EXHIBIT 4.1
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QUICKSILVER RESOURCES INC.
Note Purchase Agreement
for
$63,000,000 14.75% Second Mortgage Notes
Due March 30, 2009
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TABLE OF CONTENTS
PAGE
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ARTICLE I. AUTHORIZATION OF NOTES; CALCULATIONS................................1
Section 1.1. Authorization of Notes....................................1
Section 1.2. Calculations and Determinations...........................1
ARTICLE II. SALE AND PURCHASE OF NOTES; FEES...................................1
Section 2.1. Sale and Purchase of Notes................................1
Section 2.2. Financing Fee.............................................2
ARTICLE III. CLOSING...........................................................2
Section 3.1. Closing...................................................2
ARTICLE IV. CONDITIONS TO CLOSING..............................................2
Section 4.1. Documents to be Delivered.................................2
Section 4.2. General Conditions Precedent..............................4
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................6
Section 5.1. Borrower's Representations and Warranties.................6
(a) No Default................................................6
(b) Organization and Good Standing............................6
(c) Authorization.............................................6
(d) No Conflicts or Consents..................................7
(e) Enforceable Obligations...................................7
(f) Initial Financial Statements..............................7
(g) Other Obligations and Restrictions........................7
(h) Full Disclosure...........................................7
(i) Environmental Laws........................................8
(j) Names and Places of Business..............................9
(k) Organization and Ownership of Shares of Subsidiaries......9
(l) Litigation; Observance of Statutes and Orders.............9
(m) Taxes.....................................................9
(n) Title to Property; Leases................................10
(o) Compliance with ERISA....................................11
(p) Private Offering by the Company..........................12
(q) Use of Proceeds; Margin Regulations......................12
(r) Foreign Assets Control Regulations, etc..................12
(s) Status under Certain Statutes............................12
(t) Commodity Price Risk Policy..............................12
(u) Cinnabar.................................................12
ARTICLE VI. REPRESENTATIONS OF THE PURCHASERS.................................13
Section 6.1. Purchase for Investment..................................13
Section 6.2. Source of Funds..........................................13
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ARTICLE VII. PAYMENTS OF PRINCIPAL AND INTEREST; PREPAYMENTS; PUT
OPTION...................................................................14
Section 7.1. Regular Interest Payments................................14
Section 7.2. Regular Principal Payments...............................15
Section 7.3. Optional Prepayments.....................................15
(a) Prepayment Premiums......................................15
(b) Allocation of Partial Prepayments........................16
(c) Maturity; Surrender, etc.................................16
(d) Purchase of Notes........................................16
Section 7.4. Change of Control........................................16
Section 7.5. Payments.................................................17
ARTICLE VIII. AFFIRMATIVE COVENANTS; SECURITY.................................17
Section 8.1. Affirmative Covenants....................................17
(a) Payment and Performance..................................17
(b) Books, Financial Statements and Reports..................17
(c) Other Information and Inspections........................19
(d) Notice of Material Events and Change of Address..........19
(e) Maintenance and Operation of Properties..................20
(f) Maintenance of Existence and Qualifications..............20
(g) Payment of Trade Liabilities, Taxes, etc.................20
(h) Bonding and Insurance....................................20
(i) Payment of Expenses......................................21
(j) Performance on the Company's Behalf......................21
(k) Interest.................................................22
(l) Compliance with Agreements and Law.......................22
(m) Evidence of Compliance...................................22
(n) Collateral Coverage Ratio................................22
Section 8.2. The Security.............................................22
Section 8.3. Agreement to Deliver Security Documents..................22
Section 8.4. Perfection and Protection of Security Interests
and Liens................................................................23
Section 8.5. Production Proceeds......................................23
Section 8.6. Guaranties of the Company's Subsidiaries.................23
ARTICLE IX. NEGATIVE COVENANTS................................................24
Section 9.1. Negative Covenants.......................................24
(a) Debt.....................................................24
(b) Limitation on Liens......................................25
(c) Limits on Hedging Contracts..............................25
(d) Limits on Amendments.....................................25
(e) Limits on Mergers and Subsidiary Equity Issuances........25
(f) Limitation on Distributions and Redemptions..............26
(g) Limitation on Sales or Abandonments......................26
(h) Limitation on Investments and New Businesses.............27
(i) Limitation on Credit Extensions..........................27
(j) Transactions with Affiliates.............................27
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(k) ERISA Plans..............................................27
(l) No Public Announcements..................................27
(m) EBITDAX..................................................28
(n) Working Capital..........................................28
(o) Cinnabar.................................................28
ARTICLE X. EVENTS OF DEFAULT..................................................28
Section 10.1. Events of Default........................................29
Section 10.2. Remedies.................................................31
Section 10.3. Rescission...............................................31
ARTICLE XI. REGISTRATION; EXCHANGE; SUBSTITUTION OF
NOTES;RESTRICTIONS ON TRANSFER OF NOTES..................................32
Section 11.1. Registration of Notes....................................32
Section 11.2. Transfer and Exchange of Notes...........................32
Section 11.3. Replacement of Notes.....................................33
Section 11.4. Restriction on Transfer..................................33
ARTICLE XII. COLLATERAL AGENT.................................................34
Section 12.1. Appointment and Authority................................34
Section 12.2. Exculpation, Collateral Agent's Reliance, Etc............34
Section 12.3. Credit Decisions.........................................35
Section 12.4. Indemnification..........................................35
Section 12.5. Rights as Purchaser......................................36
Section 12.6. Sharing of Set-Offs, Collections, and Payments...........36
Section 12.7. Investments..............................................37
Section 12.8. Benefit of Article XII...................................37
Section 12.9. Resignation..............................................37
ARTICLE XIII. MISCELLANEOUS...................................................38
Section 13.1. Place of Payment.........................................38
Section 13.2. Home Office Payment......................................38
Section 13.3. Waivers and Amendments; Acknowledgments..................38
(a) Waivers and Amendments...................................38
(b) Solicitation.............................................39
(c) Payment..................................................39
(d) Acknowledgments and Admissions...........................39
Section 13.4. Survival of Agreements; Cumulative Nature................40
Section 13.5. Indemnity................................................41
Section 13.6. Notices..................................................41
Section 13.7. Parties in Interest......................................42
Section 13.8. Governing Law; Submission to Process.....................42
Section 13.9. Limitation on Interest...................................42
Section 13.10. Termination; Limited Survival............................43
Section 13.11. Reproduction of Documents................................43
Section 13.12. Confidentiality..........................................44
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Section 13.13 Subordination Agreement..................................45
Section 13.14 Severability.............................................45
Section 13.15 Counterparts.............................................45
Section 13.16 Waiver of Jury Trial, Punitive Damages, Etc..............45
SCHEDULES
Schedule A Information Relating to Purchasers
Schedule B Defined Terms
Schedule C Disclosure Schedule
Schedule D Security Schedule
Schedule E Insurance Schedule
EXHIBITS
Exhibit 1 Form of Notes
Exhibit 2 Form of Opinion of Counsel to the Company
Exhibit 3 Form of Certificate Accompanying Financial Statements
Exhibit 4 Form of Accredited Investor Letter
Exhibit 5 Commodity Price Risk Policy
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NOTE PURCHASE AGREEMENT
This Note Purchase Agreement (this "Agreement") is made as of March 31,
2000, by Quicksilver Resources Inc. (the "Company"), TCW Asset Management
Company, as Collateral Agent for the Purchasers, and each other party hereto
that is listed as a Purchaser on Schedule A hereto, all of whom hereby agree as
follows:
ARTICLE I.
AUTHORIZATION OF NOTES; CALCULATIONS
Section I.1. Authorization of Notes. The Company has authorized the
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issuance and sale of $63,000,000 aggregate principal amount of its 14.75% Second
Mortgage Notes due March 30, 2009 (the "Notes", such term to include any such
notes issued in substitution therefor pursuant to this Agreement). The Notes
shall be substantially in the form set out in Exhibit 1 hereto, with such
changes therefrom, if any, as may be approved by all of the Purchasers and the
Company. Certain capitalized terms and other references used in this Agreement
are defined in Schedule B hereto.
Section I.2. Calculations and Determinations. All calculations under the
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Transaction Documents of interest shall be made on the basis of actual days
elapsed (including the first day but excluding the last) and a year of 360 days
consisting of twelve 30-day months. Each determination by any Purchaser of
amounts to be paid hereunder or any other matters which are to be determined
hereunder by such Purchaser shall, in the absence of manifest error, be
conclusive and binding. Unless otherwise expressly provided herein, all
financial statements and reports furnished to the Purchasers hereunder shall be
prepared and all financial computations and determinations pursuant hereto shall
be made in accordance with GAAP.
ARTICLE II.
SALE AND PURCHASE OF NOTES; FEES
Section II.1. Sale and Purchase of Notes. Subject to the terms and
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conditions of this Agreement, the Company will issue and sell to each Purchaser
and each Purchaser will purchase from the Company, at the Closing provided for
in Section 3.1, Notes in the principal amount specified opposite such
Purchaser's name in Schedule A at a purchase price of 100% of the principal
amount thereof. (Although the aggregate principal amount of Notes to be
purchased at the Closing, as specified on Schedule A, is $43,000,000, the total
amount of Notes authorized by the Company is $63,000,000 and this Agreement may
be supplemented within 90 days hereafter to provide for the purchase of such
additional authorized Notes by new Purchasers; provided, however, that after
giving effect to such supplement the definition of "Majority Purchasers" must be
acceptable to all Purchasers.) Any Purchaser shall have the right to substitute
any one of such Purchaser's Affiliates as the purchaser of the Notes that such
Purchaser has agreed to purchase hereunder, by written notice to the Company,
which notice shall be signed by both such Purchaser and such Affiliate, shall
contain such Affiliate's agreement to be bound by this Agreement and shall
contain a confirmation by such Affiliate of the accuracy with respect to it of
the representations set forth in Section 6.1 and Section 6.2. In the event of
any such substitution, such Affiliate shall be deemed to be a "Purchaser"
hereunder.
Section II.2. Financing Fee. In consideration of each Purchaser's
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purchase of its Notes, the Company agrees to pay to each Purchaser a financing
fee on the date hereof in immediately available funds in the amount of three-
quarters of one percent (.75%) of the principal amount of such Purchaser's Notes
(the "Financing Fee"). The Company agrees to pay the Financing Fee for Life
Insurance Company of Georgia, USG Annuity & Life Company, and Equitable Life
Insurance Company of Iowa to: Sun Trust Bank, Atlanta, Georgia; ABA # 061-000-
104; Account Name: ING Investment Management; Account Number 8800375985. The
Company agrees to pay the Financing Fee for TCW to: Investors Bank & Trust
Company, ABA# 011001438, F/C Client Funds No. 569530395; Account # 76T02327-4;
Attention: Peter Maesher; Reference: D&R VI - Quicksilver.
ARTICLE III.
CLOSING.
Section III.1. Closing. The sale and purchase of the Notes shall occur at
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the offices of Thompson & Knight L.L.P.,1200 Smith Street, Suite 3600, Houston,
Texas 77002, at 10:00 a.m., central standard time, at a closing (the "Closing")
on March 31, 2000 or at such other time and place on or prior to March 31, 2000
as may be agreed upon by the Company and the Purchasers. At the Closing the
Company will deliver to each Purchaser the Notes to be purchased by such
Purchaser dated the date of the Closing and registered in such Purchaser's name
(or in the name of such Purchaser's nominee), against delivery by the Purchasers
to the Company or its order of immediately available funds in the aggregate
amount of the purchase prices therefor by wire transfer of immediately available
funds for the account of the Company to: Bank of America; Dallas, Texas; ABA No.
111000012; for the account of Quicksilver Resources Inc.; Account No.
3751032722. If at the Closing the Company shall fail to tender such Notes to the
Purchasers as provided above in this Section 3.1, or if any of the conditions
specified in Article IV shall not have been fulfilled to the Purchasers'
satisfaction, the Purchasers shall, at the election of each, be relieved of all
further obligations under this Agreement, without thereby waiving any rights the
Purchasers may have by reason of such failure or such nonfulfillment.
ARTICLE IV.
CONDITIONS TO CLOSING.
Section IV.1. Documents to be Delivered. No Purchaser shall have any
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obligation to purchase the Notes unless the Purchasers shall have received all
of the following, at the Closing or at such other place as may be designated by
the Purchasers, duly executed and delivered and in form, substance and date
satisfactory to the Purchasers:
(a) The Notes.
(b) Each Mortgage and each other Security Document listed in the Security
Schedule.
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(c) An "Omnibus Certificate" of the Secretary and of the President of the
Company, which shall contain the names and signatures of the officers
of the Company authorized to execute Transaction Documents and which
shall certify to the truth, correctness and completeness of the
following exhibits attached thereto: (i) a copy of resolutions duly
adopted by the board of directors of the Company and in full force and
effect at the time this Agreement is entered into, authorizing the
execution of this Agreement and the other Transaction Documents
delivered or to be delivered in connection herewith and the
consummation of the transactions contemplated herein and therein, (ii)
a copy of the articles of incorporation of the Company and all
amendments thereto, certified by the appropriate official of the
Company's state of organization, and (iii) a copy of the bylaws of the
Company.
(d) A certificate (or certificates) of the due formation, valid existence
and good standing of the Company in its state of organization, issued
by the appropriate authorities of such jurisdiction.
(e) A "Compliance Certificate" of the President and of the chief financial
officer of the Company in their capacities as such officers, of even
date herewith, in which such Persons certify to the satisfaction of
the conditions set out in Section 4.2.
(f) A favorable opinion of Cantey & Hanger, L.L.P., counsel for the
Company, substantially in the form set forth in Exhibit 2.
(g) an opinion of Warner Norcross & Judd LLP, special Michigan counsel for
Collateral Agent, dated the Closing Date, favorably opining as to the
enforceability of the Mortgages in Michigan and otherwise in form and
substance satisfactory to Collateral Agent.
(i) an opinion of Herschler, Freudenthal, Salzburg, Bonds & Zerga, P.C.,
special Wyoming counsel for Collateral Agent, dated the Closing Date,
favorably opining as to the enforceability of the Mortgages in Wyoming
and otherwise in form and substance satisfactory to Collateral Agent.
(j) an opinion of Crowley, Haughey, Hanson, Toole & Dietrich, special
Montana counsel for Collateral Agent, dated the Closing Date,
favorably opining as to the enforceability of the Mortgages in Montana
and otherwise in form and substance satisfactory to Collateral Agent.
(k) certificates from the Company's insurance broker setting forth the
insurance maintained by the Company, stating that such insurance is in
full force and effect, and that all premiums due have been paid.
(l) a copy of each of the Closing Documents accompanied by a certificate
executed by an authorized officer of the Company certifying that (A)
such copies are accurate and complete and represent the complete
understanding and agreement of the parties thereto, (B) no material
right or obligation of any party thereto has
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been modified, amended or waived, and (C) subject only to funding
under the Closing Documents and hereunder, the Closing Transactions
have been consummated on the terms set forth in such Closing
Documents.
(m) Certificates of the Company's good standing and due qualification to
do business, issued by appropriate officials in any states in which
the Company owns property subject to the Security Documents.
(n) A Phase One Environmental Report covering the Properties mortgaged
under the initial Mortgage which has been prepared by a consultant
approved by the Purchasers and which is satisfactory to the Purchasers
in form and substance.
(o) Purchasers or their counsel shall have completed a review of title
(including opinions of title) with respect to that portion of the CMS
Properties which is necessary to satisfy the Closing Title Review
Requirement, and such review shall not have revealed any condition or
circumstance which would reflect that the representations and
warranties contained in Section 5.1(n) hereof are inaccurate in any
respect.
(p) The Bank Subordination Agreement.
(q) True and complete copies of the Bank Documents in effect at the time
of the Closing.
(r) The Initial Engineering Reports.
(s) Documents similar to those specified in subsections (c), (d), and (g)
of this Section 4.1 with respect to each Subsidiary of the Company and
the execution by it of the Transaction Documents to which it is a
party.
(t) An opinion of Thompson & Knight L.L.P., counsel for the Purchasers, in
form satisfactory to the Purchasers.
Section IV.2. General Conditions Precedent. No Purchaser shall have any
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obligation to purchase the Notes unless the following conditions precedent are
satisfied at the time of the Closing:
(a) All representations and warranties made by the Company or any
Subsidiary of the Company in any Transaction Document shall be true and
correct at and as of the time of the Closing.
(b) No Default shall exist at the time of the Closing, either before
or after giving effect to the sale of the Notes by the Company and the
transactions under the Closing Documents.
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(c) No situation or event that could have a Material Adverse Effect
shall have occurred since the date of the Initial Financial Statements.
(d) The Company and its Subsidiaries shall have performed and complied
with all agreements and conditions required in the Transaction Documents to
be performed or complied with by it on or prior to the time of the Closing.
(e) The Collateral Agent and the Purchasers shall have received all
documents and instruments which the Collateral Agent or any Purchaser has
then requested (including opinions of legal counsel for the Company and the
Purchasers; corporate documents and records; documents evidencing
governmental authorizations, consents, approvals, licenses and exemptions;
and certificates of public officials and of officers and representatives of
the Company) as to the accuracy and validity of or compliance with all
representations, warranties and covenants made by the Company or its
Subsidiaries in this Agreement and the other Transaction Documents, the
satisfaction of all conditions contained herein or therein, and all other
matters pertaining hereto and thereto. All such additional documents and
instruments shall be satisfactory to the Collateral Agent and any
requesting Purchaser in form, substance and date.
(f) The Company shall have paid the Financing Fee to each Purchaser in
immediately available funds.
(g) On the date of the Closing each Purchaser's purchase of Notes
shall (i) be permitted by the laws and regulations of each jurisdiction to
which such Purchaser is subject, without recourse to provisions such as
Section 1405(a)(8) of the New York Insurance Law permitting limited
investments by insurance companies without restriction as to the character
of the particular investment, (ii) not violate any applicable law or
regulation (including, without limitation, Regulation U, T or X of the
Board of Governors of the Federal Reserve System) and (iii) not subject
such Purchaser to any tax, penalty or liability under or pursuant to any
applicable law or regulation, which law or regulation was not in effect on
the date hereof. If requested by such Purchaser, such Purchaser shall have
received a certificate of the chief financial officer of the Company
certifying as to such matters of fact as such Purchaser may reasonably
specify to enable such Purchaser to determine whether such purchase is so
permitted.
(h) The Company shall have paid on or before the Closing the
reasonable fees, charges and disbursements of Thompson & Knight L.L.P. then
billed and owing.
(i) A Private Placement number issued by Standard & Poor's CUSIP
Service Bureau (in cooperation with the Securities Valuation Office of the
National Association of Insurance Commissioners) shall have been obtained
for the Notes.
(j) The Company shall have complied in all respects with Section
8.1(g) of the Bank Credit Agreement concerning certain hedge transactions.
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Section 4.3. Closing Transactions. Subject only to disbursement and
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application of the proceeds of the initial sale of the Notes, the Closing
Transactions shall have occurred (or Purchasers shall be satisfied that such
transactions will occur simultaneously therewith). Without limiting the
foregoing, each of the following shall have occurred (or Purchasers shall be
satisfied that each of the following shall occur simultaneously therewith):
(a) the CMS Acquisition shall have been completed pursuant to the
terms of the CMS Acquisition Documents;
(b) the Mariner Section 29 Sale shall have been completed pursuant to
the terms of the Mariner Section 29 Documents, and approximately
$25,000,000 of the proceeds of such sale shall have been applied to finance
in part the CMS Acquisition; and
(c) the transactions contemplated by the Bank Documents shall have
been completed pursuant to the terms of such Bank Documents, and the
Company shall have received not less than $193,000,000 from the loans
thereunder and applied such proceeds to finance in part the CMS
Acquisition.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section V.1. Borrower's Representations and Warranties. To confirm the
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Purchasers' understanding concerning the Company, its Subsidiaries, and their
respective business, properties and obligations and to induce each Purchaser to
enter into this Agreement and purchase its Notes, the Company represents and
warrants to each Purchaser and to Collateral Agent that:
(a) No Default. Neither the Company nor any Subsidiary of the Company is
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in default in the performance of any of its covenants and agreements contained
herein or in any other Transaction Document or in any of the Bank Documents.
All representations and warranties made by the Company in any other Transaction
Document or in any Bank Document are true and correct as of the date hereof. No
event has occurred and is continuing which constitutes a Default.
(b) Organization and Good Standing. The Company and each of its
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Subsidiaries is duly organized, validly existing and in good standing (if
applicable) under the laws of its state of organization, having all powers
required to carry on its business and enter into and carry out the transactions
contemplated hereby. The Company and each of its Subsidiaries is duly
qualified, in good standing, and authorized to do business in all other
jurisdictions within the United States wherein Collateral is located or in which
qualification is otherwise necessary to avoid a Material Adverse Effect.
(c) Authorization. The Company and each of its Subsidiaries has duly
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taken all action necessary to authorize the execution and delivery by it of the
Transaction Documents to which it is a party and to authorize the consummation
of the transactions contemplated thereby and the performance of its obligations
thereunder. The Company is duly authorized to issue and sell the Notes.
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(d) No Conflicts or Consents. The execution and delivery by the Company
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and each of its Subsidiaries of the Transaction Documents to which each is a
party, the performance by each of its obligations under such Transaction
Documents, and the consummation of the transactions contemplated by the various
Transaction Documents, do not and will not (i) conflict with any provision of
any domestic or foreign law, statute, rule or regulation, the articles or
certificate of incorporation, articles of organization, bylaws, charter,
regulations or partnership agreement or certificate of such Person, or any
agreement, judgment, license, order or permit applicable to or binding upon such
Person, (ii) result in the acceleration of any Debt owed by such Person, or
(iii) result in or require the creation of any Lien upon any assets or
properties of the such Person 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, any court or governmental authority or third party is required in
connection with the execution, delivery or performance by the Company or any of
its Subsidiaries of any Transaction Document to which it is a party or to
consummate any transactions contemplated by the Transaction Documents.
(e) Enforceable Obligations. This Agreement is, and the other Transaction
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Documents when duly executed and delivered will be, legal, valid and binding
obligations of the Company and each of its Subsidiaries to the extent a party
thereto, 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.
(f) Initial Financial Statements. The Initial Financial Statements fairly
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present the Company's Consolidated financial position at the date thereof and
the results of the Company's Consolidated operations and the Company's
Consolidated cash flows for the period thereof. Since the date of the Initial
Financial Statements, no event has occurred which could reasonably be expected
to have a Material Adverse Effect except as reflected in the Disclosure
Schedule. All Initial Financial Statements were prepared in accordance with
GAAP.
