS SECTION.
Section 11.12 Representations and Warranties of the Purchaser. To confirm
the Issuer's understanding concerning the Purchaser and the Purchaser's business
and obligations, and to
43
induce the Issuer to enter into this Agreement and to sell the Note, the
Purchaser represents and warrants to the Issuer that:
(a) Organization and Good Standing. The Purchaser is a corporation
duly organized, validly existing and in good standing under the laws of
Delaware, having all powers necessary to carry on its business and to enter
into and consummate the transactions contemplated by the Transaction
Documents.
(b) Authorization. The Purchaser has taken all actions necessary to
authorize the execution and delivery of the Transaction Documents and to
authorize the consummation of the transactions contemplated thereby and the
performance of its obligations thereunder, subject to satisfaction of the
terms and conditions of the Transaction Documents. The Purchaser is duly
authorized to lend funds hereunder, subject to satisfaction of the terms
and conditions of the Transaction Documents.
(c) No Conflicts or Consents. Except as expressly contemplated in the
Transaction Documents, no consent, approval, authorization or order of, and
no notice to or filing with, any court or governmental authority or third-
party is required in connection with the execution, delivery or performance
by the Purchaser of any Transaction Document or to consummate any
transaction contemplated by the Transaction Documents.
(d) Enforceable Obligations. This Agreement is, and the other
Transaction Documents when executed and delivered by the Purchaser will be,
legal, valid and binding obligations of the Purchaser, enforceable in
accordance with their terms except as such enforcement may be limited by
bankruptcy, insolvency or similar laws of general application relating to
the enforcement of debtor's rights or by principles of equity applicable to
the enforcement of debtor's rights generally.
(e) Compliance with Agreement and Law. The Purchaser will perform all
material obligations it is required to perform under the terms of the
Transaction Documents. The Purchaser will conduct its business and affairs
in material compliance with laws, regulations and orders applicable
thereto.
Section 11.13 Relationship to Senior Debt. The Issuer and the Purchaser
acknowledge and agree that to the extent that any of the terms of this Agreement
or the other Transaction Documents conflict with the provisions of that certain
Credit Agreement dated as of April 27, 2001, among the Issuer, as Borrower, BNP
Paribas, as Administrative Agent, and the Lenders signatory thereto, as amended,
establishing a $100,000,000.00 Senior Secured Reducing Revolving Credit Facility
or any of the Loan Documents (as such term is defined in such Credit Agreement)
executed by the Issuer in connection therewith (collectively the "Senior Credit
Documents") including, but not limited to, provisions requiring that payment of
any Obligations be made from the Issuer to the Purchaser or requiring that any
liens or security interests granted by the Issuer to the Purchaser relating to
any of the Collateral be maintained at a level of priority that would be senior
to the rights of the Senior Creditor with respect to such Collateral, all of
such conflicting provisions in this Agreement or any other Transaction Document
shall be and are hereby agreed to be subject to and revised to conform to the
requirements of the Intercreditor
44
Agreement for so long as the terms and provisions of the Intercreditor Agreement
remain in force and effect between the Senior Creditor and the Purchaser. This
provision is hereby deemed to be incorporated by reference into each other
Transaction Document.
ARTICLE XII Arbitration
Section 12.1 Arbitration.
(a) The Issuer and the Purchaser and any other obligor party (the
"parties") will attempt in good faith to resolve any controversy or dispute
arising out of or relating to this Agreement promptly by negotiations
between themselves. The negotiation process may be started by the giving of
written notice by any party to the other parties in accordance with the
terms of Section 11.3 hereof, and the parties agree to negotiate in good
faith, and select an independent mediator to facilitate the negotiations
and conduct up to eight consecutive hours of mediated negotiations in
Houston, Texas within thirty (30) days after the notice is first sent. If,
within ten (10) days after the initial notice, the parties are not able to
agree upon a mediator, the parties shall immediately proceed to
arbitration. Fees and expenses of the mediator shall be borne equally by
the Issuer and the Purchaser.
(b) No litigation or other proceeding may ever be instituted at any
time in any court for any purpose, except as may be set forth in Section
12.1(h) hereof.
(c) If a controversy or dispute is not resolved after completion of
the negotiation process described in subsection (a) above, then, upon
notice by any party to the other parties (an "Arbitration Notice") and to
the American Arbitration Association ("AAA") in Houston, Texas, the
controversy or dispute shall be submitted to an arbitration panel for
binding arbitration in Houston, Texas, in accordance with AAA's Commercial
Arbitration Rules (the "Rules"). The parties agree that they will
faithfully observe this Agreement and the Rules and that they will abide by
and perform any award rendered by the arbitration panel. The arbitration
shall be governed by the Federal Arbitration Act, 9 U.S.C. Section 1-16.