(g) Other Obligations and Restrictions. Except for the Debt and
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Liabilities incurred concurrently herewith under the Closing Documents or
heretofore incurred under the other Section 29 Documents, the Company and its
Subsidiaries do not have any outstanding Debt or other material Liabilities of
any kind (including obligations under farm-in agreements, other obligations to
make capital expenditures, contingent obligations, tax assessments, and unusual
forward or long-term commitments) which are, in the aggregate, material to the
Company and not disclosed in the Disclosure Schedule, in the Initial Financial
Statements, or in the information hereafter from time to time delivered to the
Purchasers or the Collateral Agent pursuant to this Agreement. Except as
disclosed in the Disclosure Schedule, the Company and its Subsidiaries are not
subject to or restricted by any franchise, contract, deed, charter restriction,
or other instrument or restriction which could reasonably be expected to have a
Material Adverse Effect.
(h) Full Disclosure. The Company, through its agent, Banc of America
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Securities LLC, has delivered to the Purchasers a copy of a Memorandum dated
February 2000 (the "Memorandum"), relating to the transactions contemplated
hereby. The Company's principal long-term fixed price production sales
agreements and derivative contracts are described on the Disclosure Schedule.
Except as disclosed in the Disclosure Schedule, this Agreement, or the
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Memorandum, neither the Memorandum, nor the Disclosure Schedule, nor any
Transaction Document, certificate, written statement or other information
delivered herewith or heretofore by the Company or any of its Subsidiaries to
any Purchaser or to Collateral Agent 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 Company (other than industry-wide risks normally associated with the types
of businesses conducted by the Company) necessary to make the statements
contained herein or therein (taken as a whole) not misleading as of the date
made or deemed made. There is no fact known to the Company (other than
industry-wide risks normally associated with the types of businesses conducted
by the Company) that has not been disclosed to each Purchaser in writing which
could reasonably be expected to have a Material Adverse Effect. There are no
statements or conclusions in any Engineering Report which are based upon or
include misleading information or fail to take into account material information
regarding the matters reported therein, it being understood that each
Engineering Report is necessarily based upon professional opinions, estimates
and projections and that the Company does not warrant that such opinions,
estimates and projections will ultimately prove to have been accurate. The
Company has heretofore delivered to the Purchasers true, correct and complete
copies of the Initial Financial Statements and the Initial Engineering Report.
(i) Environmental Laws. The Company and its Subsidiaries have no
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Liability under any Environmental Laws, or in connection with the release into
the environment, or the storage or disposal, of any Hazardous Materials, which
could reasonably by expected to have a Material Adverse Effect. Except as
disclosed in the Disclosure Schedule: (i) the Company and its Subsidiaries are
conducting their businesses in material compliance with all applicable federal,
state or local laws, including Environmental Laws, (ii) each has complied and is
in compliance with all licenses and permits required under Environmental Laws,
(iii) each has complied and is in compliance in all material respects with all
licenses and permits required under any such other laws; (iv) none of the
operations or properties of the Company or any of its Subsidiaries is the
subject of any federal, state or local investigation evaluating whether any
material 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; (v)
neither the Company nor any of its Subsidiaries has filed any notice under any
federal, state or local law indicating that any of them is responsible for the
improper release into the environment, or the improper storage or disposal, of
any material amount of any Hazardous Materials or that any Hazardous Materials
have been improperly released, or are improperly stored or disposed of, upon any
property of the Company or any of its Subsidiaries; and (vi) neither the Company
nor any of its Subsidiaries (to the best of the Company's knowledge after
reasonable investigation) has transported or arranged for the transportation of
any Hazardous Material to any location which is (1) listed on the National
Priorities List under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, listed for possible inclusion on such
National Priorities List by the Environmental Protection Agency in its
Comprehensive Environmental Response, Compensation and Liability Information
System List, or listed on any similar state list or (2) the subject of federal,
state or local enforcement actions or other investigations which may lead to
claims against the Company or any of its Subsidiaries for clean-up costs,
remedial work, damages to natural resources or for personal injury claims
(whether under Environmental Laws or otherwise).
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(j) Names and Places of Business. Neither the Company nor any of its
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Subsidiaries (nor any of their predecessor companies) has, during the preceding
five years, had, been known by, or used any other corporate, trade, or
fictitious name except as listed on the Disclosure Schedule. Except as
otherwise disclosed in the Disclosure Schedule or in the information hereafter
from time to time delivered to all Purchasers pursuant to this Agreement: (i)
the chief executive office and principal place of business of the Company and
each of its Subsidiaries are and heretofore have always been located in Texas or
Michigan, and (ii) neither the Company nor any of its Subsidiaries has any other
office or place of business.
(k) Organization and Ownership of Shares of Subsidiaries.
----------------------------------------------------
(i) The Disclosure Schedule contains a complete and correct list of
the Company's Subsidiaries and Excluded Subsidiaries, showing, as to each
Subsidiary or Excluded Subsidiary, the correct name thereof, the
jurisdiction of its organization, and the percentage of shares of each
class of its capital stock or similar equity interests outstanding owned by
the Company and each other Subsidiary of the Company.
(ii) All of the outstanding shares of capital stock or similar equity
interests of each Subsidiary and each Excluded Subsidiary shown in the
Disclosure Schedule as being owned by the Company and its Subsidiaries have
been validly issued, are fully paid and nonassessable and are owned by the
Company or another Subsidiary of the Company free and clear of any Lien,
other than Liens described in subsection (c) of the definition of Permitted
Liens.
(l) Litigation; Observance of Statutes and Orders; Insurance.
--------------------------------------------------------
(i) Except as disclosed in the Disclosure Schedule, there are no
actions, suits or proceedings pending or, to the knowledge of the Company,
threatened against or affecting the Company or any Subsidiary or Excluded
Subsidiary of the Company or any property of the Company or any such
Subsidiary or Excluded Subsidiary in any court or before any arbitrator of
any kind or before or by any Governmental Authority that, individually or
in the aggregate, could reasonably be expected to have a Material Adverse
Effect.
(ii) Neither the Company nor any Subsidiary or Excluded Subsidiary of
the Company is in default under any order, judgment, decree or ruling of
any court, arbitrator or Governmental Authority or is in violation of any
applicable law, ordinance, rule or regulation (including without limitation
Environmental Laws) of any Governmental Authority, which default or
violation, individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect.
(iii) The Company and its Subsidiaries presently maintain all
insurance policies described in the Insurance Schedule.
(m) Taxes. The Company and its Subsidiaries have filed all tax returns
-----
that are required to have been filed in any jurisdiction, and have paid all
taxes shown to be due and
9
payable on such returns and all other taxes and assessments payable by them, to
the extent such taxes and assessments have become due and payable and before
they have become delinquent, except for any taxes and assessments, the amount,
applicability or validity of which is currently being contested in good faith by
appropriate proceedings and with respect to which the Company or such
Subsidiary, as the case may be, has established adequate reserves in accordance
with GAAP. The production from the wells subject to the Section 29 Documents is,
to the extent represented by the Company in those documents, entitled to the
benefits of tax credits under Section 29 of the Code.
(n) Title to Property; Leases. Subject only to Immaterial Title
-------------------------
Deficiencies (as herein defined), after giving effect to the CMS Acquisition,
the Company or Terra (as applicable) will have good and defensible title to all
Mineral Interests (as herein defined), free and clear of all Liens except for
Permitted Liens. Subject only to Permitted Liens and Immaterial Title
Deficiencies, all Mineral Interests are valid, subsisting, and in full force and
effect, and all rentals, royalties, and other amounts due and payable in respect
thereof have been duly paid. Without regard to any consent or non-consent
provisions of any joint operating agreement covering any of the Company's or
Terra's (as applicable) Mineral Interests, after giving effect to the CMS
Acquisition, but subject to Permitted Liens and Immaterial Title Deficiencies,
the Company's or Terra's (as applicable) share of (a) the costs for each Mineral
Interest described in the applicable Engineering Report is not greater than the
decimal fraction set forth in such Engineering Report, before and after payout,
as the case may be, and described therein by the respective designations
"working interests," "WI," "gross working interest," "GWI," or similar terms,
and (b) production from, allocated to, or attributed to each such Mineral
Interest is not less than the decimal fraction set forth in such Engineering
Report, before and after payout, as the case may be, and described therein by
the designations "net revenue interest," "NRI," or similar terms. Each well
drilled in respect of each Mineral Interest described in any Engineering Report
(y) is capable of, and is presently, producing Hydrocarbons in commercially
profitable quantities, and after giving effect to the CMS Acquisition, the
Company and/or Terra (as applicable) will receive payments on a current basis
for its share of production, with no funds in respect of any thereof held in
suspense, other than any such funds held in suspense pending delivery of
appropriate division orders, and (z) has been drilled, bottomed, completed, and
operated in compliance with all applicable laws and no such well which is
currently producing Hydrocarbons is subject to any penalty in production by
reason of such well having produced in excess of its allowable production. As
used herein, the term "Mineral Interests" means all oil and gas properties and
interests that are described in either Initial Engineering Report (or, if this
representation and warranty is ever made after the date of the Closing, in the
Engineering Report then most recently delivered to the Purchasers). As used
herein, the term "Immaterial Title Deficiencies" means (i) minor defects or
deficiencies in title which do not affect, in the aggregate, more than two
percent (2%) (by value) of all Mineral Interests and (ii) prior to June 30,
2000, "Title Defects", as defined in the CMS Purchase and Sale Agreement, with
respect to which the Company can obtain title adjustment payments from CMS that
fairly represent the reduction in value of the Collateral due to such Title
Defects.
10
(o) Compliance with ERISA.
---------------------
(i) Neither the Company nor any of its Subsidiaries presently
maintain any Plan, or is liable with respect to any Plan, other than (1)
the Quicksilver Resources Inc. 401(k) Plan, (2) the Quicksilver Resources
Inc. Fortis Benefits Life Insurance Plan, (3) the Quicksilver Resources
Inc. Fortis Benefits Health Insurance Plan, (4) the Quicksilver Resources
Inc. Blue Cross Blue Shield of Michigan Health Insurance Plan, and (5) the
Quicksilver Resources Inc. American Medical Security Dental Plan.
(ii) The Company and each ERISA Affiliate have operated and
administered each Plan in compliance with all applicable laws except for
such instances of noncompliance as have not resulted in and could not
reasonably be expected to result in a Material Adverse Effect. Neither the
Company nor any ERISA Affiliate has incurred any liability pursuant to
Title I or IV of ERISA or the penalty or excise tax provisions of the Code
relating to employee benefit plans (as defined in Section 3 of ERISA), and
no event, transaction or condition has occurred or exists that would
reasonably be expected to result in the incurrence of any such liability by
the Company or any ERISA Affiliate, or in the imposition of any Lien on any
of the rights, properties or assets of the Company or any ERISA Affiliate,
in either case pursuant to Title I or IV of ERISA or to such penalty or
excise tax provisions or to Section 401(a)(29) or 412 of the Code, other
than such liabilities or Liens as would not be individually or in the
aggregate material.
(iii) The Company and its ERISA Affiliates do not maintain (and in the
past five (5) years have not maintained) any Plan subject to Title IV of
ERISA or Section 412 of the Code. The Company and its ERISA Affiliates have
made all contributions to, and paid all benefits with respect to, all
Plans, to the extent they are or were required to do so. To the extent that
the Company and its Subsidiaries have any accrued liabilities with respect
to any Plans, such liabilities are properly reported on the Company's
Consolidated balance sheet.
(iv) The Company and its ERISA Affiliates do not maintain and have
never participated in or been required to make contributions to any
Multiemployer Plan, and the Company and its ERISA Affiliates have not
incurred withdrawal liabilities (and are not subject to contingent
withdrawal liabilities) under section 4201 or 4204 of ERISA in respect of
Multiemployer Plans that individually or in the aggregate are material.
(v) The expected postretirement benefit obligation (determined as of
the last day of the Company's most recently ended fiscal year in accordance
with Financial Accounting Standards Board Statement No. 106, without regard
to liabilities attributable to continuation coverage mandated by section
4980B of the Code) of the Company and its Subsidiaries is not material.
(vi) The execution and delivery of this Agreement and the issuance and
sale of the Notes hereunder will not involve any transaction that is
subject to the prohibitions of section 406 of ERISA or in connection with
which a tax could be imposed pursuant to section 4975(c)(1)(A)-(D) of the
Code. The representation by the Company in the first
11
sentence of this Section 5.1(o)(vi) is made in reliance upon and subject to
the accuracy of each Purchaser's representation in Section 6.2 as to the
sources of the funds to be used to pay the purchase price of the Notes to
be purchased by such Purchaser.
(p) Private Offering by the Company. Neither the Company nor anyone
-------------------------------
acting on its behalf has offered the Notes or any similar securities for sale
to, or solicited any offer to buy any of the same from, or otherwise approached
or negotiated in respect thereof with, any person other than the Purchasers and
not more than 85 other Institutional Investors, each of which has been offered
the Notes at a private sale for investment. Neither the Company nor anyone
acting on its behalf has taken, or will take, any action that would subject the
issuance or sale of the Notes to the registration requirements of Section 5 of
the Securities Act.
(q) Use of Proceeds; Margin Regulations. The Company will apply the
-----------------------------------
proceeds of the sale of the Notes (plus funds from the Mariner Section 29 Sale
and the loans under the Bank Credit Agreement) to finance the CMS Acquisition.
In no event shall the proceeds of the sale of the Notes be used directly or
indirectly by any of the Company or its Subsidiaries for personal, family,
household or agricultural purposes or for the purpose, whether immediate,
incidental or ultimate, of purchasing, acquiring or carrying any "margin stock"
(as such term is defined respectively in Regulation U promulgated by the Board
of Governors of the Federal Reserve System) or to extend credit to others
directly or indirectly for the purpose of purchasing or carrying any such margin
stock, or for the purpose of buying or carrying or trading in any securities
under such circumstances as to involve the Company or any of its Subsidiaries in
a violation of Regulation X of said Board or to involve any broker or dealer in
a violation of Regulation T of said Board. Margin stock does not constitute
more than 25% of the value of the consolidated assets of the Company and its
Subsidiaries and the Company does not have any present intention that margin
stock will constitute more than 25% of the value of such assets.
(r) Foreign Assets Control Regulations, etc. Neither the sale of the
----------------------------------------
Notes by the Company hereunder nor its use of the proceeds thereof will violate
the Trading with the Enemy Act, as amended, or any of the foreign assets control
regulations of the United States Treasury Department (31 CFR, Subtitle B,
Chapter V, as amended) or any enabling legislation or executive order relating
thereto.
(s) Status under Certain Statutes. Neither the Company nor any Subsidiary
-----------------------------
of the Company is subject to regulation under the Investment Company Act of
1940, as amended, the Public Utility Holding Company Act of 1935, as amended,
the Interstate Commerce Act, as amended, or the Federal Power Act, as amended.
(t) Commodity Price Risk Policy. The Company's policy with respect to
---------------------------
commodity price risk as presently in effect, addressing the Company's policies
with respect to Hedging Contracts for Hydrocarbons, is attached hereto as
Exhibit 5. Within 90 days hereafter the Company's Board of Directors will
adopt, as the stated policy of the Company, either the policy attached as
Exhibit 5 or a policy with similar terms that is acceptable to Majority
Purchasers (as so adopted, the "Commodity Price Risk Policy").
12
(u) Cinnabar. The Company owns a 50% membership or other equity
--------
interest in Cinnabar. Cinnabar's business is presently being carried out in
compliance with Section 9.1(o), and Cinnabar has no Debt other than as allowed
in such Section.
ARTICLE VI.
REPRESENTATIONS OF THE PURCHASERS.
Section VI.1. Purchase for Investment. Each Purchaser represents that such
-----------------------
Purchaser is purchasing the Notes for such Purchaser's own account or for one or
more separate accounts maintained by such Purchaser or for the account of one or
more pension or trust funds and not with a view to the distribution thereof,
provided that the disposition of such Purchaser's or their property shall at all
- --------
times be within such Purchaser's or their control. Each Purchaser understands
(a) that the Notes have not been registered under the Securities Act, (b) that
the Notes may be resold only (i) if registered pursuant to the provisions of the
Securities Act or if an exemption from registration is available, except under
circumstances where neither such registration nor such an exemption is required
by law, and (ii) in accordance with Section 11.4, and (c) that the Company is
not required to register the Notes.
Section VI.2. Source of Funds. Each Purchaser represents that at least one
---------------
of the following statements is an accurate representation as to each source of
funds (a "Source") to be used by such Purchaser to pay the purchase price of the
Notes to be purchased by such Purchaser hereunder:
(a) if the Purchaser is an insurance company, the Source does not
include assets allocated to any separate account maintained by the
Purchaser in which any employee benefit plan (or its related trust) has any
interest, other than a separate account that is maintained solely in
connection with the Purchaser's fixed contractual obligations under which
the amounts payable, or credited, to such plan and to any participant or
beneficiary of such plan (including any annuitant) are not affected in any
manner by the investment performance of the separate account; or
(b) the Source is either (i) an insurance company pooled separate
account, within the meaning of Prohibited Transaction Exemption ("PTE")
90-1 (issued January 29, 1990), or (ii) a bank collective investment fund,
within the meaning of the PTE 91-38 (issued July 12, 1991) and, except as
the Purchaser has disclosed to the Company in writing pursuant to this
paragraph (b), no employee benefit plan or group of plans maintained by the
same employer or employee organization beneficially owns more than 10% of
all assets allocated to such pooled separate account or collective
investment fund; or
(c) the Source constitutes assets of an "investment fund" (within the
meaning of Part V of the QPAM Exemption) managed by a "qualified
professional asset manager" or "QPAM" (within the meaning of Part V of the
QPAM Exemption), no employee benefit plan's assets that are included in
such investment fund, when combined with the assets of all other employee
benefit plans established or maintained by the same employer
13
or by an affiliate (within the meaning of Section V(c)(1) of the QPAM
Exemption) of such employer or by the same employee organization and
managed by such QPAM, exceed 20% of the total client assets managed by such
QPAM, the conditions of Part I(c) and (g) of the QPAM Exemption are
satisfied, neither the QPAM nor a person controlling or controlled by the
QPAM (applying the definition of "control" in Section V(e) of the QPAM
Exemption) owns a 5% or more interest in the Company and Tamco is such
QPAM; or
(d) the Source is a governmental plan; or
(e) the Source is one or more employee benefit plans, or a separate
account or trust fund comprised of one or more employee benefit plans, each
of which has been identified to the Company in writing pursuant to this
paragraph (e); or
(f) the Source does not include assets of any employee benefit plan,
other than a plan exempt from the coverage of ERISA; or
(g) the Source is an "insurance company general account" as such term
is defined in PTE 95-60 (issued July 12, 1995), and there is no plan with
respect to which the aggregate amount of such general account's reserves
and liabilities for the contracts held by or on behalf of such plan and all
other plans maintained by the same employer (and affiliates thereof as
defined in section V(a)(1) of PTE 95-60) or by the same employee
organization (in each case determined in accordance with PTE 95-60) exceeds
or will exceed 10% of the total of all reserves and liabilities of such
general account (determined in accordance with PTE 95-60, exclusive of
separate account liabilities, plus any applicable surplus).
As used in this Section 6.2, the terms "employee benefit plan", "governmental
plan", "party in interest" and "separate account" shall have the respective
meanings assigned to such terms in Section 3 of ERISA.
ARTICLE VII.
PAYMENTS OF PRINCIPAL AND INTEREST; PREPAYMENTS; PUT OPTION
Section VII.1. Regular Interest Payments.
-------------------------
(a) On each Quarterly Payment Date, the Company shall pay to the holder of
each Note all unpaid interest which has accrued on such holder's Note to but not
including such Quarterly Payment Date. On each Quarterly Payment Date prior to
the Initial Amortization Date, the Company may, if it so elects, pay in kind all
or any part of the portion of such interest attributable to the applicable
interest rate (either 14.75% or the Default Rate) being in excess of 10%, by
issuing additional Notes in the face amount of such interest paid in kind to
each holder entitled to receive the same. The Company shall deliver such new
Notes to each holder of Notes on the applicable Quarterly Payment Date. To make
such election the Company must give notice thereof to each holder of Notes at
least five Business Days prior to such Quarterly Payment Date, specifying the
amount of such interest to be paid in kind by the issuance of new Notes,
alerting each holder that one or more new Notes will be sent to it, and
specifying the address to which the
14
Company will send such Notes. The Company will pay all remaining interest in
cash. (For example, if the total interest due on a Purchaser's Note was $147,500
and the Default Rate was not in effect, the Company could elect to pay up to
$47,500 of such interest in kind but would be obligated to pay at least $100,000
in cash.)
(b) On each Quarterly Payment Date commencing with the Initial Amortization
Date, and then continuing on each Quarterly Payment Date thereafter until the
Notes are paid in full, the Company shall pay to the holder of each Note in
immediately available funds all unpaid interest which has accrued on such
holder's Note to but not including such Quarterly Payment Date.
Section VII.2. Regular Principal Payments. On each Quarterly Payment Date,
--------------------------
beginning with the Initial Amortization Date and then continuing on each
Quarterly Payment Date thereafter until the Notes are paid in full, the Company
will make a fixed mandatory payment of principal on the Notes (in addition to
the payment of interest then due on such Quarterly Payment Date) equal to the
aggregate principal balance of the Notes on the day prior to the Initial
Amortization Date times the percentage set out opposite such date in the
following table:
Quarterly
Payment Date Percentage
- ----------------------------- ----------------------------
1st 7.0%
2nd 7.0%
3rd 7.0%
4th 7.0%
5th 8.0%
6th 8.0%
7th 8.5%
8th 8.5%
9th 9.0%
10th 9.0%
11th 10.5%
12th 10.5%
Section VII.3. Optional Prepayments.
--------------------
(a) Prepayment Premiums. The Notes may not be redeemed or prepaid (except
-------------------
as may be required under Section 7.4) prior to March 28, 2003. On any Quarterly
Payment Date on or after March 28, 2003, the Company may prepay the Notes at its
option, together with a premium equal to the amount of principal prepaid times
the percentage set out in the following table opposite the year in which such
Quarterly Payment Date occurs, plus accrued and unpaid interest to the date of
prepayment; provided that (a) each such prepayment may be made only on a
Quarterly Payment Date, and (b) each such prepayment of principal shall be in an
aggregate amount at least equal to $10,000,000 or any integral multiple of
$1,000,000 in excess thereof.
15
Year Premium Percentage
---- ------------------
2003 6%
2004 5%
2005 4%
2006 3%
2007 3%
2008 3%
All principal prepaid pursuant to this Section 7.3 shall be applied to the
regular payments of principal due under Section 7.2 in the inverse order of
their maturity. The Company will give each holder of Notes written notice of
each optional prepayment under this Section 7.3 not less than 30 days and not
more than 60 days prior to the date fixed for such prepayment. Each such notice
shall specify such date, the aggregate principal amount of the Notes to be
prepaid on such date, and the principal amount of each Note held by such holder
to be prepaid (determined in accordance with Section 7.3(b)).
(b) Allocation of Partial Prepayments. In the case of each partial
---------------------------------
prepayment of the Notes, the principal amount of the Notes to be prepaid shall
be allocated among all of the Notes at the time outstanding in proportion, as
nearly as practicable, to the respective unpaid principal amounts thereof not
theretofore called for prepayment.
(c) Maturity; Surrender, etc. In the case of each prepayment of Notes
------------------------
pursuant to this Section 7.3, the principal amount of each Note to be prepaid
shall mature and become due and payable on the date fixed for such prepayment,
together with interest on such principal amount accrued to such date and the
applicable premium. From and after such date, unless the Company shall fail to
pay such principal amount when so due and payable, together with the interest
and premium as aforesaid, interest on such principal amount shall cease to
accrue. Any Note paid or prepaid in full shall be surrendered to the Company
and canceled and shall not be reissued, and no Note shall be issued in lieu of
any prepaid principal amount of any Note.
(d) Purchase of Notes. The Company will not and will not permit any
-----------------
Affiliate to purchase, redeem, prepay or otherwise acquire, directly or
indirectly, any of the outstanding Notes except upon the payment or prepayment
of the Notes in accordance with the terms of this Agreement and the Notes. The
Company will promptly cancel all Notes acquired by it or any Affiliate pursuant
to any payment, prepayment or purchase of Notes pursuant to any provision of
this Agreement and no Notes may be issued in substitution or exchange for any
such Notes.
Section VII.4. Change of Control. At any time after the occurrence of any
-----------------
Change of Control, each Purchaser will have the right from time to time to cause
the Company to repurchase all of the Notes held by such Purchaser at a purchase
price equal to 101% of the outstanding principal amount of the Notes to be
repurchased plus accrued and unpaid interest, if
16
any, to the date of purchase as provided herein. Notice of each exercise of such
right by any Purchaser, specifying the date on which such repurchase will occur,
will be given to the Company within 90 days after such Change of Control and at
least 30 days but not more than 60 days before such repurchase date. In the case
of each repurchase of Notes pursuant to this Section 7.4, the foregoing purchase
price for the Notes to be repurchased shall be due and payable on the date fixed
for such repurchase, together with all accrued and unpaid interest on such
Notes. From and after such date, unless the Company shall fail to pay such
repurchase price when so due and payable, together with interest as aforesaid,
interest on such Notes shall cease to accrue. Any Note so repurchased shall be
surrendered to the Company and canceled and shall not be reissued.
Section VII.5. Payments. The Company will make each payment which it owes
--------
under the Transaction Documents to the Person to whom such payment is owed, in
lawful money of the United States of America, without set-off, deduction or
counterclaim, and in immediately available funds (or by issuing additional Notes
to the extent permitted under Section 7.1(a)). Each such payment must be
received by such Person not later than 11:00 a.m., Dallas, Texas time, on the
date such payment becomes due and payable in accordance with the instructions
contained on Schedule A hereto. Any payment received by such Person after such
time will be deemed to have been made on the next following Business Day.
Anything in this Agreement or the Notes to the contrary notwithstanding, any
payment of principal, premium, if any, or interest on any Note that is due on a
date other than a Business Day shall be made on the next succeeding Business Day
without including the additional days elapsed in the computation of the interest
payable on such next succeeding Business Day.
ARTICLE VIII.
AFFIRMATIVE COVENANTS; SECURITY
Section VIII.1. Affirmative Covenants. To confirm the Purchasers'
---------------------
understanding concerning the Company, its Subsidiaries, and their respective
business, properties and obligations and to induce each Purchaser to enter into
this Agreement and purchase its Notes, the Company covenants and agrees with
each Purchaser and with Collateral Agent that:
(a) Payment and Performance. The Company and each of its Subsidiaries
-----------------------
will pay all amounts due 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) Books, Financial Statements and Reports. The Company and its
---------------------------------------
Subsidiaries will at all times maintain full and accurate books of account and
records and a standard system of accounting and will furnish the following
statements and reports to each Purchaser at the Company's expense:
(i) Audited Financials. As soon as available, and in any event
------------------
within ninety (90) days after the end of each Fiscal Year, complete
Consolidated and consolidating financial statements of the Company,
together with all notes thereto and prepared in reasonable detail in
accordance with GAAP, together with an opinion, based on an audit
17
using generally accepted auditing standards, by Deloitte and Touche, LLP,
or other independent certified public accountants selected by the Company
and reasonably acceptable to the Majority Purchasers, stating that such
Consolidated financial statements have been so prepared. 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 owners' equity
for such Fiscal Year, each setting forth in comparative form the
corresponding figures for the preceding Fiscal Year.
(ii) Quarterly Financials. As soon as available, and in any event
--------------------
within forty-five (45) days after the end of each Fiscal Quarter, the
Company's Consolidated and consolidating financial statements for such
Fiscal Quarter, consisting of a balance sheet as of the end of such Fiscal
Quarter and statements of 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 minor changes resulting from normal year-end adjustments), plus
a detailed accounts payable aging report (prepared as of the end of such
Fiscal Quarter in form reasonably satisfactory to the Majority Purchasers).
In addition the Company will, together with each such set of financial
statements and each set of financial statements furnished under subsection
(i) of this subsection (b), furnish a certificate in the form of Exhibit 3
signed by the chief financial officer of the Company stating that such
financial statements are accurate and complete, stating that he has
reviewed the Transaction Documents, containing calculations showing
compliance (or non-compliance) at the end of such Fiscal Quarter with the
requirements of Sections 8.1(n) and 9.1(m) and (n) stating that no Default
exists at the end of such Fiscal Quarter or at the time of such certificate
or specifying the nature and period of existence of any such Default.
(iii) Shareholder and Lender Reports. Promptly upon their becoming
-------------------------------
available, copies of all financial statements, reports, notices and proxy
statements sent by the Company to its members, partners or stockholders or
to the lenders or Agent Bank under the Bank Credit Agreement and all
registration statements, periodic reports and other statements and
schedules filed by the Company with any securities exchange, the Securities
and Exchange Commission or any similar Governmental Authority.
(iv) Mandatory Engineering Reports. By March 1 of each year
-----------------------------
(beginning March 1, 2001), an Engineering Report prepared as of the
preceding December 31 or January 1 by Schlumberger Holditch - Reservoir
Technologies Consulting Services or other independent petroleum engineers
chosen by the Company and acceptable to the Majority Purchasers concerning
the Properties. Each Engineering Report delivered pursuant to this section
8.1(b)(iv) or the following section 8.1(b)(v) shall distinguish (or shall
be delivered together with a certificate from an appropriate officer of the
Company which distinguishes) those Properties treated in such report which
are Eligible Mortgaged Properties from those properties treated in such
report which are not Eligible Mortgaged Properties.
(v) Optional Engineering Reports. Promptly upon request therefor by
----------------------------
Majority Purchasers (provided that only one such request may be made in any
calendar
18
year), or upon the Company's election (provided that the Company may make
only one such election in any calendar year), or from time to time as the
Company and Majority Purchasers may agree, an additional Engineering Report
prepared (as of the first day of the month in which such Engineering Report
is delivered) by Schlumberger Holditch -Reservoir Technologies Consulting
Services or other independent petroleum engineers chosen by the Company and
acceptable to the Majority Purchasers concerning the Properties.
(c) Other Information and Inspections. The Company will furnish to each
---------------------------------
Purchaser any information which such Purchaser may from time to time request
concerning any covenant, provision or condition of the Transaction Documents or
any matter in connection with the Company's or its Subsidiaries' businesses and
operations. The Company and each Subsidiary of the Company will permit
representatives appointed by each Purchaser (including independent accountants,
engineers, agents, attorneys, appraisers and any other Persons) upon reasonable
notice to visit and inspect any of the Company's or its Subsidiaries' property
(such inspections may be made as frequently as monthly), including its books of
account, other books and records, and any facilities or other business assets,
and to make extra copies therefrom and photocopies and photographs thereof, and
to write down and record any information such representatives obtain, and shall
further permit each Purchaser or its representatives to investigate and verify
the accuracy of the information furnished in connection with the Transaction
Documents and to discuss all such matters with its officers, employees and
representatives.
(d) Notice of Material Events and Change of Address. The Company will
-----------------------------------------------
promptly notify the Purchasers:
(i) of the occurrence of any event, or the existence of any state of
affairs, which could reasonably be expected to have a Material Adverse
Effect,
(ii) of the occurrence of any Default,
(iii) of the acceleration of the maturity of any Debt owed by the
Company or any of its Subsidiaries, of any "Default" or other breach by the
Company or any of its Subsidiaries under any of the Bank Documents, or of
any material default by the Company, any of its Subsidiaries, or any other
party under any other indenture, mortgage, agreement, contract or other
instrument to which the Company or any of its Subsidiaries is a party or by
which any of them or any of their properties is bound,
(iv) of the occurrence of any Termination Event,
(v) of any claim of $50,000 or more, any notice of potential
liability under any Environmental Laws, or any other claim asserted against
the Company or any of its Subsidiaries that could reasonably be expected to
have a Material Adverse Effect, or
(vi) of the filing of any suit or proceeding against the Company or
any Subsidiary of the Company in which an adverse decision could reasonably
be expected to have a Material Adverse Effect.
19
Upon the occurrence of any of the foregoing the Company will take all necessary
or appropriate steps to remedy promptly any such Material Adverse Effect,
Default, acceleration, "Default," breach or Termination Event, to protect
against any such adverse claim, to defend any such suit or proceeding, and to
resolve all controversies on account of any of the foregoing. The Company will
also notify the Purchasers and the Purchasers' counsel in writing at least
twenty Business Days prior to the date that it or any of its Subsidiaries
changes its name or the location of its chief executive office or principal
place of business or the place where it keeps its books and records concerning
the Collateral, furnishing with such notice any necessary financing statement
amendments or requesting the Purchasers and their counsel to prepare the same.
(e) Maintenance and Operation of Properties. Each of the Company and its
---------------------------------------
Subsidiaries will maintain, preserve, protect, and keep all Properties, all
other Collateral, and any other property used or useful in the conduct of its
business in good condition (normal wear and tear excepted) and in compliance
with all applicable laws, rules and regulations, and will from time to time make
all repairs, renewals and replacements needed to enable the business and
operations carried on in connection therewith to be conducted at all times
consistent with prudent industry practices. The Company and its Subsidiaries
will operate the Properties in a good and workmanlike manner in conformity with
good oil field practice.
(f) Maintenance of Existence and Qualifications. Each of the Company and
-------------------------------------------
its Subsidiaries will maintain and preserve its existence and its rights and
franchises in full force and effect and will qualify to do business in all
states or jurisdictions where required by applicable law, except that it shall
not be required hereunder so to qualify in any jurisdiction where no Collateral
is located if the failure so to qualify could not reasonably be expected to have
any Material Adverse Effect.
(g) Payment of Trade Liabilities, Taxes, etc. Each of the Company and its
----------------------------------------
Subsidiaries will (i) timely file all required tax returns; (ii) timely pay all
taxes, assessments, and other governmental charges or levies imposed upon it or
upon its income, profits or property; (iii) within 90 days after the same
becomes due (or, if earlier, after the applicable invoice date) pay all
Liabilities owed by it on ordinary trade terms to vendors, suppliers and other
Persons providing goods and services used by it in the ordinary course of its
business; (iv) pay and discharge when due all other Liabilities now or hereafter
owed by it; and (v) maintain appropriate accruals and reserves for all of the
foregoing taxes or other Liabilities in accordance with GAAP. The Company may,
however, delay paying or discharging any such taxes or other Liabilities so long
as it is in good faith contesting the validity thereof by appropriate
proceedings and has set aside on its books adequate reserves therefor.
(h) Bonding and Insurance. Each of the Company and its Subsidiaries will
---------------------
maintain all bonds and letters of credit in lieu of bonds which are required (by
law, lease terms, or consistent with prudent industry practices) in order to
carry out development and production operations on the Properties. Each of the
Company and its Subsidiaries will keep or cause to be kept adequately insured by
financially sound and reputable insurers its vehicles and all other property in
accordance with Insurance Schedule. Any insurance policies covering Collateral
shall be endorsed (i) to provide for payment of losses to the Collateral Agent
(for the benefit of
20
the Purchasers) as its interests may appear, pursuant to a mortgagee clause
(without contribution) of standard form made part of the applicable policy, (ii)
to provide that such policies may not be canceled, reduced or adversely affected
in any manner for any reason without thirty days prior notice to Purchasers,
(iii) to provide for any other matters specified in any applicable Security
Document or which the Majority Purchasers may reasonably require; and (iv) to
provide for insurance against fire, casualty and any other hazards normally
insured against, in the amount of the full value (less a reasonable deductible
not to exceed amounts customary in the industry for similarly situated
businesses and properties) of the property insured. (To the extent that any
Mortgage contains other additional requirements for such endorsement, the
mortgagor thereunder shall also comply with such additional requirements.) The
Company shall at all times maintain adequate insurance against its and its
Subsidiaries' liability for injury to persons or property, which insurance shall
be by financially sound and reputable insurers and shall without limitation
provide the following coverages: comprehensive general liability (including
coverage for damage to underground resources and equipment, damage caused by
blowouts or cratering, damage caused by explosion, damage to underground
minerals or resources caused by saline substances, broad form property damage
coverage, broad form coverage for contractually assumed liabilities and broad
form coverage for acts of independent contractors), worker's compensation and
automobile liability. The Company and its Subsidiaries shall at all times
maintain cost of control of well insurance with respect to all wells being
drilled or deepened, which shall insure against the following costs: cost of
control of well; fires, blowouts, etc.; redrilling expense; and seepage and
pollution expense.
(i) Payment of Expenses. Whether or not the transactions contemplated by
-------------------
this Agreement are consummated, the Company will promptly (and in any event,
within 30 days after any invoice or other statement or notice) pay: (A) all
transfer, stamp, mortgage, documentary or other similar taxes, assessments or
charges levied by any governmental or revenue authority in respect of this
Agreement or any of the other Transaction Documents or any other document
referred to herein or therein, (B) all reasonable out-of-pocket costs and
expenses incurred by or on behalf of any Purchaser or Collateral Agent
(including without limitation attorneys' fees, consultants' fees and engineering
fees, travel costs and miscellaneous expenses) in connection with (1) the
negotiation, preparation, execution and delivery of the Transaction Documents,
and any and all consents, waivers, amendments, or other documents or instruments
relating thereto, (2) the filing, recording, refiling and re-recording of any
Transaction Documents and any other documents or instruments or further
assurances required to be filed or recorded or refiled or re-recorded by the
terms of any Transaction Document, (3) the purchases hereunder of the Notes and
other action reasonably required in the course of administration hereof, or (4)
monitoring or confirming (or preparation or negotiation of any document related
to) the Company's and it Subsidiaries' compliance with any covenants or
conditions contained in this Agreement or in any other Transaction Document, and
(C) all reasonable costs and expenses incurred by or on behalf of any Purchaser
or Collateral Agent (including without limitation attorneys' fees, consultants'
fees and accounting fees) in connection with the defense or enforcement of any
of the Transaction Documents (including this Section 8.1(i)) or the defense of
any such Person's exercise of its rights thereunder.
(j) Performance on the Company's Behalf. If the Company or any of its
-----------------------------------
Subsidiaries fails to pay any taxes, insurance premiums, delay rentals, lease
maintenance costs, attorneys'
21
fees, or other expenses or amounts it is required to pay under any Transaction
Document, the Collateral Agent or any Purchaser may pay the same. The Company
shall immediately reimburse the Collateral Agent or such Purchaser for any such
payments and each amount paid by the Collateral Agent or such Purchaser shall
constitute an obligation owed under this Agreement which is due and payable on
the date such amount is paid by the Collateral Agent or such Purchaser.
(k) Interest. The Company hereby promises to pay interest at the Default
--------
Rate on all amounts which the Company has in this Agreement promised to pay
(including obligations to pay fees or to make reimbursements or
indemnifications) and which are not paid when due. Such interest shall accrue
from the date such amounts become due until they are paid.
(l) Compliance with Agreements and Law. The Company and each of its
----------------------------------
Subsidiaries will perform all material obligations it is required to perform
under the terms of the Bank Documents, and each other indenture, mortgage, deed
of trust, security agreement, lease, franchise, agreement, contract or other
instrument or obligation to which it is a party or by which it or any of its
properties is bound. The Company and each of its Subsidiaries will conduct its
business and affairs in compliance in all material respects with all laws,
regulations, and orders applicable thereto, including Environmental Laws.
(m) Evidence of Compliance. The Company will furnish to the Purchasers at
----------------------
the Company's expense all evidence which any Purchaser from time to time may
reasonably request as to the accuracy and validity of or compliance with all
representations, warranties and covenants made by the Company or its
Subsidiaries in the Transaction Documents, the satisfaction of all conditions
contained therein, and all other matters pertaining thereto.
(n) Collateral Coverage Ratio. The Company will at all times maintain a
-------------------------
Collateral Coverage Ratio of at least 150%.
Section VIII.2. The Security. The Notes will be secured by the Security
------------
Documents listed in the Security Schedule and by any additional Security
Documents hereafter delivered by the Company or any Subsidiary of the Company
and accepted by the Purchasers.
Section VIII.3. Agreement to Deliver Security Documents. The Company agrees
---------------------------------------
to deliver, or to cause its Subsidiaries to deliver, to further secure the Notes
whenever requested by the Collateral Agent or any Purchaser in its sole and
absolute discretion, deeds of trust, mortgages, chattel mortgages, security
agreements, financing statements and other Security Documents in form and
substance satisfactory to the Collateral Agent and such Purchaser for the
purpose of granting, confirming, and perfecting first and prior liens or
security interests in any real or personal property of the Company or any
wholly-owned Subsidiary of the Company, subject only to Permitted Liens. The
Company also agrees to deliver, whenever requested by the Collateral Agent or
any Purchaser in its sole and absolute discretion, favorable title opinions from
legal counsel acceptable to the Collateral Agent and such Purchaser with respect
to Properties designated by the Collateral Agent or such Purchaser, based upon
abstract or record examinations to dates acceptable to the Collateral Agent and
such Purchaser and (a) stating that the Company or its Subsidiaries, as
applicable, has good and defensible title thereto, subject only
22
to Permitted Liens, (b) confirming that such properties and interests are
subject to Security Documents securing the Notes that constitute and create
legal, valid and duly perfected deed of trust or mortgage Liens in such
properties and interests and assignments of and security interests in the oil
and gas attributable thereto and in the proceeds thereof, subject, in each case,
to no prior Liens other than Permitted Liens, and (c) covering such other
matters as the Collateral Agent or such Purchaser may request. As used in this
Section 8.3 and the following Sections 8.4, 8.5, and 8.6, from and after January
1, 2001, the term "Subsidiary" and "Subsidiaries" shall include each Excluded
Subsidiary other than MGV Energy Inc.
Section VIII.4. Perfection and Protection of Security Interests and Liens.
---------------------------------------------------------
The Company will, and will cause each of its Subsidiaries, from time to time
deliver to the Collateral Agent any financing statements, continuation
statements, extension agreements and other documents, properly completed and
executed (and acknowledged when required) in form and substance satisfactory to
the Collateral Agent, which the Collateral Agent or any Purchaser requests for
the purpose of perfecting, confirming, or protecting any Liens or other rights
in Collateral securing the Notes.
Section VIII.5. Production Proceeds. Notwithstanding that, by the terms
-------------------
of the Mortgages, the Company and its Subsidiaries are or will be assigning to
the Collateral Agent all of the "Production Proceeds" (as defined therein)
accruing to the property covered thereby, so long as no Default has occurred
each such assignor may continue to receive from the purchasers of production all
such Production Proceeds, subject, however, to the Liens created under the
Security Documents, which Liens are hereby affirmed and ratified. Upon the
occurrence of a Default, the Collateral Agent may (unless otherwise restricted
by the Bank Subordination Agreement) exercise all rights and remedies granted
under the Security Documents, including the right to obtain possession of all
Production Proceeds then held by the Company or any of its Subsidiaries and to
receive directly from the purchasers of production all other Production
Proceeds. In no case shall any failure, whether purposed or inadvertent, by the
Collateral Agent to collect directly any such Production Proceeds constitute in
any way a waiver, remission or release of any of its rights under the Security
Documents, nor shall any release of any Production Proceeds by the Collateral
Agent to the Company or any of its Subsidiaries constitute a waiver, remission,
or release of any other Production Proceeds or of any rights of the Collateral
Agent to collect other Production Proceeds thereafter.
Section VIII.6. Guaranties of the Company's Subsidiaries. Each Subsidiary
----------------------------------------
of the Company created, acquired or coming into existence after the date hereof
shall, promptly thereafter, execute and deliver to the Collateral Agent an
absolute and unconditional guaranty of the timely repayment of the Notes and the
due and punctual performance of the obligations of the Company hereunder, which
guaranty shall be substantially in the form executed by Terra on the date of
this Agreement. Each Subsidiary of the Company existing on the date hereof shall
duly execute and deliver such a guaranty prior to the sale and purchase of the
Notes hereunder. The Company will cause each of its Subsidiaries to deliver to
the Purchasers, simultaneously with its delivery of such a guaranty (a) written
evidence satisfactory to the Purchasers and their counsel that such Subsidiary
has taken all corporate or partnership action necessary to duly approve and
authorize its execution, delivery and performance of such guaranty and any other
documents which it is required to execute and (b) a favorable opinion from legal
counsel acceptable to the
23
Purchasers with respect to each such guaranty covering such matters as the
Purchasers may request.
Section 8.7. Post-Closing Title Opinions. As soon as available, and in
---------------------------
any event on or prior to June 30, 2000, the Company shall deliver opinions of
title and other evidence of title in form and substance acceptable to Purchasers
and their counsel regarding that portion of the CMS Properties which is
necessary to satisfy the Post-Closing Title Review Requirement.
ARTICLE IX.
NEGATIVE COVENANTS.
Section IX.1. Negative Covenants. To confirm the Purchasers' understanding
------------------
concerning the Company, its Subsidiaries, and their respective business,
properties and obligations and to induce each Purchaser to enter into this
Agreement and purchase its Notes, the Company covenants and agrees with each
Purchaser and with Collateral Agent that:
(a) Debt. The Company and its Subsidiaries will not in any manner owe or
----
be liable for any Debt except:
(i) Debt evidenced by the Notes;
(ii) Debt now or hereafter outstanding under the Bank Credit Agreement
(the "Bank Debt"), provided that (1) no part of the Debt for principal
owing under the Bank Credit Agreement is subordinated in right or payment
to any other Debt for principal owing under the Bank Credit Agreement, and
(2) at the time each such item of Debt is incurred (A) the aggregate amount
thereof does not exceed the "Borrowing Base" then in effect under the Bank
Credit Agreement (or, if such "Borrowing Base" ever ceases to exist or
diverges materially from a conventional commercial bank borrowing base,
does not exceed a conventional commercial bank borrowing base), and (B)
after giving effect to the incurrence of such Debt, no Default then exists
under Section 8.1(n);
(iii) [intentionally omitted];
(iv) unsecured Debt of the Company with no principal payments
scheduled before March 31, 2010, that is subordinated to the Debt evidenced
by the Notes on terms satisfactory to the Majority Purchasers in their sole
and absolute discretion;
(v) Debt of Terra (but not guaranties thereof by the Company) that
exists on the Closing Date and is described in the Disclosure Schedule; and
(vi) miscellaneous items of Debt (other than for borrowed money) not
described in the foregoing subsections (i) through (v) which do not in the
aggregate (taking into account all such Debt of the Company and its
Subsidiaries) exceed $2,000,000.