The award or judgment of the arbitration panel shall be final and binding
on all parties and judgment upon the award or judgment of the arbitration
panel may be entered and enforced by any court having jurisdiction. If any
party becomes the subject of a bankruptcy, receivership or other similar
proceeding under the laws of the United States of America, any state or
commonwealth or any other nation or political subdivision thereof, then, to
the extent permitted or not prohibited by applicable law, any factual or
substantive legal issues arising in or during the pendency of any such
proceeding shall be subject to all of the foregoing mandatory mediation and
arbitration provisions and shall be resolved in accordance therewith. The
agreements contained herein have been given for valuable consideration, are
coupled with an interest and are not intended to be executory contracts.
The fees and expenses of the arbitration panel will be shared by all
parties engaged in the dispute or controversy on a basis determined to be
fair and equitable by the arbitrators, taking into account the relative
fault of each party, the relative credibility and merit of all claims and
defenses made by each party and the cooperation, speed and efficiency of
each party in conducting the
45
arbitration proceeding and complying with the Rules and with orders and
requests of the arbitrators.
(d) Promptly after the Arbitration Notice is given, each party will
select an arbitrator and the arbitrators so selected will in turn select an
independent and impartial third arbitrator. If the arbitrators selected by
the parties are unable to agree on a third arbitrator, then one of the
parties shall notify AAA and AAA shall select the third arbitrator. The
decision of AAA with respect to the selection of the third arbitrator will
be final and binding in such case. Such three arbitrators will constitute
the arbitration panel.
(e) Within 10 days after the selection of the arbitration panel, the
parties and their counsel will appear before the arbitration panel at a
place and time in Houston, Texas, as may be designated by the arbitration
panel for the purpose of each party making a one hour or less presentation
and summary of the case. Thereafter, the arbitration panel will set dates
and times for additional hearings until the proceeding is concluded. The
desire and goal of the parties is, and the arbitration panel will be
advised that its goal should be, to conduct and conclude the arbitration
proceeding as expeditiously as possible.
(f) Any arbitral award may be enforced in a District Court of the
State of Texas sitting in Houston, Texas or in the United States District
for the Southern District of Texas, Houston Division, and, by execution and
delivery of this Agreement, the parties hereby accept for themselves and in
respect of their property, generally and unconditionally, the nonexclusive
jurisdiction of the aforesaid courts for said purpose and the parties
hereby irrevocably waive to the fullest extent permitted by law any
objection, including without limitation, any objection to the laying of
venue or based on the grounds of forum non conveniens, which they may now
or hereafter have to the bringing of any such action or proceeding in such
respective jurisdictions.
(g) The arbitration panel will have no authority to award punitive or
other damages not measured by the prevailing party's actual damages and may
not, in any event, make any ruling, finding, or award that does not conform
to the terms and conditions of this Agreement.
(h) The provisions of this Section 12.1 relating to arbitration of
disputes shall not apply to litigation that is instituted for the sole
purpose of either: (i) compelling a party to submit to arbitration in
accordance with the provisions of this Section 12.1, or (ii) obtaining
enforcement of any award or judgment of the arbitrator(s) issued pursuant
to this Section 12.1.
(i) The provisions of this Article XII shall terminate immediately if,
as and when the party originally identified herein as the "Purchaser" no
longer owns any rights or interests under this Agreement and the
Obligations of the Issuer arising pursuant hereto; provided that if any
arbitration under the provisions of this Article has been initiated prior
to the time that such the Purchaser no longer owns any such rights or
interests under this Agreement and the Obligations, the provisions of this
Article shall continue to be applicable to any such arbitration that has
been commenced.
46
[signature page follows]
47
IN WITNESS WHEREOF, this Agreement is executed as of the date first
written above.