24
The Company will not enter into any "take-or-pay" contract or other contract or
arrangement for the purchase of goods or services which obligates it to pay for
such goods or service regardless of whether they are delivered or furnished to
it.
(b) Limitation on Liens. Except for Permitted Liens, neither the Company
-------------------
nor any of its Subsidiaries will create, assume or permit to exist any Lien upon
any of the properties or assets which it now owns or hereafter acquires.
(c) Limits on Hedging Contracts. The Company will not be a party to or in
---------------------------
any manner be liable on any Hedging Contract other than: (i) interest rate
Hedging Contracts with investment grade counterparties entered into for the
purpose of protecting the Company against increases in the rate of interest
payable on its actual and reasonably anticipated Bank Debt; and (ii) Hedging
Contracts with investment grade counterparties entered into in compliance with
the Commodity Price Risk Policy for the purpose of protecting the Company
against decreases in the prices obtainable for its actual and reasonably
anticipated production of oil, gas and natural gas liquids. The Company will
not materially amend the Commodity Price Risk Policy after the same is adopted
as contemplated in Section 5.1(t).
(d) Limits on Amendments. The Company will not amend, waive or release
--------------------
any Mariner Section 29 Sale Document. The Company will not amend, waive or
release any contract or lease if the effect thereof is to release, qualify,
limit, make contingent or otherwise detrimentally affect the rights and benefits
of Collateral Agent or the Purchasers under or acquired pursuant to any Security
Documents. The Company will not amend, waive, unwind, reverse, or release any
long-term fixed price production sales agreements or derivative contracts
described on the Disclosure Schedule if the effect thereof is to materially
decrease the sales revenues or other payments receivable thereunder.
(e) Limits on Mergers and Subsidiary Equity Issuances. Neither the Company
-------------------------------------------------
nor any Subsidiary of the Company will merge or consolidate with or into any
other Person except that any Subsidiary of the Company may be merged into or
consolidated with (i) another Subsidiary of the Company, so long as a Guarantor
is the surviving business entity, or (ii) the Company, so long as the Company is
the surviving business entity, and, in either case, provided that the Company
has given the Purchasers at least thirty (30) days prior written notice of such
merger or consolidation, and such surviving entity executes and delivers to the
Collateral Agent all documents and instruments as may be requested by any
Purchaser to protect the Purchasers' and the Collateral Agent's rights under the
Transaction Documents. Notwithstanding the foregoing sentence, the Company may
merge or consolidate with or into another Person so long as
(1) such merger or consolidation does not result in a Change of
Control or a reduction of $5,000,000 or more in the Company's "Borrowing
Base" or other available credit under the Bank Credit Agreement;
(2) the successor formed by such consolidation or the survivor of such
merger shall be a solvent corporation organized and existing under the laws
of the United States or any State thereof (including the District of
Columbia), and, if the Company is not such
25
corporation, (A) such corporation shall have executed and delivered to each
holder of any Notes its assumption of the due and punctual performance and
observance of each covenant and condition of this Agreement, the Notes and
the Transaction Documents and such other documents and instruments as may
be requested by the Majority Purchasers to protect the Purchasers' and the
Collateral Agent's rights under the Transaction Documents, and (B) such
corporation shall have caused to be delivered to each holder of any Notes
an opinion of independent counsel (with both the form of such opinion and
such counsel being satisfactory to Majority Purchasers) to the effect that
the Transaction Documents are the binding instruments and agreements of
such corporation, enforceable in accordance with their terms and without
conflict with any law, agreement or other legal obligation of such
corporation and that all agreements or instruments effecting such
assumption are enforceable in accordance with their terms and comply with
the terms hereof; and
---
(3) immediately after giving effect to such consolidation or merger,
no Default shall have occurred and be continuing.
No Subsidiary of the Company will issue any additional shares of its capital
stock or other securities or any options, warrants or other rights to acquire
such additional shares or other securities except to the Company and only to the
extent not otherwise forbidden under the terms hereof. No Subsidiary of the
Company which is a partnership will allow any diminution of the Company's
interest (direct or indirect) therein.
(f) Limitation on Distributions and Redemptions. Neither the Company nor
-------------------------------------------
any Subsidiary of the Company will declare or make any distribution in respect
of any equity interest in such Person, nor will the Company nor any Subsidiary
of the Company directly or indirectly purchase, redeem, acquire or retire any
equity interest in it (whether such interests are now or hereafter issued,
outstanding or credited) or cause or permit any reduction or retirement of such
equity interests; provided, however, that no Subsidiary of the Company shall be
prohibited from declaring or making any distribution in respect of any equity
interest in it to the Company; and further provided, however, that the Company
shall be permitted to declare and pay dividends (but not redemptions,
acquisitions, or retirements) in respect of any preferred stock issued by the
Company so long as after the paying of such dividends no Default exists. Except
as expressly provided in the Transaction Documents, no Subsidiary of the Company
will, directly or indirectly, enter into, create, or otherwise allow to exist
any contract or other consensual restriction on the ability of any such Person
to (i) pay dividends or make other distributions to the Company, (ii) to redeem
equity interests held in it by the Company, (iii) to repay Liabilities owing by
it to the Company, or (iv) to transfer any of its assets to the Company.
(g) Limitation on Sales or Abandonments. Neither the Company nor any of
-----------------------------------
its Subsidiaries will sell, transfer, lease, exchange, discount, assign,
abandon, alienate or dispose of (collectively in this section "sell") any of its
assets or properties or any interest therein except for sales or abandonments of
property or assets in the ordinary course of business to which no Proved
Reserves are attributed; provided, however, that the Company may, in good faith
arms' length transactions with non-Affiliated third party buyers, sell
Properties to which Proved Reserves are attributed if: (i) such sale is made
during the existence of any "Event of Default" or
26
"Borrowing Base Deficiency" (as such terms are defined in the Bank Credit
Agreement) and all proceeds of such sale (net only of costs of sale and taxes on
such sale) are applied to the payment of the Bank Debt or (ii) after giving
effect to such sale and to the application of any proceeds thereof, no Default
or Event of Default and no such Borrowing Base Deficiency exists. In no event,
however, shall the Company or any of its Subsidiaries (i) sell any Hydrocarbons
under Advance Payment Contracts (as defined below), (ii) sell or securitize any
of their accounts receivable (other than those deemed doubtful or
uncollectible), (iii) sell any production payment or other term royalty, (iv)
purchase property subject to any production payment or term royalty created
within 180 days prior to such purchase, or (v) sell assets and then lease them
back (or commit to lease them back) within 180 days after such sale. As used
herein, "Advance Payment Contracts" means any contract whereby any of the
Company or any of its Subsidiaries either (a) receives or becomes entitled to
receive (either directly or indirectly) any payment (an "Advance Payment") to be
applied toward payment of the purchase price of Hydrocarbons produced or to be
produced from Mineral Interests owned by any such Person and which Advance
Payment is, or is to be, paid in advance of actual delivery of such production
to or for the account of the purchaser regardless of such production, or (b)
grants an option or right of refusal to the purchaser to take delivery of such
production in lieu of payment, and, in either of the foregoing instances, the
Advance Payment is, or is to be, applied as payment in full for such production
when sold and delivered or is, or is to be, applied as payment for a portion
only of the purchase price thereof or of a percentage or share of such
production; provided that inclusion of the standard "take or pay" provision in
-------- ----
any gas sales or purchase contract or any other similar contract shall not, in
and of itself, constitute such contract as an Advance Payment Contract for the
purposes hereof.
(h) Limitation on Investments and New Businesses. Neither the Company nor
--------------------------------------------
any of its Subsidiaries will (i) make any expenditure or commitment or incur any
obligation or enter into or engage in any transaction except in the ordinary
course of the businesses of acquiring and developing oil and gas properties,
exploring for and producing oil and gas, and gathering, processing, transporting
and selling the crude oil, condensate and natural gas so produced, (ii) purchase
any material capital assets other than oil and gas properties and equipment
associated therewith, or (iii) form or acquire any Subsidiary or make any other
acquisitions of or capital contributions to or Investments in any Person, other
than Permitted Investments.
(i) Limitation on Credit Extensions. Except for Permitted Investments,
-------------------------------
neither the Company nor any of its Subsidiaries will extend credit, make
advances or make loans, other than normal and prudent extensions of credit to
customers buying goods and services in the ordinary course of business, which
extensions shall not be for longer periods than those extended by similar
businesses operated in a normal and prudent manner.
(j) Transactions with Affiliates. The Company will not and will not
----------------------------
permit any Subsidiary to engage in any transaction with any of its Affiliates
except pursuant to the reasonable requirements of the Company's or such
Subsidiary's business and then only on terms which are not less favorable to it
than those which would have been obtainable at the time in arm's-length dealing
with Persons other than Affiliates.
27
(k) ERISA Plans. Neither the Company nor any of its Subsidiaries will
-----------
incur any obligation to contribute to any "multiemployer plan" as defined in
Section 4001 of ERISA.
(l) No Public Announcements. The Company may not make any public
-----------------------
announcement or disclosure of the transactions contemplated by this Agreement or
any other Transaction Document, except as required by law or approved by the
Purchasers prior to the making of any such public announcement or disclosure.
(m) EBITDAX. On March 31, 2000, and on the last day of each Fiscal
-------
Quarter thereafter, the ratio of (i) the Company's EBITDAX for the four Fiscal
Quarter period ending on such day to (ii) the Company's Consolidated Fixed
Charges for the same four Fiscal Quarter Period, shall not be less than 1.25 to
1.0. (If the Company or any of its Subsidiaries has merged with or acquired any
Person during such four Fiscal Quarter Period, the Company's EBITDAX and
Consolidated Fixed Charges for such period shall be calculated as if such merger
or acquisition had occurred on the first day of the Fiscal Quarter in which it
actually occurred.)
(n) Working Capital. Working Capital will never be less than $3,000,000 at
---------------
any time. As used herein, "Working Capital" means the Company's Consolidated
current assets minus the Company's Consolidated current liabilities, provided
that for the purposes of determining Working Capital, (i) current assets will be
calculated by including amounts then available for borrowing under the Bank
Credit Agreement, and (ii) current assets will be calculated without including
any accounts receivable or other rights to payment arising from:
(A) the sale of gas production, unless the same are due and payable
(and reasonably expected by the Company to be paid) within sixty (60) days
after the month in which gas is produced;
(B) the sale of oil production, unless the same are due and payable
(and reasonably expected by the Company to be paid) within thirty (30) days
after the month in which gas is produced; or
(C) Excluded Accounts.
(o) Cinnabar. In marketing the Hydrocarbons of the Company and its
--------
Subsidiaries, Cinnabar shall act as their marketing agent, and the Company and
its Subsidiaries shall not permit Cinnabar to claim or take title to any
Hydrocarbons which Cinnabar markets on their behalf or to claim or take title to
any accounts receivable resulting from the sale of such Hydrocarbons, and all
payments for the sale of such Hydrocarbons by the purchasers obtained by
Cinnabar shall be made directly to the Company or to the Subsidiary of the
Company selling such Hydrocarbons. For so long as any guaranty by the Company of
any Cinnabar Marketing Obligations is in effect, the Company will not permit
Cinnabar to: (i) incur Debt, or (ii) grant a Lien on its accounts receivable or
other assets to anyone other than the Company (provided that Cinnabar may grant
such a Lien to any other guarantor of Cinnabar Marketing Obligations in
proportion to the amount guarantied by such other guarantor). The Company may
guaranty a percentage of the Cinnabar Marketing Obligations (provided, however,
that the percentage referred to in any such Guarantee shall not exceed the
percentage of Cinnabar's common equity owned by the Company at the time such
Guarantee is executed).
28
ARTICLE X.
EVENTS OF DEFAULT.
Section X.1. Events of Default. An "Event of Default" shall exist if any of
-----------------
the following conditions or events shall occur and be continuing:
(a) the Company defaults in the payment or prepayment of any principal
or premium, if any, on any Note when the same becomes due and payable,
whether at maturity or at a date fixed for prepayment or by declaration or
otherwise, or fails to pay any purchase price required to be paid under
Section 7.4 when the same becomes due and payable; or
(b) the Company defaults in the payment of any interest on any Note,
or any other amounts due and payable under the Transaction Documents to any
Purchaser or to Collateral Agent, for more than five Business Days after
the same becomes due and payable; or
(c) any "default" or "event of default" occurs under any Transaction
Document which defines either such term, and the same is not remedied
within the applicable period of grace (if any) provided therein; or
(d) the Company or any of its Subsidiaries fails to duly observe,
perform or comply with any covenant, agreement or provision of Section
8.1(d) or Section 9.1; or
(e) the Company or any of its Subsidiaries fails to duly comply with
its covenant in Section 8.1(n) and such failure is not remedied within 30
days after the first occurrence thereof; or
(f) the Company or any of its Subsidiaries defaults in the performance
of or compliance with any term contained herein or in the other Transaction
Documents (other than those referred to in paragraphs (a), (b), (c), (d),
and (e) of this Section 10.1) and such default is not remedied within 30
days after the Company receives written notice of such default from any
Purchaser (any such written notice to be identified as a "notice of
default" and to refer specifically to this paragraph (f) of Section 10.1);
or
(g) any representation or warranty previously, presently or hereafter
made in writing by or on behalf of the Company or any of its Subsidiaries
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, or
any Transaction Document at any time ceases to be valid, binding and
enforceable as warranted herein for any reason other than its release or
subordination by the Collateral Agent with the consent of Majority
Purchasers; or
(h) the Company or any of its Subsidiaries (i) fails to pay any
portion, when such portion is due, of any of its Debt under the Bank Credit
Agreement or of any other
29
Debt in excess of $250,000 or (ii) breaches or defaults in the performance
of any term or condition of any Bank Document or any other instrument or
agreement with any Person by which any such Debt is issued, evidenced,
governed or secured, and any such failure, breach or default continues
beyond any applicable period of grace therefor; or
(i) the Company or any of its Subsidiaries fails to duly observe,
perform, or comply in any material respect with any other agreement with
any Person or any term or condition of any instrument, if such agreement or
instrument is materially significant to the Company or to the Company and
its Subsidiaries on a Consolidated basis, and such failure is not remedied
within the applicable period of grace (if any) provided in such other
agreement or instrument; or
(j) if (i) any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any plan year or part thereof or a
waiver of such standards or extension of any amortization period is sought
or granted under section 412 of the Code, (ii) a notice of intent to
terminate any Plan shall have been or is reasonably expected to be filed
with the PBGC or the PBGC shall have instituted proceedings under ERISA
section 4042 to terminate or appoint a trustee to administer any Plan or
the PBGC shall have notified the Company or any ERISA Affiliate that a Plan
may become a subject of any such proceedings, (iii) the aggregate "amount
of unfunded benefit liabilities" (within the meaning of section 4001(a)(18)
of ERISA) under all Plans, determined in accordance with Title IV of ERISA,
shall exceed $250,000, (iv) the Company or any ERISA Affiliate shall have
incurred or is reasonably expected to incur any liability pursuant to Title
I or IV of ERISA or the penalty or excise tax provisions of the Code
relating to employee benefit plans, (v) the Company or any ERISA Affiliate
withdraws from any Multiemployer Plan, or (vi) the Company or any
Subsidiary establishes or amends any employee welfare benefit plan that
provides post-employment welfare benefits in a manner that would increase
the liability of the Company or any Subsidiary thereunder; and any such
event or events described in clauses (i) through (vi) above, either
individually or together with any other such event or events, could
reasonably be expected to have a Material Adverse Effect (as used in this
subsection (h), the terms "employee benefit plan" and "employee welfare
benefit plan" shall have the respective meanings assigned to such terms in
Section 3 of ERISA); or
(k) the Company or any Subsidiary of the Company:
(i) suffers the entry against it of 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 sixty days; or
(ii) 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
30
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) its
indebtedness as such indebtedness becomes due; or takes corporate or
other action to authorize any of the foregoing; or
(iii) suffers the appointment of or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestration 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 thirty days after the making thereof,
or such appointment or taking possession is at any time consented to,
requested by, or acquiesced to by it;
(iv) suffers the entry against it of a final judgment for the
payment of money in excess of $250,000, unless the same is discharged
within thirty 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 prior to the
first date on which such execution is allowed; or
(v) 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
thirty days after the entry or levy thereof or after any stay is
vacated or set aside.
Upon the occurrence of an Event of Default described in subsection (k)(i),
(k)(ii) or (k)(iii) of this Section with respect to the Company, the entire
unpaid principal amount of the Notes, plus all accrued and unpaid interest
thereon, shall all 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 Company. During the continuance of any other Event of Default,
Majority Purchasers at any time and from time to time may without notice to the
Company declare the entire unpaid principal amount of the Notes, plus all
accrued and unpaid interest thereon, to 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 Company.
Section X.2. Remedies. If any Default or Event of Default has occurred and
--------
is continuing, and irrespective of whether any Notes have become or have been
declared immediately due and payable under Section 10.1, the holder of any Note
at the time outstanding may proceed to protect and enforce the rights of such
holder by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein or in any
of the Notes, or for an injunction against a violation of any of the terms
hereof or thereof, or in aid of the exercise of any power granted hereby or
thereby or by law or otherwise. All rights, remedies and powers conferred upon
the Purchasers and Collateral Agent under the
31
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 X.3. Rescission. At any time after any of the Notes have been
----------
declared due and payable pursuant to Section 10.1, Majority Purchasers may, by
written notice to the Company, rescind and annul any such declaration and its
consequences if (a) the Company has paid all overdue interest on the Notes, all
principal and premium, if any, on any Notes that is then due and payable and is
unpaid other than by reason of such declaration, and all interest on such
overdue principal and premium and (to the extent permitted by applicable law)
any overdue interest in respect of the Notes, at the Default Rate, (b) all
Events of Default and Defaults, other than non-payment of amounts that have
become due solely by reason of such declaration, have been cured or have been
waived, and (c) no judgment or decree has been entered for the payment of any
monies due pursuant hereto or to the Notes. No rescission and annulment under
this Section 10.3 will extend to or affect any subsequent Event of Default or
Default or impair any right consequent thereon.
ARTICLE XI.
REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES;
RESTRICTIONS ON TRANSFER OF NOTES
Section XI.1. Registration of Notes. The Company shall keep at its
---------------------
principal executive office a register for the registration and registration of
transfers of Notes. The name and address of each holder of one or more Notes,
each transfer thereof and the name and address of each transferee of one or more
Notes shall be registered in such register. Prior to due presentment for
registration of transfer, the Person in whose name any Notes shall be registered
shall be deemed and treated as the owner and holder thereof for all purposes
hereof, and the Company shall not be affected by any notice or knowledge to the
contrary. The Company shall give to any holder of a Note that is an
Institutional Investor promptly upon request therefor, a complete and correct
copy of the names and addresses of all registered holders of Notes.
Section XI.2. Transfer and Exchange of Notes. Upon surrender of any Notes
------------------------------
at the principal executive office of the Company for registration of transfer or
exchange (and in the case of a surrender for registration of transfer, duly
endorsed or accompanied by a written instrument of transfer duly executed by the
registered holder of such Notes or its attorney duly authorized in writing and
accompanied by the address for notices of each transferee of such Notes or part
thereof), the Company shall execute and deliver, at the Company's expense
(except as provided below), one or more new Notes (as requested by the holder
thereof) in exchange therefor, in an aggregate principal amount equal to the
unpaid principal amount of the surrendered Notes. Each such new Note shall be
payable to such Person as such holder may request and shall be substantially in
the form of Exhibit 1. Each such new Note shall be dated and bear interest from
the date to which interest shall have been paid on the surrendered Notes or
dated the date of the surrendered Notes if no interest shall have been paid
thereon. The Company may require payment of a sum sufficient to cover any stamp
tax or governmental charge imposed in respect of any such transfer of Notes.
Notes shall not be transferred in amounts of less than
32
$100,000, provided that (a) if necessary to enable the registration of transfer
--------
by a holder of its entire holding of Notes, one Note may be in a denomination of
less than $100,000, and (b) TCW may transfer Notes in any amount to its
investors as required by the terms of its agreements with and obligations to its
investors in the event of any distribution of its assets to investors that are
withdrawing from their investment relationships with TCW. Any transferee, by its
acceptance of a Note registered in its name (or the name of its nominee), shall
be deemed to have made the representation set forth in Section 6.1.
Section XI.3. Replacement of Notes. Upon receipt by the Company of evidence
--------------------
reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of any of the Notes (which evidence shall be, in the
case of an Institutional Investor, notice from such Institutional Investor of
such ownership and such loss, theft, destruction or mutilation), and
(a) in the case of loss, theft or destruction, of indemnity reasonably
satisfactory to it (provided that if the holder of such Notes is, or is a
--------
nominee for, an original Purchaser or another holder of a Note with a minimum
net worth of at least $25,000,000, such Person's own unsecured agreement of
indemnity shall be deemed to be satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation thereof,
the Company at its own expense shall execute and deliver, in lieu thereof, one
or more new Notes, dated and bearing interest from the date to which interest
shall have been paid on such lost, stolen, destroyed or mutilated Notes or dated
the date of such lost, stolen, destroyed or mutilated Notes if no interest shall
have been paid thereon.
Section XI.4. Restriction on Transfer.
-----------------------
(a) Each Purchaser agrees that it will not solicit offers for, offer, or
sell the Notes to any Person other than (i) in the case of offers inside the
United States (A) to Persons whom such Purchaser reasonably believes to be a QIB
or, if such Person is buying for one or more institutional accounts for which
such Person is acting as fiduciary or agent, only when such Person has
represented to such Purchaser that each such account is a QIB, to whom notice
has been given that such sale or delivery is being made in reliance on Rule 144A
under the Securities Act or (B) to a limited number of other institutional
accredited investors (as defined in Rule 501(a)(1), (2), (3), or (7) under the
Securities Act; such accredited investors are each herein referred to as an
"Accredited Investor") reasonably believed by such Purchaser to be Accredited
Investors that, prior to such transfer or sale of the Notes, deliver to such
Purchaser a letter in the form of Exhibit 4 hereto and (ii) in the case of
offers outside the United States, to Persons other than United States Persons
(including dealers or other professional fiduciaries in the United States acting
on a discretionary basis for foreign beneficial owners (other than an estate or
trust)). As used herein, "QIB" means a "qualified institutional buyer" as
defined in Rule 144A under the Securities Act.
(b) Each Purchaser agrees that it will not solicit offers for, offer, or
sell the Notes by any form of general solicitation or general advertising (as
those terms are used in Regulation D
33
under the Securities Act) or in any manner involving a public offering within
the meaning of Section 4(2) of the Securities Act.
(c) Notwithstanding the foregoing provisions of this Article XI, TCW may
transfer Notes to its investors as required by the terms of its agreements with
and obligations to its investors in the event of any distribution of its assets
to investors that are withdrawing from their investment relationships with TCW.
ARTICLE XII.
COLLATERAL AGENT.
Section XII.1. Appointment and Authority. Each Purchaser hereby appoints
-------------------------
Tamco as collateral agent (herein, together with its successors and assigns in
such capacity, "Collateral Agent") under the Transaction Documents, to exercise
such powers under the Transaction Documents as are delegated to Collateral Agent
by the terms thereof, together with all such powers as are reasonably incidental
thereto, including taking, holding and disposing of the Collateral. Tamco hereby
accepts such appointment. Collateral Agent shall act for and on behalf of the
Purchasers in connection with all Collateral and all Security Documents,
including serving as mortgagee under each Mortgage and exercising rights and
remedies provided thereunder. Each Mortgage, as well as the Bank Subordination
Agreement, contemplates that Collateral Agent may release Collateral in
accordance with the terms thereof and Collateral Agent is hereby authorized to
do so as required thereunder or hereunder or if Collateral Agent has otherwise
received the prior consent of Majority Purchasers, it being understood that no
Purchaser itself need be a party to any such release. In its administration of
this Agreement and the other Transaction Documents, Collateral Agent will
exercise the same care that a commercial bank would exercise in the
administration or handling of transactions for its own account. The relationship
of Collateral Agent to the Purchasers is only that of one investor acting to
hold collateral on behalf of itself and others as a convenience to all, and
nothing in the Transaction Documents shall be construed to constitute Collateral
Agent a trustee or other fiduciary for any holder of any of the Notes or of any
participation therein nor to impose on Collateral Agent any duties and
obligations other than those expressly provided for in the Transaction
Documents. With respect to any matters not expressly provided for in the
Transaction Documents and any matters which the Transaction Documents place
within the discretion of Collateral Agent, Collateral Agent shall not be
required to exercise any discretion or take any action, and it may request
instructions from the Purchasers with respect to any such matter, in which case
it shall be required to act or to refrain from acting (and shall be fully
protected and free from liability to all Purchasers in so acting or refraining
from acting) upon the instructions of Majority Purchasers, provided, however,
that Collateral Agent shall not be required to take any action which exposes it
to a risk of personal liability that it considers unreasonable or which is
contrary to the Transaction Documents or to applicable law. Each Purchaser
hereby authorizes Collateral Agent to execute an Intercreditor Agreement with
the Agent Bank and Mariner and First Amendment to Intercreditor Agreement with
the Agent Bank and MAG.
Section XII.2. Exculpation, Collateral Agent's Reliance, Etc. Neither
---------------------------------------------
Collateral Agent nor any of its directors, officers, agents, attorneys, or
employees shall be liable for any action
34
taken or omitted to be taken by any of them under or in connection with the
Transaction Documents, INCLUDING THEIR NEGLIGENCE OF ANY KIND, except that each
shall be liable for its own gross negligence or willful misconduct. Without
limiting the generality of the foregoing, Collateral Agent (a) may treat the
registered holder of any Note as the holder thereof until Collateral Agent
receives written notice of the assignment or transfer thereof in accordance with
this Agreement; (b) may consult with legal counsel (including counsel for the
Company), independent public accountants and other experts selected by it and
shall not be liable for any action taken or omitted to be taken in good faith by
it in accordance with the advice of such counsel, accountants or experts; (c)
makes no warranty or representation to any Purchaser and shall not be
responsible to any Purchaser for any statements, warranties or representations
made in or in connection with the Transaction Documents; (d) shall not have any
duty to ascertain or to inquire as to the performance or observance of any of
the terms, covenants or conditions of the Transaction Documents on the part of
the Company or any Subsidiary of the Company or to inspect the property
(including the books and records) of the Company or any Subsidiary of the
Company or to forward notices to the Purchasers on behalf of the Company or any
of its Subsidiaries; (e) shall not be responsible to any Purchaser for the due
execution, legality, validity, enforceability, genuineness, sufficiency or value
of any Transaction Document or any instrument or document furnished in
connection therewith; (f) may rely upon the representations and warranties of
each of the Company and each Subsidiary of the Company and the Purchasers in
exercising its powers hereunder; and (g) shall incur no liability under or in
respect of the Transaction Documents by acting upon any notice, consent,
certificate or other instrument or writing (including any telecopy, telegram,
cable or telex) believed by it to be genuine and signed or sent by the proper
Person or Persons.
Section XII.3. Credit Decisions. Each Purchaser acknowledges that it has,
----------------
independently and without reliance upon any other Purchaser or Collateral Agent,
made its own analysis of the Company and the transactions contemplated hereby
and its own independent decision to enter into this Agreement and the other
Transaction Documents. Each Purchaser also acknowledges that it will,
independently and without reliance upon any other Purchaser or Collateral Agent
and based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under the Transaction Documents.
Section XII.4. Indemnification. Each Purchaser agrees to indemnify
---------------
Collateral Agent (to the extent not reimbursed by the Company within ten (10)
days after demand) from and against such Purchaser's Percentage Share of any and
all liabilities, obligations, claims, losses, damages, penalties, fines,
actions, judgments, suits, settlements, costs, expenses or disbursements
(including reasonable fees of attorneys, accountants, 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 Collateral Agent growing out of, resulting from
or in any other way associated with any of the Collateral, the Transaction
Documents and the transactions and events (including the enforcement 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).
35
The foregoing indemnification shall apply whether or not such liabilities and
costs are in any way or to any extent owed, in whole or in part, under any claim
or theory of strict liability, or are caused, in whole or in part, by any
negligent act or omission of any kind by Collateral Agent,
provided only that no Purchaser shall be obligated under this Section to
indemnify Collateral Agent for that portion, if any, of any liabilities and
costs which is proximately caused by Collateral Agent's own individual gross
negligence or willful misconduct, as determined in a final judgment. Cumulative
of the foregoing, each Purchaser agrees to reimburse Collateral Agent promptly
upon demand for such Purchaser's Percentage Share of any costs and expenses to
be paid to Collateral Agent by the Company under Section 8.1(i) to the extent
that Collateral Agent is not timely reimbursed for such expenses by the Company
as provided in such section. As used in this Section the term "Collateral Agent"
shall refer not only to the Person designated as such in Section 12.1 but also
to each director, officer, agent, attorney, employee, representative and
Affiliate of such Person.
Section XII.5. Rights as Purchaser. In its capacity as a Purchaser,
-------------------
Collateral Agent and each Affiliate of Collateral Agent shall have the same
rights and obligations as any Purchaser and may exercise such rights as though
it were not Collateral Agent or an Affiliate of Collateral Agent. Collateral
Agent and its Affiliates may generally engage in any kind of business with the
Company or any Subsidiary or Affiliate of the Company, all as if it were not
Collateral Agent hereunder and without any duty to account therefor to any
Purchaser.
Section XII.6. Sharing of Set-Offs, Collections, and Payments.
----------------------------------------------
(a) Each Purchaser agrees that if it shall, whether through the exercise of
rights under Security Documents or rights of banker's lien, set off, or
counterclaim against the Company or otherwise, obtain payment of a portion of
the aggregate Obligations owed to it which, taking into account all
distributions made by Collateral Agent under this Agreement, causes such
Purchaser to have received more than it would have received had such payment
been made pro rata to each Purchaser in accordance with the following subsection
(b), then (i) it shall be deemed to have simultaneously purchased and shall be
obligated to purchase interests in the Obligations as necessary to cause all
Purchasers to share all payments as if such payments had been made pro rata to
each Purchaser in accordance with the following subsection (b), and (ii) such
other adjustments shall be made from time to time as shall be equitable to
ensure that Collateral Agent and all Purchasers share all payments of
Obligations as if such payments had been made pro rata to each Purchaser in
accordance with the following subsection (b); provided, however, that nothing
herein contained shall in any way affect the right of any Purchaser to obtain
payment (whether by exercise of rights of banker's lien, set-off or counterclaim
or otherwise) of Liabilities other than the Obligations. The Company expressly
consents to the foregoing arrangements and agrees that any holder of any such
interest or other participation in the Obligations, whether or not acquired
pursuant to the foregoing arrangements, may to the fullest extent permitted by
law exercise any and all rights of banker's lien, set-off, or counterclaim as
fully as if such holder were a holder of the Obligations in the amount of such
interest or other participation. If all or any part
36
of any funds transferred pursuant to this Section is thereafter recovered from
the seller under this Section which received the same, the purchase provided for
in this Section shall be deemed to have been rescinded to the extent of such
recovery, together with interest, if any, if interest is required pursuant to an
order of a Governmental Authority to be paid on account of the possession of
such funds prior to such recovery.
(b) If Collateral Agent collects or receives money on account of the
Collateral, Collateral Agent shall distribute all money so collected or received
as follows:
(i) first, for the payment of all amounts owing to Collateral Agent
under Section 8.1(i) or Section 13.5 of this Agreement or any similar
provisions of other Transaction Documents; and
(ii) then to each Purchaser in accordance with such Purchaser's
Percentage Share.
Section XII.7. Investments. Whenever Collateral Agent in good faith
-----------
determines that it is uncertain about how to distribute to Purchasers any funds
which it has received, or whenever Collateral Agent in good faith determines
that there is any dispute among Purchasers about how such funds should be
distributed, Collateral Agent may choose to defer distribution of the funds
which are the subject of such uncertainty or dispute. If Collateral Agent in
good faith believes that the uncertainty or dispute will not be promptly
resolved, or if Collateral Agent is otherwise required to invest funds pending
distribution to Purchasers, Collateral Agent shall invest such funds pending
distribution in one or more separate accounts not commingled with other assets
of the Collateral Agent; all interest on any such investment shall be
distributed upon the distribution of such investment and in the same proportion
and to the same Persons as such investment. All moneys received by Collateral
Agent for distribution to Purchasers (other than to a Person who is Collateral
Agent in its separate capacity as a Purchaser) shall be held by Collateral Agent
pending such distribution solely as Collateral Agent for such Purchasers, and
Collateral Agent shall have no equitable title to any portion thereof.
Section XII.8. Benefit of Article XII. The provisions of this Article are
----------------------
intended solely for the benefit of Purchasers and Collateral Agent, and neither
the Company nor any Subsidiary of the Company shall be entitled to rely on any
such provision or assert any such provision in a claim or defense against any
Purchaser or Collateral Agent. Purchasers and Collateral Agent may waive or
amend such provisions as they desire without any notice to or consent of the
Company or any Subsidiary of the Company.
Section XII.9. Resignation. Collateral Agent may resign at any time by
-----------
giving written notice thereof to the Purchasers and the Company. Each such
notice shall set forth the date of such resignation. Upon any such resignation
the Majority Purchasers shall designate a successor Collateral Agent. A
successor must be appointed for any retiring Collateral Agent, and such
Collateral Agent's resignation shall become effective when such successor
accepts such appointment. If, within thirty days after the date of the retiring
Collateral Agent's resignation, no successor Collateral Agent has been appointed
and has accepted such appointment, then the retiring Collateral Agent may
appoint a successor Collateral Agent. Upon the acceptance of any
37
appointment as Collateral Agent hereunder by a successor Collateral Agent, the
retiring Collateral Agent shall be discharged from its duties and obligations
under this Agreement and the other Transaction Documents. After any retiring
Collateral Agent's resignation hereunder the provisions of this Article XII and
Section 13.5 shall continue to inure to its benefit as to any actions taken or
omitted to be taken by it while it was Collateral Agent under the Transaction
Documents. The Company hereby agrees to pay all fees, if any, as may be charged
by any successor Collateral Agent that is a national or state bank or trust
company which such Person may reasonably charge for its services as Collateral
Agent, and to enter into or consent to such documents and instruments as such
successor Collateral Agent may request in connection with its service and
appointment as Collateral Agent.
ARTICLE XIII.
MISCELLANEOUS.
Section XIII.1. Place of Payment. Subject to Section 13.2, payments of
----------------
principal, premium and repurchase price, if any, and interest becoming due and
payable on the Notes shall be made in Dallas, Dallas County, Texas at the
principal office of Bank of America, N.A., in such jurisdiction (presently 901
Main Street, Dallas, Texas 75202). The Company may at any time, by notice to
each holder of a Note, change the place of payment of the Notes so long as such
place of payment shall be either the principal office of the Company in Tarrant
or Dallas Counties, Texas, or the principal office of a bank or trust company in
either of such jurisdictions.
Section XIII.2. Home Office Payment. So long as any Purchaser originally
-------------------
party hereto, or any nominee of such Purchaser, shall be the holder of any Note,
and notwithstanding anything contained in Section 13.1 or in such Note to the
contrary, the Company will pay all sums becoming due on such Note for principal,
premium or repurchase price, if any, and interest by the method and at the
address specified for such purpose below such Purchaser's name in Schedule A, or
by such other method or at such other address as such Purchaser shall have from
time to time specified to the Company in writing for such purpose, without the
presentation or surrender of such Note or the making of any notation thereon,
except that upon written request of the Company made concurrently with or
reasonably promptly after payment or prepayment in full of any Note, such
Purchaser shall surrender such Note for cancellation, reasonably promptly after
any such request, to the Company at its principal executive office or at the
place of payment most recently designated by the Company pursuant to Section
13.1. Prior to any sale or other dispo sition of any Note held by such Purchaser
or such Purchaser's nominee, such Purchaser will, at such Purchaser's election,
either endorse thereon the amount of principal paid thereon and the last date to
which interest has been paid thereon or surrender such Note to the Company in
exchange for a new Note or Notes pursuant to Section 11.2. The Company will
afford the benefits of this Section to any Institutional Investor that is the
direct or indirect transferee of any Note purchased by such Purchaser under this
Agreement and that has made the same agreement relating to such Note as such
Purchaser has made in this Section.
Section XIII.3. Waivers and Amendments; Acknowledgments.
---------------------------------------
38
(a) Waivers and Amendments. No failure or delay (whether by course of
----------------------
conduct or otherwise) by Purchasers or Collateral Agent in exercising any right,
power or remedy which any of them 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 Purchasers or Collateral
Agent of any such right, power or remedy preclude any other or further exercise
thereof or of any other right, power or remedy. No waiver, consent, release,
modification or amendment of or supplement to this Agreement or the other
Transaction Documents shall be valid or effective against any party hereto
unless the same is in writing and signed by (a) if such party is the Company, by
the Company, (b) if such party is Collateral Agent, by Collateral Agent, and
(c) if such party is a Purchaser, by Majority Purchasers or, in connection with
any Collateral or Security Document, by Collateral Agent on behalf of Purchasers
with the written consent of Majority Purchasers (which consent has already been
given with respect to certain releases as provided in Section 12.1 and with
respect to the termination of the Transaction Documents as provided in Section
13.10). Notwithstanding the foregoing or anything to the contrary herein, (i)
no amendment or waiver of any of the provisions of Sections 1.1, 2.1, 2.2, 4.1,
4.2, 6.1, and 6.2 hereof, or any defined term (as it is used therein), will be
effective as to any Purchaser unless consented to by such Purchaser, and (ii) no
such amendment or waiver may, without the written consent of the holder of each
Note at the time outstanding affected thereby, (1) subject to the provisions of
Sections 10.1, 10.2, and 10.3 relating to acceleration or rescission, change the
amount or time of any prepayment or payment of principal of, or reduce the rate
or change the time of payment or method of computation of interest on the Notes,
(2) change the percentage of the principal amount of the Notes the holders of
which are required to consent to any such amendment or waiver, or (3) amend any
of Sections 7.1, 7.2, 7.3, 7.4, 7.5, and this Section 13.3(a). Any amendment or
waiver consented to as provided in this subsection applies equally to all
Purchasers and is binding upon them and upon each future Purchaser and upon the
Company without regard to whether such Note has been marked to indicate such
amendment or waiver.
(b) Solicitation. The Company will provide each Purchaser (irrespective
------------
of the amount of Notes then owned by it) with sufficient information,
sufficiently far in advance of the date a decision is required, to enable such
Purchaser to make an informed and considered decision with respect to any
proposed amendment, waiver or consent in respect of any of the pro visions
hereof or of the Transaction Documents. The Company will deliver executed or
true and correct copies of each amendment, waiver or consent effected pursuant
to the provisions of this Section 13.3 to each Purchaser promptly following the
date on which it is executed and delivered by, or receives the consent or
approval of, the requisite Purchasers.
(c) Payment. The Company will not directly or indirectly pay or cause to
-------
be paid any remuneration, whether by way of supplemental or additional interest,
fee or otherwise, or grant any security, to any Purchaser as consideration for
or as an inducement to the entering into by any Purchaser or any waiver or
amendment of any of the terms and provisions hereof unless such remuneration is
concurrently paid, or security is concurrently granted, on the same terms,
ratably to or for the benefit of each Purchaser then outstanding even if such
Purchaser did not consent to such waiver or amendment.
39
(d) Acknowledgments and Admissions. The Company represents, warrants,
------------------------------
acknowledges and admits 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 an independent decision 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 Purchasers or
Collateral Agent 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 Purchasers or Collateral Agent 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) neither
Purchasers nor Collateral Agent owes any fiduciary duty to the Company with
respect to any Transaction Document or the transactions contemplated thereby,
(v) the relationship pursuant to the Transaction Documents between the Company,
on one hand, and Purchasers and Collateral Agent, 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
Company and any of the Purchasers or Collateral Agent, (vii) should an Event of
Default or Default occur or exist each Purchaser and Collateral Agent will
determine in its sole and absolute 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 Company is not relying upon any
representation or covenant by any Purchaser or Collateral Agent, or any
representative thereof, and no such representation or covenant has been made,
that Purchasers or Collateral Agent at the time of an Event of Default or
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 Default or any other provision of the Transaction
Documents, and (ix) each Purchaser has relied upon the truthfulness of the
acknowledgments in this Section in deciding to execute and deliver this
Agreement and to purchase the Notes.
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 oral agreements between the parties.
Section XIII.4. Survival of Agreements; Cumulative Nature. All of the
-----------------------------------------
various representations, warranties, covenants and agreements 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, purchase, and delivery of the Notes and the other Transaction
Documents, and shall further survive until all of the Obligations are paid in
full to Purchasers and Collateral Agent. All statements and agreements contained
in any certificate or other instrument delivered by the Company to Purchasers or
Collateral Agent under any Transaction Document shall be deemed representations
and warranties by the Company or
40
agreements and covenants of the Company under this Agreement. The
representations, warranties, and covenants made by the Company in the
Transaction Documents, and the rights, powers, and privileges granted to
Purchasers and Collateral Agent 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 Purchasers or Collateral Agent 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 XIII.5. Indemnity. The Company agrees to indemnify each Purchaser
----------
Entity, upon 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, accountants, 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
such Purchaser Entity 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 the Company or any liabilities or
duties of the Company or of any Purchaser Entity 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 way or to any extent owed, in whole or in part,
under any claim or theory of strict liability or are in any extent caused, in
whole or in part, by any negligent act or omission of any kind by any Purchaser
Entity,
provided only that no Purchaser Entity shall be entitled under this Section to
receive indemnification for that portion, if any, of any liabilities and costs
which is proximately caused by its own individual gross negligence or willful
misconduct, as determined in a final judgment, or by its own individual actions
with respect to Collateral in its possession. As used in this Section the term
"Purchaser Entity" refers to each Purchaser, to Collateral Agent, and to each
director, officer, agent, trustee, manager, attorney, employee, representative
and Affiliate of any such Person.
Section XIII.6. 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
41
with proof of delivery, or by registered or certified United States mail,
postage prepaid, to each party hereto at the address of such party specified on
the signature pages hereto (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 first attempted delivery during
normal business hours 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 days after deposit in the mail.
Section XIII.7. Parties in Interest. 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 Company may not assign or transfer any of its rights or
delegate any of its duties or obligations under any Transaction Document without
the prior consent of Purchasers as required under Section 13.3.
Section XIII.8. Governing Law; Submission to Process. Except to the extent
------------------------------------
that the law of another jurisdiction is expressly elected in a transaction
document, the Transaction Documents shall be construed and enforced in
accordance with and governed by the laws of the State of Texas and of the United
States of America (without regard to Texas principles of conflicts of law) with
respect to all other matters. The Company hereby irrevocably submits itself to
the non-exclusive jurisdiction of the state and federal courts sitting in the
State of Texas and the County of Dallas, and the Company agrees and consents
that service of process may be made upon it in any legal proceeding relating to
the Transaction Documents or the Obligations by any means allowed under Texas or
federal law. The Company irrevocably waives, to the fullest extent permitted by
applicable law, any objection that it may now or hereafter have to the laying of
the venue of any such proceeding brought in any such court and any claim that
any such proceeding brought in any such court has been brought in an
inconvenient forum.
42
Section XIII.9. Limitation on Interest. Purchasers, Collateral
----------------------
Agent, the Company and any other parties to the Transaction Documents intend to
contract in strict compliance with applicable usury law from time to time in
effect. In furtherance thereof such Persons 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 Company 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. Purchasers and Collateral Agent expressly disavow 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) any 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 such Purchaser's or such holder's option, promptly returned to the Company 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, Purchasers, Collateral Agent and
the Company (and any other payors or payees thereof) shall to the greatest
extent permitted under applicable law, (i) characterize any non-principal
payment as an expense, fee or premium rather than as interest, (ii) exclude
voluntary prepayments and the effects thereof, and (iii) amortize, prorate,
allocate, and spread the total amount of interest throughout the entire
contemplated term of the instruments evidencing the Notes in accordance with the
amounts outstanding from time to 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 XIII.10. Termination; Limited Survival. In its sole and
-----------------------------
absolute discretion the Company may at any time after all Obligations have been
paid in full elect in a notice delivered to all Purchasers to terminate this
Agreement and the other Transaction Documents. Upon receipt by Purchasers of
such a notice, if no Obligations are then owing then this Agreement and all
other Transaction Documents shall thereupon be terminated, the Liens thereunder
released, and the parties thereto released from all prospective obligations
thereunder. Notwithstanding the foregoing or anything herein to the contrary,
any waivers or admissions made by the Company in any Transaction Document, and
any other obligations which any Person may have to indemnify or compensate
Collateral Agent, any Purchaser or any or their respective Affiliates or related
Persons shall survive any termination of this Agreement or any other Transaction
Document. At the request and expense of the Company, Purchasers and
43
Collateral Agent shall prepare and execute all necessary instruments to reflect
and effect such termination of the Transaction Documents.