ISSUER:
ATP Oil & Gas Corporation
By: /s/ T. Paul Bulmahn
-----------------------------------
T. Paul Bulmahn
President
PURCHASER:
Aquila Energy Capital Corporation
By: /s/ Kenneth F. Wyatt
-----------------------------------
Kenneth F. Wyatt
Vice President
NOTICE TO ISSUER
THIS WRITTEN NOTE PURCHASE AGREEMENT IS THE FINAL EXPRESSION OF THE NOTE
PURCHASE AGREEMENT BETWEEN THE ISSUER AND THE PURCHASER. THIS WRITTEN NOTE
PURCHASE AGREEMENT MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR ORAL NOTE
PURCHASE AGREEMENT OR OF A CONTEMPORANEOUS ORAL NOTE PURCHASE AGREEMENT BETWEEN
THE ISSUER AND THE PURCHASER.
Affirmation of No Unwritten Oral Note Purchase Agreements. The Issuer
and the Purchaser affirm by the initials below of their authorized officers or
representatives that no unwritten, oral credit agreement exists between them.
__________________________________ _____________________________________
Issuer's Representative's Initials Purchaser's Representative's Initials
48
EXHIBIT B
NOTE
----
(this "Note")
$31,250,000.00 New York, New York June 29, 2001
On the dates hereinafter prescribed, for value received, ATP OIL & GAS
CORPORATION, a corporation organized and existing under the laws of the State of
Texas (hereinafter called "Issuer"), unconditionally promises to pay to the
order of AQUILA ENERGY CAPITAL CORPORATION, a corporation organized and existing
under the laws of the State of Delaware (hereinafter called "Purchaser"), as
provided for in that certain Note Purchase Agreement, by and between Issuer and
Purchaser dated of even date herewith (the "Note Purchase Agreement"): (i) the
principal amount of THIRTY ONE MILLION, TWO HUNDRED FIFTY THOUSAND AND NO/100
DOLLARS ($31,250,000.00) pursuant to the terms of the Note Purchase Agreement as
of the date of maturity hereof, whether by acceleration or otherwise, and (ii)
interest on the face amount of this Note, less any repayments of principal made
from time to time, from the date on which the purchase price of this Note is
advanced by Purchaser to Issuer until maturity at a rate of interest equal to
the lesser of (a) the Interest Rate (as hereinafter defined), or (b) the Maximum
Rate (as hereinafter defined). Any increase or decrease in interest rate
resulting from a change in the Maximum Rate shall be effective immediately when
such change becomes effective, without notice to Issuer, unless Applicable Law
(as hereinafter defined) requires that such increase or decrease not be
effective until a later time, in which event such increase or decrease shall be
effective at the earliest time permitted under the provisions of such law.
Notwithstanding the foregoing, if during any period the Interest Rate
exceeds the Maximum Rate, the rate of interest in effect on this Note shall be
limited to the Maximum Rate during each such period, but at all times thereafter
the rate of interest in effect on this Note shall be the Maximum Rate until the
total amount of interest accrued on this Note equals the total amount of
interest which would have accrued hereon if the Interest Rate had at all times
been in effect.
The indebtedness evidenced by this Note shall be payable by Issuer to
Purchaser in New York, New York, to the account of Purchaser and at such
financial institution in New York, New York as is designated in writing by
Purchaser to Issuer prior to the first Payment Date and from time to time,
thereafter, in accordance with the procedures for giving notice as set forth in
Section 11.3 of the Note Purchase Agreement. Such indebtedness shall be repaid
as and when provided in the Note Purchase Agreement, including, but not limited
to, the provisions of Sections 2.3 through 2.6 thereof.
The first Payment Date (as defined in the Note Purchase Agreement) for this
Note shall be on September 28, 2001. On or before such Payment Date and on or
before each Payment Date thereafter, a regular quarterly installment of interest
on this Note shall be due and payable in accordance with Section 2.3 of the Note
Purchase Agreement. These quarterly installments
shall continue regularly until the Redemption Date (as defined in the Note
Purchase Agreement), on which date the unpaid principal balance of this Note and
all accrued, unpaid interest thereon shall be due and payable in full, together
with the Repayment Premium required by Section 2.5 of the Note Purchase
Agreement.
Issuer may make a prepayment of principal on this Note only in accordance
with Section 2.4 of the Note Purchase Agreement.
In no event shall the aggregate of the interest on this Note, plus any
other amounts paid in connection with the loan evidenced by this Note which
would under Applicable Law be deemed "interest," ever exceed the maximum amount
of interest which, under Applicable Law, could be lawfully charged on this Note.