Section XIII.11. Reproduction of Documents. This Agreement and all
-------------------------
documents relating thereto, including, without limitation, (a) consents, waivers
and modifications that may hereafter be executed, (b) documents received by
Collateral Agent or any Purchaser at the Closing (except the Notes themselves),
and (c) financial statements, certificates and other information previously or
hereafter furnished to Collateral Agent or such Purchaser, may be reproduced by
Collateral Agent or such Purchaser by any photographic, photostatic, microfilm,
microcard, miniature photographic or other similar process and Collateral Agent
or such Purchaser may destroy any original document so reproduced. The Company
agrees and stipulates that, to the extent permitted by applicable law, any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by Collateral Agent or
such Purchaser in the regular course of business) and any enlargement, facsimile
or further reproduction of such reproduction shall likewise be admissible in
evidence. This Section shall not prohibit the Company or Collateral Agent or any
Purchaser from contesting any such reproduction to the same extent that it could
contest the original, or from introducing evidence to demonstrate the inaccuracy
of any such reproduction.
Section XIII.12. Confidentiality. For the purposes of this Section,
---------------
"Confidential Information" means information delivered to any Purchaser by or on
behalf of the Company or any Subsidiary of the Company in connection with the
transactions contemplated by or otherwise pursuant to this Agreement that is
proprietary in nature and that was clearly marked or labeled or otherwise
adequately identified when received by such Purchaser as being confidential
infor mation of the Company or such Subsidiary, provided that such term does not
include information that (a) was publicly known or otherwise known to such
Purchaser prior to the time of such disclosure, (b) subsequently becomes
publicly known through no act or omission by such Purchaser or any Person acting
on such Purchaser's behalf, (c) otherwise becomes known to such Purchaser other
than through disclosure by the Company or any Subsidiary or (d) constitutes
financial statements delivered to such Purchaser hereunder that are otherwise
publicly available. Such Purchaser will maintain the confidentiality of such
Confidential Information in accordance with procedures adopted by such Purchaser
in good faith to protect confidential information of third parties delivered to
such Purchaser, provided that such Purchaser may deliver or disclose
Confidential Information to (i) such Purchaser's directors, officers, employees,
agents, attorneys, investors, and affiliates (to the extent such disclosure
reasonably relates to the administration of the investment represented by such
Purchaser's Notes), (ii) such Purchaser's Affiliates, auditors, attorneys, and
other professional advisors who agree to hold confidential the Confidential
Information substantially in accordance with the terms of this Section, (iii)
any other Purchaser, (iv) any Institutional Investor to which such Purchaser may
sell or offer to sell such Note or any part thereof or any participation therein
(if such Person has agreed in writing prior to its receipt of such Confidential
Information to be bound by the provisions of this Section), (v) any Person from
which such Purchaser may offer to purchase any security of the Company (if such
Person has agreed in writing prior to its receipt of such Confidential
Information to be bound by the provisions of this Section), (vi) any federal or
state regulatory authority having jurisdiction over such Purchaser, (vii) the
National Association of Insurance Commissioners or any similar
44
organization, or any nationally recognized rating agency that requires access to
information about such Purchaser's investment portfolio or (viii) any other
Person to which such delivery or disclosure may be necessary or appropriate (1)
to effect compliance with any law, rule, regulation or order applicable to such
Purchaser, (2) in response to any subpoena or other legal process, (3) in
connection with any litigation to which such Purchaser is a party or (4) if an
Event of Default has occurred and is continuing, to the extent such Purchaser
may reasonably determine such delivery and disclosure to be necessary or
appropriate in the enforcement or for the protection of the rights and remedies
under such Purchaser's Notes and this Agreement. Each holder of a Note, by its
acceptance of such Note, will be deemed to have agreed to be bound by and to be
entitled to the benefits of this Section as though it were a party to this
Agreement. On reasonable request by the Company in connection with the delivery
to any Purchaser of information required to be delivered to such Purchaser under
this Agreement or requested by such Purchaser (other than a Purchaser that is a
party to this Agreement or its nominee), such Purchaser will enter into an
agreement with the Company embodying the provisions of this Section. (References
to "Purchaser" in this Section 13.12 also refer to Collateral Agent.)
Section 13.13 Subordination Agreement. The rights of Purchasers and
-----------------------
Collateral Agent under the Transaction Documents are subject to the Bank
Subordination Agreement.
Section 13.14 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 13.15 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 13.16 Waiver of Jury Trial, Punitive Damages, Etc. Each of the
--------------------------------------------
Company, Collateral Agent and each Purchaser hereby (a) knowingly, voluntarily,
intentionally, and irrevocably waives, to the maximum extent not prohibited by
law, any right it may have to a trial by jury in respect of any litigation based
hereon, or directly or indirectly at any time arising out of, under or in
connection with the Transaction Documents or any transaction contemplated
thereby or associated therewith, before or after maturity; (b) irrevocably
waives, to the maximum extent not prohibited by law, any right it may have to
claim or recover in any such litigation any "Special Damages", as defined below;
(c) certifies
45
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 litigation, seek to enforce the foregoing waivers, and (d)
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. As used in this section, "Special Damages" includes all special,
consequential, exemplary, or punitive damages (regardless of how named), but
does not include any payments or funds which any party hereto has expressly
promised to pay or deliver to any other party hereto.
46
IN WITNESS WHEREOF, this Agreement is executed as of the date first
written above.
COMPANY: QUICKSILVER RESOURCES INC.
By: /s/ Glenn Darden
---------------------------------------------
Glenn Darden
President and Chief Executive Officer
Address:
777 West Rosedale St.**
Fort Worth, Texas 76104
Attention: Glenn M. Darden
Telephone: (817) 877-3151
Telecopy: (817) 877-3829
** Until May 1, 2000, the Company's address is 1619
Pennsylvania Avenue, Fort Worth, Texas 76104.
COLLATERAL AGENT: TCW ASSET MANAGEMENT COMPANY,
a California corporation, as Collateral Agent
By: /s/ Thomas F. Mehlberg
---------------------------------------------
Thomas F. Mehlberg
Managing Director
By: /s/ Kurt A. Talbot
---------------------------------------------
Kurt A. Talbot
Senior Vice President
PURCHASERS: TCW DEBT AND ROYALTY FUND VI, L.P., a
California limited partnership, as a Purchaser
By: TCW Asset Management Company, a California
corporation, as General Partner
By: /s/ Thomas F. Mehlberg
-----------------------------------------
Thomas F. Mehlberg
Managing Director
By: /s/ Kurt A. Talbot
----------------------------------------
Kurt A. Talbot
Senior Vice President
TCW DEBT AND ROYALTY FUND VIB, L.P., a
California limited partnership, as a Purchaser
By: TCW Asset Management Company, a California
corporation, as General Partner
By: /s/ Thomas F. Mehlberg
----------------------------------------
Thomas F. Mehlberg
Managing Director
By: /s/ Kurt A. Talbot
----------------------------------------
Kurt A. Talbot
Senior Vice President
TCW ASSET MANAGEMENT COMPANY, a California
corporation, as Investment Manager pursuant to the
Investment Management and Custody Agreement dated
as of May 19, 1997 between Allmerica Asset
Management, Inc. as agent for First Allmerica
Financial Life Insurance company, TCW Asset
Management Company and Trust Company of the West,
as a Purchaser
By: /s/ Thomas F. Mehlberg
----------------------------------------
Thomas F. Mehlberg
Managing Director
By: /s/ Kurt A. Talbot
----------------------------------------
Kurt A. Talbot
Senior Vice President
TCW ASSET MANAGEMENT COMPANY, a California
corporation, as Investment Manager pursuant to the
Investment Management and Custody Agreement dated
as of October 27, 1997 between University of
Chicago, TCW Asset Management Company and Trust
Company of the West, as a Purchaser
By: /s/ Thomas F. Mehlberg
----------------------------------------
Thomas F. Mehlberg
Managing Director
By: /s/ Kurt A. Talbot
----------------------------------------
Kurt A. Talbot
Senior Vice President
TCW ASSET MANAGEMENT COMPANY, a California
corporation, as Investment Manager pursuant to the
Investment Management and Custody Agreement dated
as of October 27, 1997 between University of Notre
Dame du Lac, TCW Asset Management Company and
Trust Company of the West, as a Purchaser
By: /s/ Thomas F. Mehlberg
----------------------------------------
Thomas F. Mehlberg
Managing Director
By: /s/ Kurt A. Talbot
----------------------------------------
Kurt A. Talbot
Senior Vice President
TCW ASSET MANAGEMENT COMPANY, a California
corporation, as Investment Manager pursuant to the
Investment Management and Custody Agreement dated
as of October 24, 1997 between William N.
Pennington Separate Property Trust dated January
1, 1991, TCW Asset Management Company and Trust
Company of the West, as a Purchaser
By: /s/ Thomas F. Mehlberg
----------------------------------------
Thomas F. Mehlberg
Managing Director
By: /s/ Kurt A. Talbot
----------------------------------------
Kurt A. Talbot
Senior Vice President
TCW ASSET MANAGEMENT COMPANY, a California
corporation, as Investment Manager pursuant to the
Investment Management Agreement dated as of
October 27, 1997 between Delta Air Lines, Inc.,TCW
Asset Management Company and Trust Company of the
West, as a Purchaser
By: /s/ Thomas F. Mehlberg
----------------------------------------
Thomas F. Mehlberg
Managing Director
By: /s/ Kurt A. Talbot
----------------------------------------
Kurt A. Talbot
Senior Vice President
LION II CUSTOM INVESTMENTS LLC
INSURANCE COMPANY OF GEORGIA
SECURITY LIFE OF DENVER INSURANCE
COMPANY
SOUTHLAND LIFE INSURANCE COMPANY
By: ING Investment Management Inc., their agent
By: TCW Asset Management Company, a
California corporation
Its: Authorized Signatory
By: /s/ Thomas F. Mehlberg
--------------------------------------
Thomas F. Mehlberg
Managing Director
By: /s/ Kurt A. Talbot
--------------------------------------
Kurt A. Talbot
Senior Vice President
Address for Notices:
TCW Asset Management Company
865 S. Figueroa
Los Angeles, California 90017
Attention: Thomas F. Mehlberg
Telephone: (213) 244-0702
Telecopy: (213) 244-0604
with a copy to:
TCW Asset Management Company
1000 Louisiana, Suite 2175
Houston, Texas 77002
Attention: Kurt Talbot
Telephone: (713) 615-7413
Telecopy: (713) 615-7460
LIFE INSURANCE COMPANY OF GEORGIA, as
a Purchaser
USG ANNUITY & LIFE COMPANY, as a
Purchaser
EQUITABLE LIFE INSURANCE COMPANY OF IOWA, as a Purchaser
By: ING INVESTMENT MANAGEMENT LLC, as agent
By: /s/ Randall W. Ralph
---------------------------------------------------------------------------
Randall W. Ralph
Senior Vice President
Address for all notice relating to payments:
ING Investment Management LLC
5780 Powers Ferry Road, N.W., Suite 300
Atlanta, Georgia 30327-4349
Attention: Securities Accounting
Fax: (770) 690-4899
Address for all other communications and notices:
ING Investment Management LLC
5780 Powers Ferry Road, N.W., Suite 300
Atlanta, Georgia 30327-4349
Attention: Private Placements
Fax: (770) 690-4899
SCHEDULE A
INFORMATION RELATING TO PURCHASERS
Principal Amount of
Name of Purchaser Notes to be Purchased
- ----------------- ---------------------
Life Insurance Company of Georgia $3,000,000
All payments on account of Notes held by such purchaser shall be made by wire
transfer of immediately available funds for credit to:
The Bank of New York
ABA# 021-000-018
BNF: IOC 566
Attention: PP P&I Department
Reference: Life Insurance Company of Georgia and 74837R
USG Annuity and Life Company $5,000,000
All payments on account of Notes held by such purchaser shall be made by wire
transfer of immediately available funds for credit to:
The Bank of New York
ABA# 021-000-018
BNF: IOC 566 - Income Collections
Attention: William Cashman
Reference: USG Annuity & Life Company - Account #368520 and 74837R
Equitable Life Insurance Company of Iowa $5,000,000
All payments on account of Notes held by such purchaser shall be made by wire
transfer of immediately available funds for credit to:
The Bank of New York
ABA# 021-000-018
BNF: IOC 566 - Income Collections
Attention: William Cashman
Reference: Equitable Life Insurance Company of Iowa - Account #068071 and
74837R
TCW Debt and Royalty Fund VI, L.P. $9,495,335
TCW Debt and Royalty Fund VIB, L.P. $3,438,364
TCW Asset Management Company, $3,403,980
a California corporation, as Investment Manager
pursuant to the Investment Management and Custody Agreement
dated as of May 19, 1997 between Allmerica Asset Management, Inc.
as agent for First Allmerica Financial Life Insurance company,
TCW Asset Management Company and Trust Company of the West
TCW Asset Management Company, $1,300,731
a California corporation, as Investment Manager
pursuant to the Investment Management and Custody Agreement
dated as of October 27, 1997 between University of Chicago,
TCW Asset Management Company and Trust Company of the West
TCW Asset Management Company, a California corporation, $2,032,559
as Investment Manager pursuant to the Investment Management
and Custody Agreement dated as of October 27, 1997
between University of Notre Dame du Lac,
TCW Asset Management Company and Trust Company of the West
TCW Asset Management Company, a California corporation, $2,966,201
as Investment Manager pursuant to the Investment Management
and Custody Agreement dated as of October 24, 1997
between William N. Pennington Separate Property Trust
dated January 1, 1991, TCW Asset Management Company
and Trust Company of the West
TCW Asset Management Company, a California corporation, $3,387,599
as Investment Manager pursuant to the Investment Management
Agreement dated as of October 27, 1997 between Delta Air Lines, Inc.,
TCW Asset Management Company and Trust Company of the West
Lion II Custom Investments LLC $795,046
Insurance Company of Georgia $397,523
Security Life of Denver Insurance Company $1,987,616
Southland Life Insurance Company $795,047
All payments on account of Notes held by such Purchasers shall be made by a
single wire transfer of immediately available funds for credit to:
Investors Bank & Trust Company
ABA# 011001438, F/C Client Funds No. 569530395
Account # 76T02327-4
Attention: Peter Maesher; Reference: D&R VI - Quicksilver.
SCHEDULE B
DEFINED TERMS
-------------
As used in this Schedule and in the Agreement to which this Schedule is
attached (the "Agreement"), each of the following terms has the meaning set
forth below or set forth in the section of the Agreement referred to in the
following definition of such term:
"Affiliate" means, at any time, and with respect to any Person, any other
Person that at such time directly or indirectly through one or more
intermediaries Controls, or is Controlled by, or is under common Control with,
such first Person. As used in this definition, "Control" means (a) the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise, or (b) the ownership
of ten percent (10%) or more of the outstanding voting power of the issued and
outstanding capital stock or other equity interests of such Person. Unless the
context otherwise clearly requires, any reference to an "Affiliate" is a
reference to an Affiliate of the Company.
"Agent Bank" means Bank of America, N.A., as Administrative Agent for the
Banks under and as defined in the Bank Credit Agreement, and its successors and
assigns in such capacity.
"Antrim Shale Properties" means Devonian Shale properties located in
Michigan and designated as such by Schlumberger Holditch - Reservoir
Technologies Consulting Services or its successor in the Engineering Report most
recently delivered at the time in question.
"Bank Credit Agreement" means, collectively, that certain Third Amended and
Restated Credit Agreement of even date herewith among the Company, Bank of
America, N.A., as Administrative Agent and a Bank, and the financial
institutions listed therein from time to time as Banks, as from time to time
amended, supplemented, or restated, and any agreements representing the
refinancing, replacement, or substitution in whole or in part of the revolving
credit loans and letter of credit liabilities made or incurred under such Third
Amended and Restated Credit Agreement. (While there may be multiple successor
credit agreements to such Third Amendment and Restated Credit Agreement, only
one such agreement at a time will be the "Bank Credit Agreement" described
herein.)
"Bank Debt" has the meaning given such term in Section 9.1(a)(ii).
"Bank Documents" means, collectively, the Bank Credit Agreement and each of
the other the "Loan Papers" as such term is defined in the Bank Credit
Agreement, including any Hedging Contract that is one of such "Loan Papers".
"Bank Subordination Agreement" means that certain Subordination Agreement
of even date herewith by and between the Purchasers that are originally parties
hereto, Collateral Agent, Agent Bank, and the Banks under and as defined in the
Bank Credit Agreement and
1
acknowledged and agreed to by the Company, as from time to time amended,
supplemented, or restated.
"Business Day" means a day, other than a Saturday or Sunday, on which
commercial banks are open for business with the public in the States of
California, Georgia and Texas.
"Change of Control" means that, for any reason either (a) any Person or
group (as defined in Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act") other than the Darden Group shall
become the legal and beneficial owner (as defined in Rule 13d-3 under the
Exchange Act) of greater than thirty percent (30%) of the outstanding voting
power (to elect directors) of the issued and outstanding capital stock of every
class issued by the Company or (b) the Darden Group shall cease to be the legal
and beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of more
than twenty percent (20%) of the outstanding voting power (to elect directors)
of the issued and outstanding capital stock of every class issued by the
Company.
"Cinnabar" means Cinnabar Energy Services and Trading, LLC, a Michigan
limited liability company.
"Cinnabar Marketing Obligations" means obligations of Cinnabar to pay (a)
to third party producers or marketers of Hydrocarbons the purchase price of any
Hydrocarbons bought by Cinnabar from such third parties and then aggregated for
resale with Hydrocarbons produced by the Company and its Subsidiaries and (b) to
third party providers the costs of storage, pipeline and processing services
with respect to such aggregated Hydrocarbons.
"Closing" is defined in Section 3.1.
"Closing Date" means March 31, 2000.
"Closing Documents" means the CMS Acquisition Documents, the Mariner
Section 29 Documents, the Bank Documents and all other material documents,
instruments and agreements executed or delivered by the Company or any of its
Subsidiaries in connection with or otherwise pertaining to the Closing
Transactions.
"Closing Title Review Requirement" means with respect to any requirement
contained herein for delivery to Purchasers or their counsel of title opinions
or other evidence of title to Mineral Interests purported to be owned by the
Company, a requirement that such title opinions be delivered in form and
substance acceptable to Purchasers and their counsel with respect to Borrowing
Base Properties (as such term is defined in the Bank Credit Agreement) with an
aggregate Recognized Value (as such term is defined in the Bank Credit
Agreement) at least equal to thirty three percent (33%) of the Recognized Value
of all Borrowing Base Properties.
"Closing Transactions" means the transactions to occur on the Closing Date
pursuant to the Closing Documents and this Agreement, including, without
limitation, (a) the completion of the CMS Acquisition pursuant to the terms of
the CMS Acquisition Documents, (b) the completion of the Mariner Section 29 Sale
pursuant to the terms of the Mariner Section 29
2
Documents and the application of not less than $25,000,000 of the proceeds
thereof to finance in part the CMS Acquisition, and (c) the completion of the
transactions contemplated by the Bank Documents pursuant to the terms of such
Bank Documents, and the receipt by Borrower of not less than $___,000,000 from
the loans thereunder and the application thereof to finance in part the CMS
Acquisition (including, without limitation, the amendment and restatement of the
Existing Credit Agreement (as defined in the Bank Credit Agreement) and the
refinancing of all Debt of the Company under such Existing Credit Agreement with
proceeds of the initial loan under the Bank Credit Agreement).
"CMS Acquisition" means the purchase by the Company of the CMS Properties
pursuant to the CMS Purchase and Sale Agreement, which purchase shall be on
terms and conditions reasonably acceptable to Purchasers, which shall include,
without limitation, the purchase by the Company of all of the outstanding equity
of Terra.
"CMS Acquisition Documents" means the CMS Purchase and Sale Agreement and
all other material documents, instruments and agreements executed or delivered
by the Company or any of its Subsidiaries in connection with or otherwise
pertaining thereto.
"CMS Properties" means, collectively, the "Assets" and the "Terra Assets"
as each such term is defined in the CMS Purchase and Sale Agreement.
"CMS Purchase and Sale Agreement" means that certain Purchase and Sale
Agreement dated as of January 1, 2000 by and between CMS Oil and Gas Company
("CMS") and the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and the rules and regulations promulgated thereunder from time to time.
"Collateral" means all property of any kind which is subject to a Lien in
favor of the Purchasers or Collateral Agent or which, under the terms of any
Security Document, is purported to be subject to such a Lien.
"Collateral Agent" is defined in Section 12.1.
"Collateral Coverage Ratio" means at any time in question the quotient
obtained by dividing the Modified Total NPV as determined from the Engineering
Report most recently prepared as of such time in question by all Debt
outstanding as of such time in question.
"Commodity Price Risk Policy" is defined in Section 5.1(t).
"Company" means Quicksilver Resources Inc. a Delaware corporation.
"Consolidated" refers to the consolidation of any Person, in accordance
with GAAP, with its properly consolidated subsidiaries. References to a
Person's Consolidated financial statements, financial position, financial
condition, liabilities, etc. refer to the consolidated
3
financial statements, financial position, financial condition, liabilities, etc.
of such Person and its properly consolidated subsidiaries.
"Consolidated Fixed Charges" means, for any period, the sum of (a) all
interest paid or accrued during such period on Debt (excluding only interest
paid in kind pursuant to Section 7.1(a) but including amortization of original
issue discount and the interest component of any deferred payment obligations
and capital lease obligations) which was deducted in determining the Company's
Consolidated Net Income during such period plus (b) all current maturities of
the Company's Consolidated Debt plus (c) all dividends declared or paid on any
preferred stock of the Company. As used herein, "current maturities of the
Company's Consolidated Debt" shall include all past due principal payments on
Debt of the Company or any of its Subsidiaries and all other payments of
principal on Debt that the Company or any of its Subsidiaries is obligated to
pay.
"Consolidated Net Income" means, for any period, the net income (or loss)
of the Company and its Subsidiaries for such period determined in accordance
with GAAP, but excluding: (a) the income of any other Person (other than the
Company's Subsidiaries) in which the Company or any of its Subsidiaries has an
ownership interest, unless received by the Company or its Subsidiaries in a cash
distribution; (b) any after-tax gains attributable to asset dispositions; and
(c) to the extent not included in clauses (a) and (b) above, any after-tax (i)
extraordinary gains (net of extraordinary losses) or (ii) non-cash nonrecurring
gains.
"Darden Group" means, collectively, Mercury Exploration Corporation, a
Texas corporation; Quicksilver Energy, L.C., a Michigan limited liability
company; Frank Darden; Anne Darden Self; Glenn Darden; and Thomas Darden and
their respective designees, heirs, and estates.
"Debt" means for any Person at any time, without duplication, (a) all
Liabilities of such Person for borrowed money, (b) all Liabilities of such
Person evidenced by bonds, debentures, notes or other similar instruments, (c)
all other Liabilities (including capitalized lease obligations, other than usual
and customary oil and gas leases) of such Person on which interest charges are
customarily paid or accrued, (d) all Guarantees by such Person, (e) the unfunded
or unreimbursed portion of all letters of credit issued for the account of such
Person, (f) any Liabilities owed by such Person representing the deferred
purchase price of property or services other than accounts payable incurred in
the ordinary course of business and in accordance with customary trade terms and
which have not been outstanding for more than ninety (90) days past the invoice
date, (g) all Liabilities of such Person secured by a Lien on any property or
asset owned or held by such Person regardless of whether the Liabilities secured
thereby shall have been assumed by such Person or are non-recourse to the credit
of that Person, and (h) all Liabilities of such Person as a general partner of a
partnership for Liabilities of such partnership of the nature described in (a)
through (g) preceding.
"Default" means an Event of Default or an event or condition the occurrence
or existence of which would, with the lapse of time or the giving of notice or
both, become an Event of Default.
4
"Default Rate" means the rate of 16.75% per annum.
"Disclosure Schedule" means Schedule C hereto.
"EBITDAX" means, for any period, Consolidated Net Income for such period,
plus each of the following determined for the Company and its Subsidiaries for
such period: (a) any provision for (or less any benefit from) income or
franchise taxes included in determining Consolidated Net Income; (b) interest
expense or charges deducted in determining Consolidated Net Income; (c)
depreciation, depletion, and amortization expense deducting in determining
Consolidated Net Income; (d) other noncash charges deducted in determining
Consolidated Net Income to the extent not already included in clauses (b) and
(c) of this definition; and (e) costs and expenses for seismic, geological, and
geophysical services performed in the course of oil and gas exploration, to the
extent deducted in determining Consolidated Net Income.
"Eligible Mortgaged Properties" means, collectively, those Properties (a)
which are owned by the Company or a Subsidiary of the Company and mortgaged to
Collateral Agent under a Mortgage, and (b) for which Collateral Agent has
received title opinions and other title information concerning such Properties
in form, substance and authorship satisfactory to Collateral Agent.
"Engineering Reports" means the Initial Engineering Reports and each
engineering report hereafter delivered by the Company pursuant to Section
8.1(b)(iv) or (v), provided that each such report hereafter delivered must (a)
separately report on Proved Producing Reserves, Proved Developed Nonproducing
Reserves, Proved Undeveloped Reserves and probable reserves and separately
calculate the NPV of each such category of Proved Reserves for the Company's
interest, (b) use Purchaser Pricing and a 10% discount factor (or any other
pricing assumptions to which the Company and Majority Purchasers may agree), (c)
take into account the Company's actual experiences with leasehold operating
expenses and other costs in determining projected leasehold operating expenses
and other costs, (d) identify and take into account any "over-produced" or
"under-produced" status under gas balancing arrangements, (e) contain
information and analysis comparable in scope to that contained in the Initial
Engineering Report, and (f) otherwise be in form and substance satisfactory to
the Majority Purchasers.
"Environmental Laws" means any and all federal, state, local, and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants, franchises, licenses, agreements or governmental
restrictions relating to pollution and the protection of the environment or the
release of any materials into the environment, including but not limited to
those related to hazardous substances or wastes, air emissions and discharges to
waste or public systems.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the rules and regulations promulgated thereunder
from time to time in effect.
"ERISA Affiliate" means any trade or business (whether or not incorporated)
that is treated as a single employer together with the Company under section 414
of the Code.
5
"Event of Default" is defined in Section 10.1.
"Excluded Accounts" means, collectively, all accounts receivable or other
Liabilities which are owed to the Company by its directors, Affiliates,
employees, or shareholders (each, a "Related Party") other than those which
arise in the ordinary course of business as a result of sales of goods to, or
rendering of services to, a Related Party who has the ability to pay, and is
expected to pay, the same.
"Excluded Subsidiary" means each of (a) MGV Energy Inc., (b) Energy
Acquisition Operating Corporation, (c) Kristen Corporation, and (d) Terra
Pipeline Company.
"Existing Section 29 Documents" means each of the following documents,
instruments and agreements (as the same may have been amended, modified,
extended or supplemented):
(a) Assignment, dated as of December 1, 1997, by and between Mercury,
as assignor, and MA Gas LLC ("MAG"), as assignee, and recorded in the
county records of (i) Antrim County, Michigan, December 23, 1997, under
Liber 477, Page 1232, (ii) Crawford County, Michigan, December 23, 1997,
under Liber 444, Page 01, (iii) Montmorency County, Michigan, December 22,
1997, under Liber 405, Page 01, and (iv) Otsego County, Michigan, December
22, 1997, under Liber 662, Page 579;
(b) Assignment by and between Mercury, as assignor, and the Company,
as assignee, and recorded in the county records of (i) Antrim County,
Michigan, April 15, 1998, under Liber 485, Page 1046, and Liber 485, Page
1087, (ii) Crawford County, Michigan, April 15, 1998, under Liber 451, Page
251, (iii) Montmorency County, Michigan, April 15, 1998, under Liber 408,
Page 0008, and (iv) Otsego County, Michigan, April 15, 1998, under Liber
675, Page 217;
(c) Partial Assignment of Reversionary Interest, dated effective as
of December 1, 1997, by and between the Company, as assignor, and MAG, as
assignee, and recorded in the county records of Antrim, Crawford,
Montmorency and Otsego Counties, Michigan;
(d) Conveyance of Production Payment, dated as of December 1, 1997,
by and between MAG, as assignor, and Mercury, as assignee, and recorded in
the county records of (i) Antrim County, Michigan, December 23, 1997, under
Liber 477, Page 1273, (ii) Crawford County, Michigan, December 23, 1997,
under Liber 444, Page 42, (iii) Montmorency County, Michigan, December 22,
1997, under Liber 405, Page 42, and (iv) Otsego County, Michigan, December
22, 1997, under Liber 662, Page 620;
(e) Amendment to Conveyance of Production Payment, dated effective as
of December 1, 1997, by and between MAG, as assignor, and the Company, as
assignee, and recorded in the county records of Antrim, Crawford,
Montmorency and Otsego Counties, Michigan;
6
(f) Second Amendment to Conveyance of Production Payment, dated
effective as of March 1, 1997, by and between MAG and the Company, and
recorded in the county records of Antrim, Crawford, Montmorency and Otsego
Counties, Michigan;
(g) Mortgage, dated as of December 1, 1997, by and between MAG, as
mortgagor, and Mercury, as mortgagee, and recorded in the county records of
(i) Antrim County, Michigan, December 23, 1997, under Liber 477, Page 1413,
(ii) Crawford County, Michigan, December 23, 1997, under Liber 444, Page
182, (iii) Montmorency County, Michigan, December 22, 1997, under Liber
134, Page 528, and (iv) Otsego County, Michigan, December 22, 1997, under
Liber 662, Page 760;
(h) Assignment, dated as of December 1, 1997 by and between MGP, as
assignor, and MGP Gas L.L.C. ("MGPG"), as assignee, and recorded in the
county records of (i) Antrim County, Michigan, December 23, 1997, under
Liber 478, Page 1, and (ii) Otsego County, Michigan, December 22, 1997,
under Liber 662, Page 802;
(i) Partial Assignment of Reversionary Interest, dated effective as
of December 1, 1997, by and between the Company, as assignor, and MGPG, as
assignee, and recorded in the county records of Antrim and Otsego Counties,
Michigan;
(j) Conveyance of Production Payment, dated as of December 1, 1997,
by and between MGPG, as assignor, and MGP, as assignee, and recorded in the
county records of (i) Antrim County, Michigan, December 23, 1997, under
Liber 478, Page 9, and (ii) Otsego County, Michigan, December 22, 1997,
under Liber 662, Page 810 ;
(k) Amendment to Conveyance of Production Payment, dated effective as
of December 1, 1997, by and between MGPG, as assignor, and the Company, as
assignee, and recorded in the county records of Antrim and Otsego Counties,
Michigan;
(l) Mortgage, dated as of December 1, 1997, by and between MGPG, as
mortgagor, and MGP, as mortgagee, and recorded in the county records of (i)
Antrim County, Michigan, December 23, 1997, under Liber 478, Page 37, and
(ii) Otsego County, Michigan, December 22, 1997, under Liber 662, Page 838;
(m) Purchase and Sale Agreement, dated as of December 1, 1997, by and
between Mercury, as Seller, and MAG, as buyer;
(n) Amendment of Purchase and Sale Agreement, dated effective as of
December 1, 1997, by and among Mercury, the Company and MAG;
(o) Second Amendment to Purchase Agreement, dated as of March 31,
2000, by and between the Company and MAG;
(p) Credit Payment Note, dated December 1, 1997, executed by MAG, as
maker, payable to the order of Mercury, as payee;
7
(q) Amended and Restated Credit Payment Note, dated as of December 1,
1997, executed by MAG, as maker, payable to the order of the Company, as
payee;
(r) Fixed Payment Note, dated December 1, 1997, executed by MAG, as
maker, payable to the order of Mercury, as payee, in the original principal
amount of $5,092,721;
(s) Amended and Restated Fixed Payment Note, dated as of December 1,
1997, executed by MAG, as maker, payable to the order of the Company, as
payee;
(t) Assignment of Enforcement Rights, dated effective December 1,
1997, by and between MAG and Mercury, and acknowledged and consented to by
State Street and Antrim Corporation;
(u) Management Agreement, dated as of December 1, 1997, by and
between MAG and Mercury, as manager;
(v) Purchase and Sale Agreement, dated as of December 1, 1997, by and
between MGP, as seller, and MGPG, as buyer;
(w) Credit Payment Note, dated December 1, 1997, executed by MGPG, as
maker, payable to the order of MGP, as payee;
(x) Fixed Payment Note, dated December 1, 1997, executed by MGPG, as
maker, payable to the order of MGP, as payee, in the original principal
amount of $2,017,373;
(y) Assignment of Enforcement Rights, dated effective December 1,
1997, by and between MGPG and MGP, and acknowledged and consented to by
State Street and Antrim Corporation; and
(z) Management Agreement, dated as of December 1, 1997, by and
between MGPG and MGP, as manager.
"Fiscal Quarter" means a three-month period ending on March 31, June 30,
September 30, or December 31 of any year.
"Fiscal Year" means a twelve-month period ending on December 31 of any
year.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States of America.
"Governmental Authority" means
(a) the government of
8
(i) the United States of America or any State or other
political subdivision thereof, or
(ii) any jurisdiction in which the Company or any Subsidiary
conducts all or any part of its business, or which asserts
jurisdiction over any properties of the Company or any Subsidiary, or
(b) any entity exercising executive, legislative, judicial,
regulatory or administrative functions of, or pertaining to, any such
government.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly guaranteeing any Debt or other obligation of
any other Person and, without limiting the generality of the foregoing, any
obligation, direct or indirect, contingent or otherwise, of such Person (a) to
purchase or pay (or advance or supply funds for the purchase or payment of) such
Debt or other obligation (whether arising by virtue of partnership arrangements,
by agreement to keep-well, to purchase assets, goods, securities or services, to
take-or-pay, or to maintain financial statement conditions, by "comfort letter"
or other similar undertaking of support or otherwise) or (b) entered into for
the purpose of assuring in any other manner the obligee of such Debt or other
obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part), provided that the term Guarantee shall
-------- ----
not include endorsements for collection or deposit in the ordinary course of
business.
"Guarantor" means any Person who has guaranteed some or all of the
Company's obligations to repay the Notes and who has been accepted by Collateral
Agent as a Guarantor or any Subsidiary of the Company which now or hereafter
executes and delivers a guaranty to Collateral Agent pursuant to Section 8.6.
"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.
"Hedging Contract" means (a) any rate swap agreement, basis swap agreement,
forward rate agreement, commodity swap agreement, interest rate option, forward
foreign exchange agreement, cap agreement, floor agreement, collar agreement,
cross-currency rate swap agreement, or currency option, (b) any option, futures
or forward contract traded on an exchange, (c) any other derivative agreement or
similar agreement or arrangement, and (d) any sales contract, purchase contract,
exchange contract, or other contract or arrangement which obligates the Company
to pay or suffer penalties or damages for failure to purchase, sell or deliver
specified quantities of Hydrocarbons (excluding only normal imbalance penalties
imposed by pipelines for failure to meet monthly nominations made in the
ordinary course of business).
"Hydrocarbons" means crude oil, natural gas or other liquid or gaseous
hydrocarbons.
"Initial Amortization Date" means the earlier of (a) June 28, 2006 or (b)
the first Quarterly Payment Date occurring after the principal balance of the
Bank Debt has been paid in full.
9
"Initial Engineering Reports" means (a) the engineering report concerning
oil and gas properties of the Company as of January 1, 2000, and (b) the reserve
engineering report concerning oil and gas properties of Terra as of January 1,
2000, each of which was prepared by Schlumberger Holditch - Reservoir
Technologies Consulting Services.
"Initial Financial Statements" means the audited annual Consolidated
financial statements of the Company dated as of December 31, 1999.
"Institutional Investor" means (a) any original Purchaser of a Note, (b)
any holder of Notes holding more than 5% of the aggregate principal amount of
the Notes then outstanding, and (c) any bank, trust company, savings and loan
association or other financial institution, any pension plan, any investment
company, any insurance company, any broker or dealer, or any other similar
financial institution or entity, regardless of legal form.
"Insurance Schedule" means Schedule E hereto.
"Investment" means, with respect to any Person, any loan, advance,
extension of credit, capital contribution to, investment in, or purchase of the
stock or other securities of, or interests in, any other Person; provided, that
"Investment" shall not include customer and trade accounts which are payable in
accordance with customary trade terms.
"Liabilities" means, as to any Person, all indebtedness, liabilities and
obligations of such Person, 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 pursuant to GAAP.
"Lien" means, with respect to any property or assets, any right or interest
therein of a creditor to secure Liabilities owed to it or any other arrangement
with such creditor which provides for the payment of such Liabilities out of
such property or assets or which allows such creditor to have such Liabilities
satisfied out of such property or assets prior to the general creditors of any
owner thereof, 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 uncertificated 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.
"Majority Purchasers" means Purchasers whose aggregate Percentage Shares
equal or exceed 70%.
"Mariner" means Mariner Gas LLC, a Massachusetts limited liability company.
10
"Mariner Section 29 Documents" means each of the following documents,
instruments and agreements (as the same may have been amended, modified,
extended or supplemented):
(a) Assignment, dated effective as of April 1, 2000, by and between
the Company, as assignor, and Mariner, as assignee, and recorded in the
county records of (i) Antrim County, Michigan, (ii) Crawford County,
Michigan, (iii) Montmorency County, Michigan, and (iv) Otsego County,
Michigan;
(b) Conveyance of Production Payment, dated as of March 31, 2000, by
and between Mariner, as assignor, and the Company, as assignee, and
recorded in the county records of (i) Antrim County, (ii) Crawford County,
Michigan, (iii) Montmorency County, Michigan, and (iv) Otsego County,
Michigan;
(c) Mortgage, dated as of March 31, 2000, by and between Mariner, as
mortgagor, and the Company, as mortgagee, and recorded in the county
records of (i) Antrim County, Michigan, (ii) Crawford County, Michigan,
(iii) Montmorency County, Michigan, and (iv) Otsego County, Michigan;
(d) Purchase and Sale Agreement, dated as of March 31, 2000, by and
between the Company, as Seller, and Mariner, as buyer;
(e) Fixed Payment Note, dated April 1, 2000, executed by Mariner, as
maker, payable to the order of the Company, as payee, in the original
principal amount of $________;
(f) Assignment of Enforcement Rights, dated effective March 31, 2000,
by and between Mariner and the Company, and acknowledged and consented to
by State Street;
(g) Management Agreement, dated as of March 31, 2000, by and between
Mariner and the Company, as manager; and
(h) Intercreditor Agreement, dated as of March 31, 2000, by and among
Agent Bank, Collateral Agent and Mariner.
"Mariner Section 29 Sale" means the purchase by Mariner of 99.5% of (i) the
interests to be acquired by the Company from CMS pursuant to the Purchase and
Sale Agreement, and (ii) the interests owned by Terra, in each case in Devonian
shale gas production from certain gas wells located in Michigan and described in
the Mariner Section 29 Documents, together with certain other rights and
interests described in, and all pursuant to the terms and conditions contained
in, the Mariner Section 29 Documents, which sale shall be on terms and
conditions acceptable to Purchasers.
"Material Adverse Effect" means a material adverse effect on (a) the
business, operations, affairs, financial condition, assets or properties of the
Company and its Subsidiaries taken as a whole, (b) the ability of the Company to
timely perform its obligations under this
11
Agreement and the other Transaction Documents, (c) the validity or
enforceability of this Agreement or the other Transaction Documents, or (d) the
value of the Collateral, as a whole. To say that a situation or event "could
reasonably be expected to have a Material Adverse Effect" means that such
situation or event has more than a remote probability of having or causing a
Material Adverse Effect.
"Memorandum" is defined in Section 5.1(h).
"Mercury" means Mercury Exploration Company, a Texas corporation.
"MGP" means Michigan Gas Partners, Limited Partnership, formerly a Texas
limited partnership prior to its merger with and into the Company.
"Modified PDNP NPV" means the NPV of 85% (or 95% in the case of Antrim
Shale Properties) of the Proved Developed Nonproducing Reserves attributable to
the Eligible Mortgaged Properties, provided that (a) Majority Purchasers have
concurred with the amount of such reserves as reflected in the Engineering
Report most recently given prior to the calculation of such NPV, (b) the capital
expenditures necessary to bring such reserves onto production (as contemplated
in such Engineering Report) have actually been scheduled by the Company to be
made at or prior to the time contemplated in such Engineering Report, and (c)
both the Company and Majority Purchasers reasonably expect that the Company will
have funds available to make such capital expenditures.
"Modified PDP NPV" means at any time in question the sum of the NPV of 100%
of all Proved Developed Producing Reserves attributable to the Eligible
Mortgaged Properties.
"Modified PUD NPV" means the NPV of 70% (or 95% in the case of Antrim Shale
Properties) of any Proved Undeveloped Reserves attributable to the Eligible
Mortgaged Properties, provided that (a) Majority Purchasers have concurred with
the amount of such reserves as reflected in the Engineering Report most recently
given prior to the calculation of such NPV, (b) the capital expenditures
necessary to bring such reserves onto production (as contemplated in such
Engineering Report) have actually been scheduled by the Company to be made at or
prior to the time contemplated in such Engineering Report, and (c) both the
Company and Majority Purchasers reasonably expect that the Company will have
funds available to make such capital expenditures.
"Modified Total NPV" means, at the time in question, the sum of Modified
PDP NPV, Modified PDNP NPV, and Modified PUD NPV as each has been most recently
determined. No category of reserves other than Proved Reserves shall be taken
into account in determining Modified Total NPV.
"Mortgage" means each deed of trust or mortgage now or hereafter given by
the Company or any of its Subsidiaries to Collateral Agent (or any trustee
acting on behalf of the Purchasers or Collateral Agent) to secure the Notes.
"Multiemployer Plan" means any Plan that is a "multiemployer plan" (as such
term is defined in section 4001(a)(3) of ERISA).
12
"Notes" is defined in Section 1.1.
"NPV" means, with respect to any Proved Reserves expected to be produced
from any Properties, the net present value, discounted at 10% per annum, of the
future net revenues expected to accrue to the Company's and its Subsidiaries'
collective interests in such reserves during the remaining expected economic
lives of such reserves. NPV means, with respect to the Company's and its
Subsidiaries' separate interests in such Proved Reserves, the net present value,
discounted at 10% per annum, of the future net revenues expected to accrue to
such separate interests in such reserves during the remaining expected economic
lives of such reserves. Each calculation of such expected future net revenues
shall be made in accordance with the then existing standards of the Society of
Petroleum Engineers, provided that in any event (a) appropriate deductions shall
be made for severance and ad valorem taxes, and for operating, gathering,
transportation and marketing costs required for the production and sale of such
reserves, escalated at 3% per annum for each year after the then current year,
and (b) the pricing assumptions and escalations used in determining NPV for any
particular reserves shall be the Purchaser Pricing (or any other pricing
assumptions to which the Company and Majority Purchasers may agree). NPV shall
be calculated hereunder in connection with each Engineering Report, either by
the Company, by Majority Purchasers or by the engineering firm who prepares such
Engineering Report; in the event of any conflict, Majority Purchasers'
calculation shall be conclusive and final.
"Obligations" means all Liabilities from time to time owing by the Company
or any Subsidiary of the Company to any Purchaser or to Collateral Agent under
or pursuant to any of the Transaction Documents. "Obligation" means any part of
the Obligations.
"Percentage Share" means with respect to any Purchaser (other than the
Company or any Affiliate of the Company that may at any time be the holder of a
Note) the percentage obtained by dividing (a) the sum of the unpaid principal
balance of such Purchaser's Notes at the time in question by (b) the sum of the
aggregate unpaid principal balance of all Notes at such time (other than Notes
directly or indirectly owned by the Company or any of its Affiliates).
"Permitted Investments" means Investments
(a) in readily marketable direct obligations of the United States of
America (or investments in mutual funds or similar funds which invest
solely in such obligations),
(b) in fully insured time deposits and certificates of deposit with
maturities of one year or less of any commercial bank operating in the
United States having capital and surplus in excess of $500,000,000,
(c) in commercial paper of a domestic issuer if at the time of
purchase such paper is rated in one of the two highest ratings categories
of Standard and Poor's Corporation or Moody's Investors Service,
13
(d) existing as of the date hereof by the Company in its Subsidiaries
or Excluded Subsidiaries or in the other Persons listed in the Disclosure
Schedule as being owned, in part, by the Company or Terra,
(e) by the Company after the date hereof in Terra, so long as the
guaranty and other Security Documents given by Terra for the benefit of the
Purchasers remain in full force and effect; and
(f) by the Company and its Subsidiaries not described in the
foregoing subsections (a) through (e) which do not in the aggregate exceed
$500,000 (measured on a cost basis).