Purchaser and Issuer specifically intend and agree to limit contractually the
interest payable on this Note to not more than an amount determined at the
Maximum Rate. Therefore, none of the terms of this Note or any other
instruments pertaining to or securing this Note shall ever be construed to
create a contract to pay interest at a rate in excess of the Maximum Rate, and
neither Issuer nor any other party liable herefor shall ever be liable for
interest in excess of that determined at the Maximum Rate, and the provisions of
this paragraph shall control over all provisions of this Note or of any other
instruments pertaining to or securing this Note. If any amount of interest
taken or received by Purchaser shall be in excess of the maximum amount of
interest which, under Applicable Law, could lawfully have been collected on this
Note, then the excess shall be deemed to have been the result of a mathematical
error by the parties hereto and shall be refunded promptly to Issuer. All
amounts paid or agreed to be paid in connection with the indebtedness evidenced
by this Note which would under Applicable Law be deemed "interest" shall, to the
extent permitted by Applicable Law, be amortized, prorated, allocated and spread
throughout the full term of this Note.
This Note is secured by the Security Documents (as defined in the Note
Purchase Agreement), including those executed simultaneously herewith, those
executed heretofore and those hereafter executed.
This Note is the Note issued pursuant to the Note Purchase Agreement.
Reference is hereby made to the Note Purchase Agreement for a statement of the
rights and obligations of the holder of this Note and the duties and obligations
of Issuer in relation thereto. Each payment made pursuant to this Note shall be
reflected by notations made by Purchaser on its records and the aggregate unpaid
amounts reflected by the notations on the records of Purchaser shall be deemed
rebuttably presumptive evidence of the principal amount and accrued, unpaid
interest owing under this Note.
In the event of default in the payment when due of any of the principal of
or any interest on this Note, or in the event of default under the terms of the
Note Purchase Agreement or any of the Security Documents, as such terms are
defined in the Note Purchase Agreement, or if any event occurs or condition
exists which authorizes the acceleration of the maturity of this Note under any
agreement made by Issuer, Purchaser (or other holder of this Note) may, at its
option, without presentment or demand or any notice to Issuer or any other
person liable herefor, declare
the unpaid principal balance of and accrued interest on this Note to be
immediately due and payable.
If this Note is collected by suit or through the Bankruptcy Court, or any
judicial proceeding, or if this Note is not paid at maturity, however such
maturity may be brought about, and is placed in the hands of an attorney for
collection, then Issuer agrees to pay Purchaser's expenses, including, without
limitation, reasonable attorneys' fees.
Issuer and all sureties, endorsers and guarantors of this Note waive
demand, presentment for payment, notice of nonpayment, protest, notice of
protest, notice of intent to accelerate maturity, notice of acceleration of
maturity, and all other notices, filing of suit and diligence in collecting this
Note or enforcing any of the security herefor, and agree to any substitution,
exchange or release of any such security or the release of any party primarily
or secondarily liable hereon and further agrees that it will not be necessary
for Purchaser, in order to enforce payment of this Note, to first institute suit
or exhaust its remedies against Issuer or others liable herefor, or to enforce
its rights against any security herefor, and consent to any one or more
extensions or postponements of time of payment of this Note on any terms or any
other indulgences with respect hereto, without notice thereof to any of them.
Purchaser may transfer this Note in compliance with applicable provisions of the
Note Purchase Agreement, and the rights and privileges of Purchaser under this
Note shall, following any such transfer, inure to the benefit of Purchaser's
successors or assigns.
For purposes of this Note, each of the following terms shall have the
meaning given to such term below in this paragraph:
"Applicable Law" means the laws of the State of New York and applicable
laws of the United States of America; and this Note shall be deemed to be a note
made under the laws of the State of New York and shall be construed and enforced
in accordance with and governed by the laws of such state, without regard to
principles of such laws relating to conflicts of law.
"Business Day" shall mean any day on which banks are open for general
banking business in the State of New York, other than a Saturday, a Sunday, a
legal holiday or any other day on which banks in the State of New York are
required or authorized by law or executive order to close.
"Interest Rate" means, for each calendar month through the Redemption Date
an annual rate of eleven and five-tenths percent (11.5%) and otherwise
calculated in accordance with applicable provisions of the Note Purchase
Agreement; provided, however, that upon the occurrence and continuation of an
Event of Default under the terms of the Note Purchase Agreement, such annual
rate shall be equal to fourteen percent (14%).
"Maximum Rate" means the maximum rate of non-usurious interest permitted
from day to day by Applicable Law.
Executed and effective as of the date and year first set forth above.
ATP OIL & GAS CORPORATION
By: /s/ T. Paul Bulmahn
--------------------------------
T. Paul Bulmahn
President