"Permitted Liens" means:
(a) statutory Liens for taxes, assessments or other governmental
charges or levies which are not yet delinquent or which are being contested
in good faith by appropriate action and for which adequate reserves have
been maintained in accordance with GAAP;
(b) landlords', operators', carriers', warehousemen's, repairmen's,
mechanics', materialmen's Liens which do not secure Debt, in each case only
to the extent arising in the ordinary course of business and only to the
extent securing obligations which are not delinquent or which are being
contested in good faith by appropriate proceedings and for which adequate
reserves have been maintained in accordance with GAAP;
(c) Liens under the Security Documents or under the Bank Documents;
(d) with respect only to property subject to any particular Security
Document, Liens burdening such property which are expressly allowed by such
Security Document;
(e) minor defects and irregularities in title to any property, so
long as such defects and irregularities neither secure Debt nor materially
impair the value of such property or the use of such property for the
purposes for which such property is held;
(f) deposits of cash or securities to secure the performance of bids,
trade contracts, leases, statutory obligations and other obligations of a
like nature (excluding appeal bonds and Debt) incurred in the ordinary
course of business;
(g) easements, zoning restrictions, or other charges or restrictions
on the use of real property which do not materially impair the use of the
property by the Company or its Subsidiaries in the conduct of its
operations or business;
(h) Liens under the Section 29 Documents that are expressly
subordinated to the Liens under the Security Documents; and
(i) Liens perfected or purportedly perfected under the following
financing statements: (A) file # C975864 naming Terra, as debtor, filed
with the Secretary of State
14
of Michigan on May 30, 1995; (B) file # C982828 naming Terra, as debtor,
filed with the Secretary of State of Michigan on June 16, 1995; (C) file #
C971103, naming Guardian Energy Management Corporation and Terra, as
debtors, filed with the Secretary of State of Michigan on May 17, 1995; (D)
file # C998172, naming Guardian Energy Management Corporation and Terra, as
debtors, filed with the Secretary of State of Michigan on August 1, 1995;
(E) file # C998173, naming Guardian Energy Management Corporation and
Terra, as debtors, filed with the Secretary of State of Michigan on August
1, 1995; (F) file # C971101, naming Guardian Energy Management Corporation
and Terra, as debtors, filed with the Secretary of State of Michigan on May
17, 1995; and (G) file # D4D2038, naming Guardian Energy Management
Corporation and Terra, as debtors, filed with the Secretary of State of
Michigan on July 23, 1998.
"Person" means an individual, partnership, corporation, limited liability
company, association, trust, unincorporated organization, or a government or
agency or political subdivision thereof.
"Plan" means an "employee benefit plan" (as defined in section 3(3) of
ERISA) that is or, within the preceding five years, has been established or
maintained, or to which contributions are or, within the preceding five years,
have been made or required to be made, by the Company or any ERISA Affiliate or
with respect to which the Company or any ERISA Affiliate may have any liability.
"Post-Closing Title Review Requirement" means with respect to any
requirement contained herein for delivery to Purchasers or their counsel of
title opinions or other evidence of title to Mineral Interests purported to be
owned by the Company, a requirement that such title opinions be delivered in
form and substance acceptable to Purchasers and their counsel with respect to
Borrowing Base Properties (as such term is defined in the Bank Credit Agreement)
with an aggregate Recognized Value (as such term is defined in the Bank Credit
Agreement) at least equal to eighty percent (80%) of the Recognized Value of all
Borrowing Base Properties.
"Properties" means, collectively, those undivided interests in oil and gas
properties and interests which are, at the time in question, owned by the
Company or any of its Subsidiaries.
"Proved Reserves" means "Proved Reserves" as defined in the Definitions for
Oil and Gas Reserves (in this paragraph, the "Definitions") promulgated by the
Society of Petroleum Engineers (or any generally recognized successor) as in
effect at the time in question. "Proved Developed Producing Reserves" means
-----------------------------------
Proved Reserves which are categorized as both "Developed" and "Producing" in the
Definitions, "Proved Developed Nonproducing Reserves" means Proved Reserves
--------------------------------------
which are categorized as both "Developed" and "Nonproducing" in the Definitions,
and "Proved Undeveloped Reserves" means Proved Reserves which are categorized as
---------------------------
"Undeveloped" in the Definitions.
"Purchaser" means each Person that originally purchases a Note hereunder
and each of its successor and assigns (other than the Company or any Affiliate
of the Company) as holder of a Note.
"Purchaser Pricing" means:
15
(a) for anticipated sales of Hydrocarbons that are fixed in a firm
fixed price sales contract with an investment grade counterparty (or
another counterparty approved by Majority Purchasers), the fixed price or
prices provided for in such sales contract during the term thereof; and
(b) for anticipated sales of Hydrocarbons that are hedged by a fixed
price Hedging Contract with an investment grade counterparty, the fixed
price or prices provided for in such Hedging Contract during the term
thereof, as modified by any necessary adjustment specified by Majority
Purchasers for quality and geographical differentials; and
(c) for anticipated sales of Hydrocarbons that are hedged by a
Hedging Contract with an investment grade counterparty which Hedging
Contract provides for a range of prices between a floor and a ceiling, the
prices provided for in subsection (d) below, provided that during the term
of such Hedging Contract such prices shall in no event be less than such
floor or exceed such ceiling, as such floor and ceiling are modified by any
necessary adjustment specified by Majority Purchasers for quality and
geographical differentials; and
(d) for anticipated sales of Hydrocarbons, if such sales are not
hedged by a Hedging Contract or sales contract that is described in
paragraphs (a), (b), or (c) above, the price which is one-half of the sum
of the following:
(i) the average price received by the Company for Hydrocarbons
of such kind produced from the Eligible Mortgaged Properties during
the twelve months preceding the date of calculation, plus
(ii) the average of the prices on the New York Mercantile
Exchange (or any successor organization), as reported in the Wall
Street Journal for the date of calculation (or, if such date is not a
Business Day, for the first Business Day thereafter) under the twelve
"nearby" futures contracts which are listed therein as the first to
expire after such date of calculation, with any necessary adjustment
specified by Majority Purchasers for quality and geographical
differentials.
The applicable price determined pursuant to the preceding clause (d) shall
be escalated at 3% per annum for each year after the then current year.
"QPAM Exemption" means Prohibited Transaction Class Exemption 84-14 issued
by the United States Department of Labor.
"Quarterly Payment Date" means the next to last Business Day in each Fiscal
Quarter.
"Section 29 Documents" means, collectively, the Existing Section 29
Documents and the Mariner Section 29 Documents.
"Securities Act" means the Securities Act of 1933, as amended from time to
time.
16
"Security Documents" means the instruments listed in the Security Schedule
and all other Mortgages, 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 any Person to or for the benefit of Collateral Agent or
all of the Purchasers in connection with this Agreement or any transaction
contemplated hereby to secure or guarantee the payment of any part of the Notes
or the performance of any Person's other duties and obligations under the
Transaction Documents.
"Security Schedule" means Schedule D hereto.
"State Street" means State Street Bank and Trust Company, a Massachusetts
trust company.
"Subsidiary" means, as to any Person, any corporation, association or other
business entity in which such Person or one or more of its Subsidiaries or such
Person and one or more of its Subsidiaries owns sufficient equity or voting
interests to enable it or them (as a group) ordinarily, in the absence of
contingencies, to elect a majority of the directors (or Persons performing
similar functions) of such entity, and any partnership or joint venture if more
than a 50% interest in the profits or capital thereof is owned by such Person or
one or more of its Subsidiaries or such Person and one or more of its
Subsidiaries (unless such partnership can and does ordinarily take major
business actions without the prior approval of such Person or one or more of its
Subsidiaries). Unless the context otherwise clearly requires, any reference to
a "Subsidiary" is a reference to a Subsidiary of the Company. Unless otherwise
expressly stated herein, no Excluded Subsidiary shall be deemed to be a
Subsidiary of the Company.
"Tamco" means TCW Asset Management Company, a California corporation.
"TCW" means all of the following, collectively, who are at the time in
question Purchasers: TCW Debt and Royalty Fund VI, L.P., a California limited
partnership; TCW Debt and Royalty Fund VIB, a California limited partnership;
TCW Asset Management Company, a California corporation, as Investment Manager
pursuant to the Investment Management and Custody Agreement dated as of May 19,
1997 between Allmerica Asset Management, Inc. as agent for First Allmerica
Financial Life Insurance company, TCW Asset Management Company and Trust Company
of the West; TCW Asset Management Company, a California corporation, as
Investment Manager pursuant to the Investment Management and Custody Agreement
dated as of October 27, 1997 between University of Chicago, TCW Asset Management
Company and Trust Company of the West; TCW Asset Management Company, a
California corporation, as Investment Manager pursuant to the Investment
Management and Custody Agreement dated as of October 24, 1997 between William N.
Pennington Separate Property Trust dated January 1, 1991, TCW Asset Management
Company and Trust Company of the West; and TCW Asset Management Company, a
California corporation, as Investment Manager pursuant to the Investment
Management Agreement dated as of October 27, 1997 between Delta Air Lines,
Inc.,TCW Asset Management Company and Trust Company of the West.
"Termination Event" means (a) the occurrence with respect to any Plan of
(i) a reportable
17
event described in Sections 4043(b)(5) or (6) of ERISA or (ii) any other
reportable event described in Section 4043(b) of ERISA other than a reportable
event not subject to the provision for 30-day notice to the Pension Benefit
Guaranty Corporation pursuant to a waiver by such corporation under Section
4043(a) of ERISA, or (b) the withdrawal of the Company or any Affiliate of the
Company from an Plan during a plan year in which it was a "substantial employer"
as defined in Section 4001(a)(2) of ERISA, or (c) the filing of a notice of
intent to terminate any Plan or the treatment of any Plan amendment as a
termination under Section 4041 of ERISA, or (d) the institution of proceedings
to terminate any Plan by the Pension Benefit Guaranty Corporation under Section
4042 of ERISA, or (e) any other event or condition which might constitute
grounds under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Plan.
"Terra" means Terra Energy Ltd., a Michigan corporation.
"Transaction Documents" means this Agreement, the Notes, the Security
Documents, and all other agreements, certificates, documents, instruments and
writings at any time delivered in connection herewith or therewith (exclusive of
term sheets and commitment letters).
"Working Capital" has the meaning given such term in Section 9.1(n).
References in this Schedule and in the Agreement to Exhibits, Schedules,
Articles, Sections, subsections and other subdivisions refer to the Exhibits,
Schedules, Articles, Sections, subsections and other subdivisions of the
Agreement unless expressly provided otherwise. Titles appearing at the
beginning of any subdivisions are for convenience only and do not constitute any
part of such subdivisions and shall be disregarded in construing the language
contained in such subdivisions. The words "this Agreement", "this instrument",
"herein", "hereof", "hereby", "hereunder" and words of similar import refer to
the Agreement as a whole and not to any particular subdivision 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.
18
SCHEDULE C
DISCLOSURE SCHEDULE
Section and subsection references below correspond to the section and subsection
designations in the Agreement.
5.1
(f) Nothing to disclose.
(g) Terra has Debt of approximately $2,100,000.00 which CMS has
agreed to retain because it relates to an asset that is excluded
from the CMS Acquisition.
(h) The Company's principal long-term fixed production sales
agreements and derivative contracts are described in the Exhibit
to this Schedule C.
(i) Nothing to disclose.
(j) Terra has used the name Rachael Exploration in the State of New
Mexico.
(k) (i) the Company owns:
(a) Fifty percent (50%) equity in Beaver Creek Pipeline,
LLC, a Michigan limited liability company;
(b) Fifty percent (50%) equity in Cinnabar Energy Services
and Trading, LLC, a Michigan limited liability company;
(c) One Hundred percent (100%) equity in Terra Energy Ltd.,
a Michigan corporation;
(d) Approximately ninety percent (90%) equity in MGV Energy
Inc., an Alberta, Canada corporation, (the exact equity
interest varies by agreement based on rate of return);
Terra Owns:
(a) One hundred percent (100%) equity in Energy Acquisition
Operating Corporation, a Michigan corporation;
(b) One hundred percent (100%) equity in Kristen
Corporation, a Michigan corporation;
(c) One hundred percent (100%) equity in Terra Pipeline
Company, a Michigan corporation;
(d) Minority equity in each of the following:
State 26 Production Company, Inc.
J.R. Productions, Inc.
Eagle Productions, Inc.
Northwest Operations, Inc.
Phoenix Operating Company, Inc.
Terra-Westside Processing Company Partnership
Terra-Hayes Pipeline General Partnership
(l) Nothing to disclose.
SCHEDULE D
SECURITY SCHEDULE
1. Security Agreement by the Company in favor of Collateral Agent
2. UCC-1 Financing Statements naming the Company, as debtor, relating to item 1
3. Security Agreement by Terra in favor of Collateral Agent
4. UCC-1 Financing Statements naming Terra, as debtor, relating to item 3
5. Assignment of Production, Accounts, and Proceeds by the Company in favor of
Collateral Agent
6. UCC-1 Financing Statements naming the Company, as debtor, relating to item 5
7. Assignment of Production, Accounts, and Proceeds by Terra in favor of
Collateral Agent
8. UCC-1 Financing Statements naming Terra, as debtor, relating to item 7
9. Mortgage by the Company in favor of Collateral Agent
10. UCC-1 Financing Statements naming the Company, as debtor, relating to item 9
11. Mortgage by Terra in favor of Collateral Agent
12. UCC-1 Financing Statements naming Terra, as debtor, relating to item 11
13. Mortgage, Assignment, Security Agreement, Fixture Filing, and Financing
Statement by the Company in favor of Collateral Agent
14. UCC-1 Financing Statements naming the Company, as debtor, relating to item
13
15. Stock Pledge Agreement by the Company
16. UCC-1 Financing Statements naming the Company, as debtor, relating to item
15
17. Guaranty by Terra
SCHEDULE E
INSURANCE SCHEDULE
EXHIBIT 1
THE RIGHTS, TITLE AND INTERESTS OF ANY HOLDER OF THIS INSTRUMENT ARE SUBJECT TO
THE RIGHTS, TITLE AND INTERESTS OF BANK OF AMERICA, N.A., AS ADMINISTRATIVE
AGENT, AND THE BANKS AND THEIR SUCCESSORS UNDER AND PURSUANT TO THAT CERTAIN
SUBORDINATION AGREEMENT DATED AS OF MARCH __, 2000 BY AND AMONG BANK OF AMERICA,
N.A., AS ADMINISTRATIVE AGENT, QUICKSILVER RESOURCES INC., TCW ASSET MANAGEMENT
COMPANY AND OTHER PARTIES.
PROMISSORY NOTE
Dallas, Texas
No. [_____] [Date]
$[_______] PPN 74837R
FOR VALUE RECEIVED, the undersigned, Quicksilver Resources Inc. (herein
called the "Company"), a Delaware corporation, hereby promises to pay to
[___________________________], or its registered assigns, the principal sum of
[___________________________] Dollars, together with interest on the unpaid
principal balance thereof (computed on the basis of a 360-day year of twelve 30-
day months) as hereinafter set forth pursuant to the terms of the Note Purchase
Agreement (as hereinafter defined), both principal and interest payable as
herein provided in lawful money of the United States of America at the offices
of Bank of America, N.A., 901 Main Street, Dallas, Dallas County, Texas 75202,
or at such other place within Dallas County, Texas, as from time to time may be
designated by the holder of this Note.
The principal amount of this Note, together with all interest accrued
hereon, shall be due and payable in full on March 30, 2009.
This Note (a) is issued and delivered under that certain Note Purchase
Agreement of even date herewith among the Company, TCW Asset Management Company,
as Collateral Agent, and various Purchasers (herein, as from time to time
supplemented, amended or restated, called the "Note Purchase Agreement"), and is
a "Note" as defined therein, (b) is subject to the terms and provisions of the
Note Purchase Agreement, which contains provisions for payments and prepayments
hereunder and acceleration of the maturity hereof upon the happening of certain
stated events, and (c) is secured by and entitled to the benefits of certain
Security Documents (as identified and defined in the Note Purchase Agreement).
Payments on this Note shall be made and applied as provided herein and in the
Note Purchase Agreement. Reference is hereby made to the Note Purchase
Agreement for a description of certain rights, limitations of rights,
obligations and duties of the parties hereto and for the meanings assigned to
terms used and not defined herein and to the Security Documents for a
description of the nature and extent of the security thereby provided and the
rights of the parties thereto.
The unpaid principal of this Note (exclusive of any past due principal or
interest) from time to time outstanding shall bear interest on each day
outstanding at the rate of fourteen and three-quarters percent (14.75%) per
annum, payable on each Quarterly Payment Date. All principal and interest owed
under this Note and which has not been paid when due shall bear interest on each
day outstanding at the Default Rate in effect on such day, and such interest
shall be due and payable daily as it accrues.
Notwithstanding the foregoing paragraph and all other provisions of this
Note, in no event shall the interest payable hereon, whether before or after
maturity, exceed the maximum amount of interest which, under applicable law, may
be charged on this Note, and this Note is expressly made subject to the
provisions of the Note Purchase Agreement which more fully set out the
limitations on how interest accrues hereon.
The Company promises to pay (a) the required prepayments of principal and
interest hereon on the dates and in the amounts specified in the Note Purchase
Agreement (and any fees associated therewith) and (b) any premium associated
with any optional prepayment of the principal balance of this Note, in each case
as further described in the Note Purchase Agreement.
If this Note is placed in the hands of an attorney for collection after
default, or if all or any part of the indebtedness represented hereby is proved,
established or collected in any court or in any bankruptcy, receivership, debtor
relief, probate or other court proceedings, the Company and all endorsers,
sureties and guarantors of this Note jointly and severally agree to pay
reasonable attorneys' fees and collection costs to the holder hereof in addition
to the principal and interest payable hereunder.
The Company and all endorsers, sureties and guarantors of this Note hereby
severally waive demand, presentment, notice of demand and of dishonor and
nonpayment of this Note, protest, notice of protest, notice of intention to
accelerate the maturity of this Note, declaration or notice of acceleration of
the maturity of this Note, diligence in collecting, the bringing of any suit
against any party and any notice of or defense on account of any extensions,
renewals, partial payments or changes in any manner of or in this Note or in any
of its terms, provisions and covenants, or any releases or substitutions of any
security, or any delay, indulgence or other act of any trustee or any holder
hereof, whether before or after maturity.
This Note and the rights and duties of the parties hereto shall be governed
by the laws of the State of Texas as provided in the Note Purchase Agreement.
QUICKSILVER RESOURCES INC.
By
--------------------------------------------
2
Name:
Title:
EXHIBIT 2
FORM OF OPINION OF COUNSEL TO THE COMPANY
3
EXHIBIT 3
CERTIFICATE ACCOMPANYING
FINANCIAL STATEMENTS
--------------------
Reference is made to that certain Note Purchase Agreement dated as of March
__, 2000, (as from time to time amended, the "Agreement"), by and among
Quicksilver Resources Inc. (the "Company"), _________________________________,
which Agreement is in full force and effect on the date hereof. Terms which are
defined in the Agreement are used herein with the meanings given them in the
Agreement.
This Certificate is furnished pursuant to Section 8.1(b)(ii) of the
Agreement. Together herewith the Company is furnishing to the Purchasers the
Company's *[audited/unaudited] financial statements (the "Financial Statements")
as at ____________ (the "Reporting Date"). The Company hereby represents,
warrants, and acknowledges to the Collateral Agent and to all Purchasers that:
(a) the officer of the Company signing this instrument is the duly
elected, qualified and acting ____________ of the Company and as such is
the Company's chief financial officer;
(b) the Financial Statements fairly present, in accordance with GAAP
and in all material respects, the matters set forth therein and satisfy the
requirements of the Agreement;
(c) attached hereto is a schedule of calculations showing the Company's
compliance as of the Reporting Date with the requirements of Sections
8.1(n) and 9.1(m) and (n) of the Agreement *[and non-compliance as of such
date with the requirements of Section(s) ____________ of the Agreement];
(d) on the Reporting Date the Company was, and on the date hereof the
Company is, in full compliance with the disclosure requirements of Section
8.1(d) of the Agreement, and no Default otherwise existed on the Reporting
Date or otherwise exists on the date of this instrument *[except for
Default(s) under Section(s) ____________ of the Agreement, which [is/are]
more fully described on a schedule attached hereto].
The officer of the Company signing this instrument hereby certifies that he
has reviewed the Transaction Documents and the Financial Statements and has
otherwise undertaken such inquiry as is in his opinion necessary to enable him
to express an informed opinion with respect to the above representations,
warranties and acknowledgments of the Company and, to the best of his knowledge,
such representations, warranties, and acknowledgments are true, correct and
complete.
IN WITNESS WHEREOF, this instrument is executed as of ____________, 200__.
QUICKSILVER RESOURCES INC.
By:
----------------------------------
Name:
Title:
2
EXHIBIT 4
FORM OF ACCREDITED INVESTOR LETTER
[TCW]
Ladies and Gentlemen:
In connection with our proposed purchase of $____________________ of 14.75%
Senior Subordinated Notes due March __, 2009 (the "Notes") of Quicksilver
Resources Inc. (the "Company"), we confirm that:
1. We have received a copy of the Note Purchase Agreement dated as of March
___, 2000 (as amended, the "Agreement"), between the Company and
_________________, relating to the Notes and such other information as we
deem necessary in order to make our investment decision. We acknowledge
that we have read and agreed to the matters stated in Section 11.4 of the
Agreement.
2. We understand that any subsequent transfer of the Notes is subject to
certain restrictions and conditions set forth in Section 11.4 of the
Agreement and we agree to be bound by, and not to sell the Notes except in
compliance with, such restrictions and conditions and the Securities Act of
1933, as amended (the "Securities Act").
3. We understand that the offer and sale of the Notes have not been registered
under the Securities Act, and that the Notes may not be offered or sold
except as permitted in the following sentence. We agree, on our own behalf
and on behalf of any accounts for which we are acting as hereinafter
stated, that if we should sell or otherwise transfer any Notes prior to the
date which is two years after the original issuance of the Notes, we will
do so only (i) to the Company or any of its subsidiaries, (ii) inside the
United States in accordance with Rule 144A under the Securities Act to a
"qualified institutional buyer" (as defined in Rule 144A under the
Securities Act), (iii) inside the United States to an institutional
"accredited investor" (as defined below) that, prior to such transfer,
furnishes (or has furnished on its behalf by a United States broker-dealer)
to us, a signed letter containing certain representations and agreements
relating to the restrictions on transfer of the Notes (the form of which
letter is attached to the Agreement as Exhibit 5), (iv) outside the United
States in accordance with Rule 904 of Regulation S under the Securities
Act, (v) pursuant to an exemption from registration provided by Rule 144
under the Securities Act (if available), or (vi) pursuant to an effective
registration statement under the Securities Act, and we further agree to
provide to any person purchasing any of the Notes from us a notice advising
such purchaser that resales of the Notes are restricted as stated herein.
4. We hereby make for your benefit the representations and warranties
contained in Section 6.2 of the Note Purchase Agreement.
5. We are an institutional "accredited investor" (as defined in Rule 501 (a)
(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment in the Notes,
and we and any accounts for which we are acting are each able to bear the
economic risk of our or their investment, as the case may be.
6. We are acquiring the Notes purchased by us for our account or for one or
more accounts (each of which is an institutional "accredited investor") as
to each of which we exercise sole investment discretion.
You are entitled to rely upon this letter and are irrevocably authorized to
produce this letter or a copy hereof to any interested party in any
administrative or legal proceeding or official inquiry with respect to the
matters covered hereby.
Very truly yours,
By
---------------------------------------
Name:
Title: