EXHIBIT 99.5
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AMENDED AND RESTATED OIL & GAS
TERM LOAN AGREEMENT
BY AND AMONG
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THORNWOOD ASSOCIATES LP
(LENDER)
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AND
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TRANSTEXAS GAS CORPORATION
(BORROWER)
AND
GALVESTON BAY PIPELINE COMPANY
AND
GALVESTON BAY PROCESSING CORPORATION
(GUARANTORS)
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AS OF AUGUST 28, 2003
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TABLE OF CONTENTS
PAGE
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I. DEFINITIONS.................................................................................. 1
1.1. General Terms................................................................................ 1
1.2. Uniform Commercial Code Terms................................................................ 23
1.3. Certain Matters of Construction.............................................................. 23
II. PAYMENTS..................................................................................... 24
2.1. Term Loan.................................................................................... 24
2.2. Repayment of Principal....................................................................... 24
2.3. Acceleration; Note........................................................................... 24
2.4. Manner of Payment............................................................................ 24
III. INTEREST AND FEES............................................................................ 24
3.1. Interest..................................................................................... 24
3.2. Computation of Interest...................................................................... 24
3.3. Maximum Charges.............................................................................. 25
IV. REPRESENTATIONS AND WARRANTIES............................................................... 25
4.1. Authority.................................................................................... 25
4.2. Formation and Qualification.................................................................. 25
4.3. Corporate Name............................................................................... 25
4.4. Security Interests........................................................................... 25
4.5. Plan of Reorganization....................................................................... 26
4.6. Location of Borrower......................................................................... 26
4.7. Representations, Warranties and Covenants Concerning the Mortgages........................... 26
V. AFFIRMATIVE COVENANTS........................................................................ 26
5.1. Payment of Obligations....................................................................... 26
5.2. Corporate Existence.......................................................................... 26
5.3. Payment of Taxes and Other Claims............................................................ 26
5.4. Maintenance of Properties and Insurance...................................................... 26
5.5. Compliance with Laws; Violations............................................................. 28
5.6. Execution of Supplemental Instruments........................................................ 28
5.7. Payment of Debt.............................................................................. 28
5.8. Environmental Matters........................................................................ 28
5.9. Inspections.................................................................................. 29
VI. NEGATIVE COVENANTS........................................................................... 29
6.1. Mergers, Consolidations and Other Fundamental Changes........................................ 29
6.2. Asset Sales.................................................................................. 31
6.3. Limitation on Incurrence of Additional Debt.................................................. 32
6.4. Creation of Liens............................................................................ 35
6.5. Limitation on Investments, Loans and Advances................................................ 35
6.6. Limitation on Restricted Payments............................................................ 35
6.7. Nature of Business........................................................................... 35
6.8. Subsidiaries................................................................................. 35
6.9. Fiscal Year and Accounting Changes........................................................... 35
6.10. Amendment of Articles of Incorporation, By-Laws........................................... 36
6.11. Changes Relating to Subordinated Debt..................................................... 36
VII. FINANCIAL COVENANTS.......................................................................... 36
7.1. PV10 Valuation............................................................................... 36
VIII. EVENTS OF DEFAULT............................................................................ 36
8.1. Payment of Principal or Interest............................................................. 36
8.2. Misleading Representation or Warranty........................................................ 36
8.3. Observing Article VII Covenants.............................................................. 37
8.4. Attachment Against Property.................................................................. 37
8.5. Observing Agreement Covenants................................................................ 37
8.6. Judgments.................................................................................... 37
8.7. Insolvency of Borrower....................................................................... 37
8.8. Inability to Pay Debts....................................................................... 37
8.9. Insolvency of Subsidiary or Guarantor........................................................ 37
8.10. Change in Borrower's Condition............................................................ 38
8.11. Liens..................................................................................... 38
8.12. Default under Ancillary Document.......................................................... 38
8.13. Payment Default........................................................................... 38
8.14. Material Adverse Effect................................................................... 38
8.15. Material Provision........................................................................ 38
8.16. Modification to Intellectual Property or Agreements....................................... 38
8.17. Collateral Seizure........................................................................ 38
8.18. Guarantor Default......................................................................... 39
8.19. NYMEX Gas Closing Price................................................................... 39
IX. LENDER'S RIGHTS AND REMEDIES AFTER DEFAULT................................................... 39
9.1. Rights and Remedies.......................................................................... 39
9.2. Lender's Discretion.......................................................................... 40
9.3. Setoff....................................................................................... 40
9.4. Rights and Remedies not Exclusive............................................................ 40
9.5. Allocation of Payments After Event of Default................................................ 40
X. WAIVERS AND JUDICIAL PROCEEDINGS............................................................. 40
10.1. Waiver of Notice.......................................................................... 40
10.2. Delay..................................................................................... 41
10.3. Jury Waiver............................................................................... 41
XI. EFFECTIVE DATE AND TERMINATION............................................................... 41
11.1. Term...................................................................................... 41
11.2. Termination............................................................................... 41
XII. RELEASE OF COLLATERAL........................................................................ 42
12.1. Disposition of Certain Collateral Without Requesting Release.............................. 42
12.2. Requesting Release of Collateral.......................................................... 42
XIII. GUARANTY..................................................................................... 43
13.1. Guaranty.................................................................................. 43
13.2. No Impairment............................................................................. 43
13.3. Guaranty Absolute......................................................................... 43
13.4. Waivers................................................................................... 44
13.5. Payments from Guarantor................................................................... 45
13.6. No Termination............................................................................ 45
13.7. Recapture................................................................................. 45
13.8. Guaranties of Borrower and Material Subsidiaries.......................................... 45
XIV. MISCELLANEOUS................................................................................ 45
14.1. GOVERNING LAW............................................................................. 45
14.2. Entire Understanding...................................................................... 46
14.3. Successors and Assigns; New Lender....................................................... 47
14.4. Application of Payments................................................................... 47
14.5. Indemnity................................................................................. 47
14.6. Notice.................................................................................... 47
14.7. Survival.................................................................................. 48
14.8. Severability.............................................................................. 48
14.9. Expenses.................................................................................. 48
14.10. Injunctive Relief......................................................................... 48
14.11. Consequential Damages..................................................................... 49
14.12. Captions.................................................................................. 49
14.13. Counterparts; Faxed Signatures............................................................ 49
14.14. Construction.............................................................................. 49
14.15. Confidentiality........................................................................... 49
EXHIBITS
2.3 Form of Amended and Restated O&G Note
4.7 Additional Representations and Covenants
AMENDED AND RESTATED OIL & GAS LOAN AGREEMENT
("RESTRUCTURED O&G AGREEMENT")
TRANSTEXAS GAS CORPORATION, a corporation organized under the
laws of the State of Delaware ("Borrower"), GALVESTON BAY PIPELINE COMPANY, a
subsidiary of Borrower ("GB Pipeline), GALVESTON BAY PROCESSING CORPORATION, a
subsidiary of Borrower "GB Processing" and together with GB Pipeline and any
other subsidiary of Borrower, which shall become a party hereto, the
"Guarantors") and THORNWOOD ASSOCIATES LP ("Lender") are hereby restating and
amending the Oil and Gas Revolving Credit and Term Loan Agreement with certain
"Lenders" (as defined therein) and GMAC Commercial Credit LLC , a limited
liability company organized under the laws of the State of New York, as agent
for the Lenders, dated as of March 15, 2000 the "Original Agreement" and as
restated and amended on this 28 day of August, 2003, the "Restructured O&G
Agreement" or the "Agreement").
This Agreement shall become valid and enforceable only when, and if,
Creditor's Joint Plan of Reorganization for Debtors Under Chapter 11 of the
Bankruptcy Code Submitted by Thornwood Associates LP, dated as of June 27, 2003,
as modified July 8, 2003 and as may be modified thereafter ("Thornwood's Plan"
or the "Plan"), confirmed by Order of the Bankruptcy Court, dated August 28,
2003, becomes effective.
Pursuant to the Plan, as of the date hereof, each holder of an Allowed
Prepetition O&G Claim, in full satisfaction, settlement, release and discharge
of, and exchange for, such Claim received (i) Cash in a sum equal to its pro
rata share of the Allowed O&G Claim less $32.5 million and (ii) its pro rata
share of the Restructured O&G Note in principal amount of $32.5 million, and
Thornwood paid to the Prepetition O&G Lenders pro rata the Cash set forth in
paragraph (i) hereto and an amount equal to the principal amount of the
Restructured O&G Note. Subject to such payment and pursuant to the terms of the
Plan, the Reorganized Debtors are issuing the Restructured O&G Note directly to
Thornwood, and are entering into this Restructured O&G Agreement and the
Restructured O&G Security Agreement directly with Thornwood.
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings herein contained, Borrower and Lender hereby agree as follows:
I. DEFINITIONS. Any term not defined in this Agreement shall have the meaning
ascribed to it in the Plan. The following additional terms shall mean as
follows:
1.1. GENERAL TERMS For purposes of this Agreement the
following terms shall have the following meanings:
"Accounts" means "accounts," as that term is defined in
Article 9 of the Uniform Commercial Code as in effect in the State of New York,
together with the proceeds and products thereof.
"Adjusted Consolidated Tangible Assets" means (without
duplication), as of the date of determination, (a) the sum of (i) discounted
future net cash flows from proved oil and gas reserves of Borrower and its
Subsidiaries, (before any state or federal income tax), as estimated in a Proved
Reserve Report as of a date no earlier than Borrower's most recent fiscal year
end
(or, if such Proved Reserve Report is unavailable, or if the date of
determination is after the end of the first fiscal quarter of the most recent
fiscal year of Borrower, as estimated by Borrower's engineers on the same basis
as of a date no earlier than the end of the most recent fiscal quarter, which
estimates shall be confirmed in writing by a report by nationally recognized
independent petroleum engineers in the event of a Material Change), (ii) the Net
Working Capital of Borrower on a date no earlier than the date of Borrower's
latest consolidated annual or quarterly financial statements, and (iii) with
respect to all other tangible assets (which are deemed to include mineral
lease-hold interests) of Borrower and its Subsidiaries, the net book value of
such other tangible assets on a date no earlier than the date of Borrower's
latest consolidated annual or quarterly financial statements, minus (b) minority
interests and, to the extent not otherwise taken into account in determining
Adjusted Consolidated Tangible Assets, any gas balancing liabilities of Borrower
and its Subsidiaries. In addition to, but without duplication of the foregoing,
for purposes of this definition, "Adjusted Consolidated Tangible Assets" shall
be calculated after giving effect, on a pro forma basis, to (1) any Permitted
Investment, on or before the date of the transaction giving rise to the need to
calculate Adjusted Consolidated Tangible Assets (the "Assets Transaction Date"),
in any other Person that, as a result of such investment, becomes a Subsidiary
of Borrower, (2) the acquisition, on or before the Assets Transaction Date (by
merger, consolidation, or purchase of stock or assets), of any business or
assets, including, without limitation, Permitted Investments, and (3) any sales
or other dispositions of assets (other than sales of Inventory Hydrocarbons or
other mineral products in the ordinary course of business) occurring on or prior
to the Assets Transaction Date. For purposes of calculating the ratio of
Borrower's Adjusted Consolidated Tangible Assets to total consolidated Debt of
Borrower and its Subsidiaries, Debt of a Subsidiary that is not a wholly-owned
Subsidiary of Borrower (which Debt is non-recourse to Borrower or any of its
other Subsidiaries or any of their assets) shall be included only to the extent
of Borrower's pro rata ownership interest in such Subsidiary.
"Adjusted Net Assets" of a Guarantor means the lesser of (a)
the amount by which the Guarantor's property, at a fair valuation, exceeds the
sum of its debts (including unliquidated or contingent debts), (b) the amount by
which the present fair salable value of the Guarantor's assets exceeds the
amount that will be required to pay its probable liability on its existing debts
as they become absolute and matured, (c) the amount by which the Guarantor's
assets exceed the maximum amount that would constitute unreasonably small
capital for its business, or (d) the amount by which the Guarantor's assets
exceed the amount that such Guarantor should reasonably retain to pay its debts
(including unliquidated or contingent debts) as they mature.
"Affiliate" means, with respect to any specified Person, (a)
any other Person directly or indirectly controlling or controlled by, or under
direct or indirect common control with, such specified Person, or (b) any
director or controlling shareholder of such other Person or (c) any officer of
such specified Person or such other Person. For purposes of this definition, the
term "control" means (i) the power to direct the management and policies of a
Person, directly or through one or more intermediaries, whether through the
ownership of voting securities, by contract, or otherwise, or (ii) without
limiting the foregoing, the beneficial ownership of 10% or more of the voting
power of the voting common equity of such Person (on a fully diluted basis) or
of warrants or other rights to acquire such equity (regardless of whether
presently exercisable).
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"Ancillary Documents" means the Security Documents, the Note
and any and all other agreements, instruments and documents, including, without
limitation, guaranties, pledges, powers of attorney, consents, and all other
writings heretofore, now or hereafter executed by Borrower or any Subsidiary and
delivered to Lender in respect of the transactions contemplated by this
Agreement.
"Asset Sale" means any direct or indirect conveyance, sale,
transfer or other disposition, in one transaction or a series of related
transactions, of any of the properties, businesses or assets of Borrower or any
Subsidiary of Borrower, whether owned on the Effective Date or thereafter
acquired; provided, however, that "Asset Sale" shall not include (a) any
disposition of Inventory in the ordinary course of business, (b) any pledge or
disposition of assets (if such pledge or disposition would otherwise constitute
an Asset Sale) to the extent and only to the extent that it results in the
creation of a Permitted Lien (other than the creation of a Permitted Lien in
connection with a Drilling Production Payment or a Drilling Program, which in
either case shall be treated as an Asset Sale hereunder), or (c) any issuance or
disposition of securities that is made pursuant to and in accordance with the
Plan or a Plan Order.
"Attributable Debt" in respect of a Sale and Leaseback
Transaction means, at the time of determination, the present value (discounted
at the rate of interest implicit in such transaction, determined in accordance
with GAAP, or, in the event that such rate of interest is not reasonably
determinable, discounted at the rate of interest of 15%) of the obligation of
the lessee for net rental payments during the remaining term of the lease
included in such Sale and Leaseback Transaction (including any period for which
such lease has been extended or may, at the option of the lessor, be extended).
"Board of Directors" means, with respect to any Person, the
board of directors of such Person or any committee of the board of directors of
such Person authorized, with respect to any particular matter, to exercise the
power of the board of directors of such Person.
"Board Resolution" means, with respect to any Person, a duly
adopted resolution of the Board of Directors of such Person.
"Borrower" means TransTexas Gas Corporation, a Delaware
corporation, and all permitted successors and assigns.
"Borrower Entities" means Borrower and each of its
Subsidiaries.
"Business Day" means any day other than a day on which
commercial banks in New York are authorized or required by law to close.
"Capital Expenditures" of a Person means expenditures (whether
paid in cash or accrued as a liability) by such Person or any of its
Subsidiaries that, in conformity with GAAP, are or would be included in "capital
expenditures," "additions to property, plant, or equipment" or comparable items
in the consolidated financial statements of such Person consistent with prior
accounting practices.
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"Capital Lease" as applied to any Person, means any lease of
any property (whether real, personal, or mixed) by that Person as lessee which,
in conformity with GAAP, is accounted for as a capital lease on the balance
sheet of that Person.
"Capital Stock" means, with respect to any Person, any capital
stock of such Person and shares, interests, or other ownership interests
(however designated) of such Person and any rights (other than debt securities
convertible into corporate stock), warrants or options to purchase any of the
foregoing, including without limitation, each class of common stock and
preferred stock of such Person, if such Person is a corporation, and each
general or limited partnership interest or other equity interest of such Person,
if such Person is a partnership.
"Capitalized Lease Obligation" means obligations under a lease
that are required to be capitalized for financial reporting purposes in
accordance with GAAP, and the amount of Debt represented by such obligations
shall be the capitalized amount of such obligations, as determined in accordance
with GAAP.
"Cash Equivalents" means (a) Dollars, (b) securities issued or
directly and fully guaranteed or insured by the United States government or any
agency or instrumentality thereof having maturities of not more than one year
from the date of acquisition, (c) certificates of deposit with maturities of one
year or less from the date of acquisition, bankers' acceptances with maturities
not exceeding one year, and overnight bank deposits, in each case, with any
Eligible Institution, (d) repurchase obligations with a term of not more than
seven days for underlying securities of the types described in clauses (b) and
(c) entered into with any Eligible Institution, (e) commercial paper rated
"P-1," "A-1" or the equivalent thereof by Moody's Investors Service, Inc. or
Standard & Poor's Ratings Group, respectively, and in each case maturing within
one year after the date of acquisition, (f) shares of money market funds that
invest solely in Dollars and securities of the types described in clauses (a)
through (e) above, (g) demand and time deposits and certificates of deposit with
any commercial bank organized in the United States not meeting the
qualifications specified in clause (c) above or an Eligible Institution,
provided, however, that such deposits and certificates support bonds, letters of
credit and other similar types of obligations incurred are in the ordinary
course of business, (h) deposits, including deposits denominated in foreign
currency, with any Eligible Institution; provided, however, that all such
deposits do not exceed $10 million in the aggregate at any one time, and (i)
demand or fully insured time deposits used in the ordinary course of business
with commercial banks insured by the Federal Deposit Insurance Corporation.
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, 42 U.S.C. Sections 9601 et
seq.
"Charges" shall mean all taxes, charges, fees, imposts, levies
or other assessments, including, without limitation, all net income, gross
income, gross receipts, sales, use, ad valorem, value added, transfer,
franchise, profits, inventory, capital stock, license, withholding, payroll,
employment, social security, unemployment, excise, severance, stamp, occupation
and property taxes, custom duties, fees, assessments, liens, claims and charges
of any kind whatsoever, together with any interest and any penalties, additions
to tax or additional amounts, imposed by any taxing or other authority, domestic
or foreign (including, without limitation, the Pension Benefit Guaranty
Corporation or any environmental agency or superfund), upon the Collateral,
Borrower or any of its Affiliates.
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"Collateral" means and includes all property and interests in
property of Borrower and its Subsidiaries, now owned or hereafter acquired, upon
which a Lien is created in favor of Lender, for its benefit in accordance with
the Security Documents, including, without limitation, the Security Agreement.
"Confirmation Order" means the order pursuant to Section 1129
of the Bankruptcy Code confirming the Plan entered by the Bankruptcy Court in
the Borrower's case on August 5, 2003.
"Consents" means all filings and all licenses, permits,
consents, approvals, authorizations, qualifications and orders of any
Governmental Body and other third parties, domestic or foreign, necessary to
carry on Borrower's business, including, without limitation, any Consents
required under all applicable federal, state or other applicable law.
"Consolidated Coverage Ratio" means for any period, the ratio
of (a) the sum of Consolidated EBITDA of Borrower for such period, plus the net
proceeds received by Borrower and its consolidated Subsidiaries in respect of
Indebtedness for borrowed money (other than Indebtedness under this Agreement)
incurred during such period, plus, without duplication, the net proceeds
received by Borrower and its consolidated Subsidiaries from asset sales (other
than sales of Inventory and Hydrocarbons in the ordinary course of business)
consummated during such period, to (b) the sum of Consolidated Interest Expense
of Borrower for such period, plus Capital Expenditures of Borrower during such
period, plus required principal payments by Borrower and its consolidated
Subsidiaries on Indebtedness for borrowed money (other than Indebtedness under
this Agreement) during such period, plus cash dividends.
"Consolidated EBITDA" of any Person for any period, unless
otherwise defined herein, means (a) the Consolidated Net Income of such Person
for such period, plus (b) the sum, without duplication (and only to the extent
such amounts are deducted from net revenues in determining such Consolidated Net
Income), of (a) the provision for income taxes for such period, for such Person
and its consolidated Subsidiaries, (b) depreciation, depletion, and amortization
of such Person and its consolidated Subsidiaries for such period, and (c)
Consolidated Fixed Charges of such Person for such period, determined in each
case, on a consolidated basis for such Person and its consolidated Subsidiaries
in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" on any date (the
"Transaction Date") means, with respect to any Person, the ratio, on a pro forma
basis, of (a) the aggregate amount of Consolidated EBITDA of such Person
(attributable to continuing operations and businesses and exclusive of the
amounts attributable to operations and businesses discontinued or disposed of,
on a pro forma basis as if such operations and businesses were discontinued or
disposed of on the first day of the Reference Period) for the Reference Period
to (b) the aggregate Consolidated Fixed Charges of such Person (exclusive of
amounts attributable to discontinued operations and businesses on a pro forma
basis as if such operations and businesses were discontinued or disposed of on
the first day of the Reference Period, but only to the extent that the
obligations giving rise to such Consolidated Fixed Charges would no longer be
obligations contributing to such Person's Consolidated Fixed Charges subsequent
to the Transaction Date) during the Reference Period; provided, however, that
for purposes of such computation, in calculating Consolidated EBITDA and
Consolidated Fixed Charges, (i) the transaction giving rise to the need to
calculate the Consolidated Fixed Charge Coverage Ratio
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shall be assumed to have occurred on the first day of the Reference Period (ii)
the incurrence of any Debt or issuance of Disqualified Capital Stock during the
Reference Period or subsequent thereto and on or prior to the Transaction Date
shall be assumed to have occurred on the first day of such Reference Period,
(iii) Consolidated Interest Expense attributable to any Debt (whether existing
or being incurred) bearing a floating interest rate shall be computed as if the
rate in effect on the Transaction Date had been the applicable rate for the
entire period, unless such Person or any of its Subsidiaries is a party to a
Swap Obligation (that remains in effect for the 12-month period after the
Transaction Date) that has the effect of fixing the interest rate on the date of
computation, in which case such rate (whether higher or lower) shall be used,
and (iv) if Borrower or any Subsidiary of Borrower has repaid, repurchased,
defeased or otherwise discharged any Debt or Disqualified Capital Stock since
the beginning of the period measured by the four full fiscal quarters ended
immediately before the Transaction Date or if any Debt is to be repaid,
repurchased, defeased or otherwise discharged (in each case other than Debt
incurred under any revolving credit facility unless such Debt has been
permanently repaid and has not been replaced) on the Transaction Date, EBITDA
and Consolidated Fixed Charges for such period shall be calculated on a pro
forma basis as if such discharge had occurred on the first day of such period
and as if Borrower or such Subsidiary has not earned the interest income which
has actually accrued during such period in respect of cash or Cash Equivalents
used to repay, repurchase, defease or otherwise discharge such Debt.
"Consolidated Fixed Charges" of any Person for any period
means (without duplication) the sum of (a) Consolidated Interest Expense of such
Person for such period, (b) dividend requirements of such Person and its
consolidated Subsidiaries (whether in cash or otherwise (except dividends
payable solely in shares of Qualified Capital Stock)) with respect to Preferred
Stock paid, accrued, or scheduled to be paid or accrued during such period, in
each case to the extent attributable to such period and excluding items
eliminated in consolidation, (c) one-third of the Consolidated Operating Lease
Obligations for such period, and (d) fees paid, accrued, or scheduled to be paid
or accrued during such period by such Person and its Subsidiaries in respect of
performance bonds or other guarantees of payment. For purposes of clause (b)
above, dividend requirements shall be increased to an amount representing the
pre-tax earnings that would be required to cover such dividend requirements;
accordingly, the increased amount shall be equal to a fraction, the numerator of
which is such dividend requirements and the denominator of which is 1 minus the
applicable actual combined effective Federal, state, local and foreign income
tax rate of such Person and its Subsidiaries (expressed as a decimal), on a
consolidated basis, for the fiscal year immediately preceding the date of the
transaction giving rise to the need to calculate Consolidated Fixed Charges.
"Consolidated Interest Expense" of any Person means, for any
period, the aggregate interest (without duplication), whether expensed or
capitalized, paid, accrued, or scheduled to be paid or accrued during such
period in respect of all Debt of such Person and its consolidated Subsidiaries
(including (a) amortization of deferred financing costs and original issue
discount and non-cash interest payments or accruals, (b) the interest portion of
all deferred payment obligations, calculated in accordance with the effective
interest method, and (c) all commissions, discounts, other fees, and charges
owed with respect to letters of credit and banker's acceptance financing and
costs associated with Swap Obligations, in each case to the extent attributable
to such period determined on a consolidated basis in accordance with GAAP). For
purposes of this definition, (i) interest on a Capitalized Lease Obligation
shall be deemed to
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accrue at an interest rate reasonably determined to be the rate of interest
implicit in such Capitalized Lease Obligation in accordance with GAAP (including
Statement of Financial Accounting Standards No. 13 of the Financial Accounting
Standards Board), and (ii) Consolidated Interest Expense attributable to any
Debt represented by the guarantee by such Person or a Subsidiary of such Person
other than with respect to Debt of such Person or a Subsidiary of such Person
shall be deemed to be the interest expense attributable to the item guaranteed.
"Consolidated Net Income" of any Person for any period means
the net income (loss) of such Person and its consolidated Subsidiaries for such
period, determined in accordance with GAAP, plus asset impairment charges, less
(without duplication) (a) all extraordinary, unusual and nonrecurring gains (but
not losses), (b) the net income, if positive, of any other Person, other than a
consolidated Subsidiary, in which such Person or any of its consolidated
subsidiaries has an interest, except to the extent of the amount of any
dividends or distributions actually paid in cash to such Person or a
consolidated Subsidiary of such Person during such period, but not in excess of
such Person's pro rata share of such other Person's aggregate net income earned
during such period or earned during the immediately preceding period and not
distributed during such period, (c) the net income, if positive, of any Person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition, and (iv) the net income, if positive, of any Subsidiary of
such Person to the extent that the declaration or payment of dividends or
similar distributions is not at the time permitted by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute,
rule, or governmental regulation applicable to such Subsidiary.
"Consolidated Operating Lease Obligations" means, for any
period, the aggregate amount of all obligations for rent paid or accrued under
all Operating Leases of Borrower and its Subsidiaries as lessee (net of sublease
income), all as determined on a consolidated basis in conformity with GAAP.
"Debt" means, with respect to any Person, without duplication
(a) all liabilities contingent or otherwise, of such Person (i) for borrowed
money (whether or not the recourse of Lender is to the whole of the assets of
such Person or only to a portion thereof), (ii) evidenced by bonds, Note,
debentures, or similar instruments or letters of credit or representing the
balance deferred and unpaid of the purchase price of any property acquired by
such Person or services received by such Person (other than long-term service or
supply contracts which require minimum periodic payments), (iii) evidenced by
bankers' acceptances or similar instruments issued or accepted by banks or Swap
Obligations, (iv) for the payment of money relating to a Capitalized Lease
Obligation, and (v) the Attributable Debt associated with any Sale and Leaseback
Transaction; (b) reimbursement obligations of such Person with respect to
letters of credit; (c) all liabilities of others of the kind described in the
preceding clause (i) or (ii) that such Person has guaranteed or that is
otherwise its legal liability (to the extent of such guaranty or other legal
liability) other than for endorsements, with recourse, of negotiable instruments
in the ordinary course of business; (d) all obligations secured by a Lien (other
than Permitted Liens, except to the extent the obligations secured by such
Permitted Liens are otherwise included in clause (a), (b) or (c) of this
definition and are obligations of such Person) to which the property or assets
(including, without limitation, leasehold interests and any other tangible or
intangible property rights) of such Person are subject, regardless of whether
the obligations secured thereby
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shall have been assumed by or shall otherwise be such Person's legal liability
(but, if such obligations are not assumed by such Person or are not otherwise
such Person's legal liability, the amount of such Debt shall be deemed to be
limited to the fair market value of such property or assets determined as of the
end of the preceding fiscal quarter); and (a) any and all deferrals, renewals,
extensions, refinancings, and refundings (whether direct or indirect) of, or
amendments, modifications, or supplements to, any liability of the kind
described in any of the preceding clauses (a) through (d) regardless of whether
between or among the same parties; provided, however, that, notwithstanding the
foregoing, "Debt" shall include obligations related to Drilling Production
Payments, whether denominated as Dollar-Denominated Production Payments or
Volumetric Production Payments, but shall not include Dollar-Denominated
Production Payments or Volumetric Production Payments related to Drilling
Programs.
"Default" means an event which, with the giving of notice or
passage of time or both, would constitute an Event of Default.
"Default Rate" has the meaning set forth in Section 3.1
hereof.
"Disqualified Capital Stock" means, with respect to any
Person, any Capital Stock of such Person or its Subsidiaries that, by its terms
or by the terms of any security into which it is convertible or exchangeable,
is, or upon the happening of an event or the passage of time would be, required
to be redeemed or repurchased by such Person or its Subsidiaries, including at
the option of the holder, in whole or in part, or has, or upon the happening of
an event or passage of time would have, a redemption or similar payment due, on
or prior to the maturity date of the Indenture Note.
"Documents" means, collectively, this Agreement and the
Ancillary Documents.
"Dollars" and the sign "$" means lawful money of the United
States of America.
"Dollar-Denominated Production Payments" means production
payment obligations recorded as liabilities in accordance with GAAP, together
with all undertakings and obligations in connection therewith.
"Drilling Production Payment" means a Dollar-Denominated
Production Payment or a Volumetric Production Payment conveyed to a third party
in accordance with the provisions of Sections 6.2 and 6.3.
"Drilling Program" means any current or future arrangement
between Borrower or any Subsidiary of Borrower and another Person pursuant to
which (a) such Person agrees, or has, prior to the Effective Date, agreed, to
drill, or perform operations to enhance recovery from, a well or wells on
mineral interests, owned by Borrower or such Subsidiary and (b) Borrower or such
Subsidiary agrees, or has, prior to the Effective Date, agreed, to convey or
assign to such Person an interest in such well or wells in accordance with
clause (k) of the definition of "Permitted Liens."
"Effective Date" means the date hereof.
- 8 -
"Eligible Hydrocarbon Reserves" means Hydrocarbon Reserves of
Borrower: (a) in which Borrower has defensible and indefeasible title and as to
which Lender has a first priority perfected lien and security interest (subject
only to Permitted Liens described in clauses (a), (g) and (h) of the definition
of Permitted Liens), and as to which only Permitted Liens exist, and (b) which
are set forth in the most recent Proved Reserves Report delivered to Lender or
such other reserve report prepared by an independent petroleum reserve engineer
acceptable to Lender and as adjusted in the most recent Borrowing Base
Certificate.
"Eligible Institution" means a commercial banking institution
that has combined capital and surplus of not less than $500 million and that is
rated "A" (or higher) according to Moody's Investors Service, Inc. or Standard &
Poor's Ratings Group at the time as of which any investment or rollover therein
is made.
"Environmental Laws" means, if and to the extent applicable
under the circumstances at the time in question, all federal, state and local
environmental, land use, zoning, health, chemical use, safety and sanitation
laws, statutes, ordinances and codes relating to the protection of the
environment and/or governing the use, storage, treatment, generation,
transportation, processing, handling, production or disposal of Hazardous
Substances and the rules, regulations, policies, guidelines, interpretations,
decisions, orders and directives of federal, state and local governmental
agencies and authorities with respect thereto.
"Equipment" means and includes, as to any Person, all of such
Person's now owned or hereafter acquired Vehicles, drilling rigs, workover rigs,
fracture stimulation equipment, well site compressors, rolling stock and related
equipment and other assets accounted for as equipment by such Person on its
financial statements, all proceeds thereof (from insurance or otherwise), and
all documents of title, books, records, ledger cards, files, correspondence, and
computer files, tapes, disks and related data processing software that at any
time evidence or contain information relating to the foregoing.
"Event of Default" means the occurrence and continuance of any
of the events set forth in Article VIII hereof.
"First Lien Debt" means any Debt or other obligation secured
by a Lien described in this definition, including, in each case, any
refinancings thereof:
(a) pledges of assets or deposits of cash or Cash
Equivalents to secure (i) the performance of bids, trade contracts (other than
borrowed money), leases, statutory obligations, surety bonds, performance bonds
and other obligations of a like nature incurred in the ordinary course of
business (or to secure reimbursement obligations or letters of credit in support
of such bonds) in an aggregate amount not in excess of 5% of the PV10 indicated
on Borrower's most recent Reserve Report at the time such pledges or deposits
are made, (ii) appeal or supercedes bonds (or to secure reimbursement
obligations or letters of credit in support of such bonds) in an amount not to
exceed $10 million at any one time outstanding, or (iii) pledges or deposits
made in the ordinary course of business in connection with worker's
compensation, unemployment insurance, and other types of social security
legislation, property insurance and liability insurance;
- 9 -
(b) Liens encumbering customary initial deposits and
margin deposits of cash or Cash Equivalents securing Swap Obligations or
Permitted Hedging Transactions and Liens encumbering contract rights under
Permitted Hedging Transactions;
(c) Liens granted on Equipment to the extent granted
to secure Debt incurred pursuant to Section 6.3 hereof;
(d) Liens granted in connection with the Presale of
Gas, provided, however, that all of the proceeds from such Presale of Gas shall
be applied to repay the outstanding Obligations;
(e) Liens created on or Production Payments granted
with respect to undivided interests in, acreage drilled or to be drilled
pursuant to Drilling Programs, on Hydrocarbons produced therefrom and on the
proceeds of such Hydrocarbons to secure or to provide provision for payment of
the Borrower's obligations under such Drilling Programs, provided, however, that
(i) the number of wells included in such program commenced in any fiscal year
does not exceed 30 per fiscal year (plus the number of wells included in
programs commenced in prior years but not yet completed), (ii) such obligations
are limited to a percentage of production from such wells, (iiii) such Liens
survive only until the Person to whom such Lien was granted has received
production with a value equal to the costs, expenses and fees related to
property and services provided or paid for by such Person plus an agreed-upon
interest component, and (iv) such Liens secure obligations that are nonrecourse
to each of Borrower or its Subsidiaries;
(f) any extension, renewal, or replacement of Liens
created or existing pursuant to any of the clauses of this definition, provided,
however, that such Liens would have otherwise been permitted under such clauses,
and provided further, that the Liens permitted by this clause (f) do not secure
any additional Debt or encumber any additional property;
(g) Liens constituting or securing (i) Royalty
Payment Obligations referred to in clause (iii) of the definition of such term
and (ii) Drilling Production Payments or;
(h) Liens on the proceeds of any property securing
First Lien Debt or on deposit accounts containing only such proceeds and which
at no time contains or contained proceeds of Receivables; and
(i) Liens (including extensions and renewals thereof)
on real or personal property, acquired after the Effective Date ("New
Property"); provided, however, that (i) such Lien is created solely for the
purpose of securing Debt incurred to finance the cost (including the cost of
improvements or construction) of New Property subject thereto and such Lien is
created prior to or within six months after the later of the acquisition, the
completion of construction, or the commencement of full operation of such New
Property, (ii) the principal amount of the Debt secured by such Lien does not
exceed 100% of such cost including costs and fees related to the financing
thereof, and (iii) any such Lien shall not extend to or cover any property or
assets other than such item of New Property, any improvements on such New
Property and any throughput, capacity or similar agreements related to the
operation of such New Property.
- 10 -
"GAAP" means generally accepted accounting principles in the
United States of America in effect from time to time.
"GB Facility Asset Sale" means:
(a) With respect to GB Pipeline, the sale of all or
substantially all of the assets (but which assets shall be exclusive of
Inventory and Receivables) of GB Pipeline other than a Sale and Leaseback
Transaction resulting in a Capital Lease which constitutes, as to GB Pipeline, a
GB Financing Document; and
(b) With respect to GB Processing, the sale of all or
substantially all of the assets (but which assets shall be exclusive of
Inventory and Receivables) of GB Processing other than a Sale and Leaseback
Transaction resulting in a Capital Lease which constitutes, as to GB Processing,
a GB Financing Document.
"GB Facility Financing" means:
(a) With respect to GB Pipeline, (i) the incurrence of
Debt by, including the renewal or extension of Debt previously incurred by, GB
Pipeline that is secured by a mortgage or deed of trust constituting, with
respect to GB Pipeline, a GB Financing Document, (ii) a Sale and Leaseback
Transaction resulting in a Capital Lease which constitutes, as to GB Pipeline, a
GB Financing Document; and
(b) With respect to GB Processing, (i) the incurrence of
Debt by, including the renewal or extension of Debt previously incurred by, GB
Processing that is secured by a mortgage or deed of trust constituting, with
respect to GB Processing, a GB Financing Document, (ii) a Sale and Leaseback
Transaction resulting in a Capital Lease which constitutes, as to GB Pipeline, a
GB Financing Document.
"GB Financing Beneficiary" means, with respect to a GB
Financing Documents, the mortgagee, beneficiary, secured party or lessor
thereunder, as the case may be.
"GB Financing Document" means:
With respect to GB Pipeline, (a) a mortgage or deed of trust
pursuant to which GB Pipeline encumbers all or substantially all of its rights,
titles and interests in and to all or substantially all of the GB Pipeline
Facility for the purpose of securing Debt of GB Processing, or (b) a Capital
Lease to which GB Pipeline is party as lessee executed by GB Pipeline in
connection with the closing of a Sale and Leaseback transaction pursuant to
which all or substantially all of GB Pipeline's rights, titles and interests in
and to all or substantially all of the GB Pipeline Facility are conveyed and
concurrently leased back by GB Pipeline; and
With respect to GB Processing, (a) a mortgage or deed of trust
pursuant to which GB Processing encumbers all or substantially all of its
rights, titles and interests in and to all or substantially all of the GB
Processing Facility for the purpose of securing Debt of GB Processing, or (b) a
Capital Lease to which GB Processing is party as lessee executed by GB
Processing in connection with the closing of a Sale and Leaseback transaction
pursuant to which
- 11 -
all or substantially all of GB Processing's rights, titles and interests in and
to all or substantially all of the GB Processing Facility are conveyed and
concurrently leased back by GB Processing.
"GB Pipeline Facility" means the dual 16 inch O.D. (gas) and 8
inch O.D. (oil) transmission pipelines, co-owned, as of the date of this
Agreement, by GB Pipeline and Davis Petroleum Pipeline L.L.C., that extend from
Lot 12, Block 139 of the San Leon Townsite, Amos Edwards League Survey, Abstract
10, Galveston County, Texas, to the Eagle Point Platform (co-owned, as of the
date of this Agreement, by Borrower and Davis Petroleum Corp.) in State Tract
331, GB Pipeline, Texas, including the real property, interests in real
property, and the personal property, plant and equipment associated with such
pipelines.
"GB Processing Facility" means the property, plant and
equipment comprising the hydrocarbon processing facility owned and operated by
GB Processing at Winnie, Texas (including the real property and interests in
real property, situated in Winnie, Jefferson County, Texas, associated with such
facility).
"GB/TransTexas Pipeline Agreement" means each of (a) the
Amended Transportation Agreement dated as of March 16, 2000, between Borrower
and GB Pipeline, as amended, and (b) each other agreement in effect at the time
in question between Borrower and GB Pipeline relating to the transportation of
Hydrocarbons by GB Pipeline through the GB Pipeline Facility.
"Governmental Body" means any nation or government, any state
or other political subdivision thereof or any entity exercising the legislative,
judicial, regulatory or administrative functions of or pertaining to a
government.
"Guarantor" means (a) each Material Subsidiary of Borrower
joining in the execution of this Agreement for the purposes of evidencing its
Guaranty and of agreeing to be bound by the terms of this Agreement, (b) each
Material Subsidiary of Borrower that becomes (or is required to become) a
guarantor of the Obligations of Borrower under this Agreement in accordance with
Article XII, and (c) each Material Subsidiary of Borrower executing a joinder
agreement in which such Material Subsidiary agrees to become and be a guarantor
of the Obligations and to be bound by the terms of this Agreement.
"Guaranty" means the guaranty of the Obligations made by each
Guarantor in favor of Lender for its benefit and for the ratable benefit of
Lender as provided in Article XII of this Agreement.
"Hazardous Substance" means, without limitation, any flammable
explosives, radon, radioactive materials, asbestos, urea formaldehyde foam
insulation, polychlorinated biphenyls, petroleum and petroleum products,
methane, hazardous materials, Hazardous Wastes, hazardous or toxic substances or
related materials as defined in CERCLA, the Hazardous Materials Transportation
Act, as amended (49 U.S.C. Sections 1801, et seq.), RCRA or any other applicable
Environmental Law and in the regulations adopted pursuant thereto.
"Hazardous Wastes" means all waste materials subject to
regulation under RCRA or applicable state law, and any other applicable Federal
and state laws now in force or hereafter enacted relating to hazardous waste
disposal.
- 12 -
"Headquarters Facility" means the real property (including the
improvements thereon, the fixtures, other than trade fixtures, affixed or
attached thereto, and the personal property used in connection with the
operation thereof) owned by Borrower and located at 1300 North Sam Houston
Parkway East, Houston, Texas.
"Hedging Subsidiary" means a Subsidiary of Borrower engaged
solely in the business of facilitating Permitted Hedging Transactions with
Borrower or any of its subsidiaries.
"Hedging Transaction" means non-speculative transactions in
futures, forwards, swaps or option contracts (including both physical and
financial settlement transactions) engaged in by Borrower or any of its
Subsidiaries as part of its normal business operations as a risk management
strategy or hedge against adverse changes in market conditions in the oil and
natural gas industry.
"Hydrocarbon Reserves" means and includes, as to any Person,
any and all of such Person's now owned or hereafter acquired Hydrocarbon
reserves in place.
"Hydrocarbons" means oil, natural gas, condensate and natural
gas liquids, each as such terms are used in the Proved Reserves Report.
"Insurance Proceeds" means the interest in and to all proceeds
(net of costs of collection, including attorney's fees) which now or hereafter
may be paid under any insurance policies now or hereafter obtained by or on
behalf of Borrower or any Guarantor in connection with any assets thereof,
together with interest payable thereon and the right to collect and receive the
same, including, without limitation, proceeds of casualty insurance, title
insurance, business interruption insurance and any other insurance now or
hereafter maintained with respect to such assets.
"Interest Rate or Currency Agreement" of any Person means any
forward contract, futures contract, swap, option or other financial agreement or
arrangement (including, without limitation, caps, floors, collars, puts and
similar agreements) relating to, or the value of which is dependent upon,
interest rates or currency exchange rates.
"Inventory" means and includes all of Borrower's and each of
Borrower's Subsidiaries' now owned or hereafter acquired inventory (as such term
is defined in the Uniform Commercial Code), including, without limitation,
casing, drill pipe and other supplies accounted for as inventory by Borrower on
its consolidated financial statements (excluding any Hydrocarbons), all proceeds
thereof (from insurance or otherwise), and all documents of title, books,
records, ledger cards, files, correspondence, and computer files, tapes, disks
and related data processing software that at any time evidence or contain
information relating to the foregoing.
"Investment" by any Person in any other Person means (without
duplication) (a) the acquisition (whether for cash, property, services,
securities or otherwise) of Capital Stock, bonds, Note, debentures, partnership
or other ownership interests or other securities issued by such other Person or
any agreement to make any such acquisition; (b) the making by such Person of any
deposit with, or advance, loan or other extension of credit to, such other
Person (including the purchase of property from another Person subject to an
understanding or agreement,
- 13 -
contingent or otherwise, to resell such property to such other Person and
(without duplication) any amount committed to be advanced, loaned or extended to
such other Person; (c) the entering into of any guarantee (other than any
Guaranty hereunder) of, or other credit support or contingent obligation with
respect to, Debt or other liability of such other Person; (d) the entering into
of any Swap Obligation with such other Person; or (e) the making of any capital
contribution by such Person to such other Person.
"Investment Grade Rating" means, with respect to any Person or
issue of debt securities or preferred stock, a rating in one of the four highest
letter rating categories (without regard to "+" or "-" or other modifiers) by
any rating agency or if any such rating agency has ceased using letter rating
categories or the four highest of such letter rating categories are not
considered to represent "investment grade" ratings, then the comparable
"investment grade" ratings (as designated by any such rating agency).
"Lender" has the meaning ascribed to such term in the preamble
to this Agreement and shall include each Person which is a permitted successor
or assign of Lender.
"Lien" means any mortgage, deed of trust, lien, pledge,
charge, security interest, collateral assignment or other encumbrance for
security purposes of any kind, regardless of whether filed, recorded or
otherwise perfected under applicable law (including any conditional sale or
other title retention agreement and any lease deemed to constitute a security
interest and any option or other agreement to give any security interest).
"Material Adverse Effect" means a material adverse effect on
(a) the condition, operations, assets, business or prospects of the Borrower or
any Guarantor, (b) Borrower's ability to pay the Obligations in accordance with
the terms thereof, (c) the value of the Collateral, or the Liens on the
Collateral or the priority of such Liens, or (d) the practical realization of
the benefits of Lender's and Lender' rights and remedies under this Agreement
and the Ancillary Documents.
"Material Change" means an increase or decrease of more than
10% since the then most recent Proved Reserve Report in the discounted future
net cash flows (excluding changes that result from changes in prices) from
proved oil and gas reserves of Borrower and its consolidated Subsidiaries
(before any state or federal income tax); provided, however, that the following
will be excluded from the Material Change calculation: (a) any acquisitions
since the then most recent Proved Reserve Report of oil and gas reserves that
have been estimated by independent petroleum engineers and on which a report or
reports have been prepared by such independent petroleum engineers within 12
months of the acquisition, (b) any reserves added since the then most recent
Proved Reserve Report attributable to the drilling or recompletion of wells not
included in previous reserve estimates, and (c) any disposition of properties
existing on the date of then most recent Proved Reserve Report that have been
disposed of.
"Material Subsidiary" means, at any particular time, any
Subsidiary that, together with its Subsidiaries, owns assets valued at $100,000
or more.
"Mortgage" means each mortgage, deed of trust, trust deed,
deed to secure debt, assignment, assignment of production, security agreement,
financing statement or similar document, however styled, executed by Borrower,
or any other Person, in favor of Lender or the Prepetition O&G Lenders for the
ratable benefit of Lender primarily for the purpose of creating
- 14 -
or granting a Lien on Real Property and/or Hydrocarbons, or any interests
therein, to secure all or any part of the Obligations.
"Net Cash Proceeds" means an amount equal to the aggregate
amount of cash received by Borrower and its Subsidiaries in respect of an Asset
Sale, less the sum of (a) all reasonable out-of-pocket fees, commissions, and
other expenses incurred in connection with such Asset Sale, including the amount
(estimated in good faith by Borrower) of income, franchise, sales and other
applicable taxes to be paid, payable or accrued by Borrower or any Subsidiary of
Borrower (in each case as estimated in good faith by Borrower or such Subsidiary
without giving effect to tax attributes unrelated to such Asset Sale) in
connection with such Asset Sale, and (b) the aggregate amount of cash so
received which is used to retire any then existing Debt of Borrower or its
Subsidiaries (other than the Obligations), as the case may be, which is required
by the terms of such Debt to be repaid in connection with such Asset Sale.
"Net GB Financing Proceeds" means an amount equal to the
aggregate amount of cash received by GB Pipeline or GB Processing, as the case
may be, in respect of a GB Facility Financing to which GB Pipeline or GB
Processing, as the case may be, is a party, less the sum of (a) all reasonable
out-of-pocket fees, commissions, and other expenses incurred in connection with
such GB Facility Financing, including the amount (estimated in good faith by
Borrower) of income, franchise, sales and other applicable taxes to be paid,
payable or accrued by Borrower or by GB Pipeline or GB Processing, as the case
may be (in each case as estimated in good faith by Borrower or by GB Pipeline or
GB Processing, as the case may be, without giving effect to tax attributes
unrelated to such GB Facility Financing), in connection with such GB Facility
Financing, (b) the aggregate amount of cash so received which is used to retire
any then existing Debt of GB Pipeline or GB Processing (other than the
Obligations), as the case may be, which is required by the terms of such Debt to
be repaid in connection with such GB Facility Financing, (c) the aggregate
amount of cash so received which is used to retire any then existing Debt (other
than the Obligations) that is secured by assets of GB Pipeline or GB Processing,
as the case may be, and (d) the aggregate amount of cash so received which is
used to retire indebtedness of Borrower in respect of Allowed Priority Tax
Claims under the Plan, Allowed Claims of prepetition secured creditors in class
24 in classes 5 and 6 under the Plan.
"Net Proceeds" means (a) in the case of any sale by a Person
of Qualified Capital Stock, the aggregate net cash proceeds received by such
Person from the sale of Qualified Capital Stock (other than to a Subsidiary)
after payment of reasonable out-of-pocket expenses, commissions and discounts
incurred in connection therewith, and (b) in the case of any exchange, exercise,
conversion or surrender of any outstanding securities or Debt of such Person for
or into shares of Qualified Capital Stock of such Person, the net book value of
such outstanding securities as adjusted on the books of such Person or Debt of
such Person to the extent recorded in accordance with GAAP, in each case, on the
date of such exchange, exercise, conversion or surrender (plus any additional
amount required to be paid by the holder of such Debt or securities to such
Person upon such exchange, exercise, conversion or surrender and less (i) any
and all payments made to the holders of such Debt or securities and (ii) all
other expenses incurred by such Person in connection therewith, in each case, in
so far as such payments or expenses are incident to such exchange, exercise,
conversion, or surrender).
"Net Working Capital" of any Person means (a) all current
assets of such Person and its consolidated Subsidiaries, minus (b) all current
liabilities of such Person and its
- 15 -
consolidated Subsidiaries other than the current portion of long term debt, each
item to be determined in conformity with GAAP.
"Net Worth" of any Person means, at any date of determination,
stockholders' equity as set forth on the most recently available quarterly or
annual consolidated balance sheet of such Person and its Subsidiaries (which
shall be as of a date not more than 90 days prior to the date of such
computation), less any amounts included therein attributable to Disqualified
Capital Stock or any equity security convertible into or exchangeable for Debt,
the cost of treasury stock (not otherwise deducted from stockholder's equity),
and the principal amount of any promissory Note receivable from the sale of the
Capital Stock of such Person or any of its Subsidiaries, each item to be
determined in conformity with GAAP.
"New Property" has the meaning specified in clause (k) in the
definition of the term "Permitted Liens" set forth in Section 1.1.
"Nominee" means any Person who has or holds any right, title
or interest in any oil and gas or mineral lease as a nominee for Borrower or any
of its Subsidiaries.
"Nominee Property" means any property, lease, interest or
other asset with respect to which any Person has or holds any right, title or
interest as a Nominee.
"Note" means the amended and restated Note attached hereto as
Exhibit 2.3.
"Obligations" means and includes any and all of Debt and/or
liabilities to Lender of the Borrower or any of the Guarantors, of every kind,
nature and description, direct or indirect, secured or unsecured, joint,
several, joint and several, absolute or contingent, due or to become due, now
existing or hereafter arising, contractual or tortious, liquidated or
unliquidated, arising under or out of or in connection with this Agreement, the
Ancillary Documents or under any other agreement between Lender or the
PrePetition O&G Lenders and Borrower and/or any of the Guarantors delivered or
given in connection therewith or herewith and all obligations of Borrower or any
of the Guarantors to Lender or the PrePetition O&G Lenders to perform acts or
refrain from taking any action hereunder or thereunder.
"Operating Lease" means, as applied to any Person, any lease
of any property (whether real, personal or mixed) by that Person as lessee which
is not a Capital Lease or a lease of a mineral interest.
"Permitted Hedging Transactions" means non-speculative
transactions in futures, forwards, swaps or option contracts (including both
physical and financial settlement transactions) engaged in by Borrower or its
Subsidiaries as part of their normal business operations as a risk-management
strategy or hedge against adverse changes in the prices of natural gas,
condensate, or oil; provided, however, that such transactions do not, on a
monthly basis, relate to more than 90% of Borrower Entities' average net
hydrocarbon production (mcfe) per month for the most recent 3-month period
measured at the time of such incurrence; and, provided, further, that, at the
time of such transaction (a) the counterparty to any such transaction is an
Eligible Institution or a Person that has an n, or (b) such counterparty's
obligation pursuant to such transaction is unconditionally guaranteed in full
by, or secured by a letter of credit issued by, an Eligible Institution or a
Person that has an Investment Grade Rating.
- 16 -
"Permitted Investment" means, when used with reference to
Borrower and its Subsidiaries:
(a) trade credit extended to Persons in the ordinary course of
business;
(b) purchases of Cash Equivalents;
(c) Investments by Borrower or its wholly owned Subsidiaries
in wholly owned Subsidiaries of Borrower;
(d) Swap Obligations;
(e) the receipt of Capital Stock in lieu of cash in connection
with the settlement of litigation;
(f) advances to officers and employees in connection with the
performance of their duties in the ordinary course of business in an amount not
to exceed $500,000 in the aggregate outstanding at any time;
(g) margin deposits in connection with Permitted Hedging
Transactions;
(j) Investments and expenditures made in the ordinary course
of business by Borrower and its Subsidiaries, and of a nature that, at the time
of expenditure, is customary in the oil and gas business as a means of actively
exploiting, exploring for, acquiring, developing, processing, gathering,
marketing or transporting oil or gas through agreements, transactions, interests
or arrangements which permit a Person to share risks or costs, comply with
regulatory requirements regarding local ownership or satisfy other objectives
customarily achieved through the conduct of the oil and gas business jointly
with third parties, including, without limitation, (i) ownership interests in
oil and gas properties or gathering systems and (ii) Investments and
expenditures in the form of or pursuant to operating agreements, processing
agreements, farm-in agreements, farm-out agreements, development agreements,
area of mutual interest agreements, unitization agreements, pooling
arrangements, joint bidding agreements, service contracts, joint venture
agreements, partnership agreements (whether general or limited), subscription
agreements, stock purchase agreements and other similar agreements with third
parties; provided, however, that in the case of any joint venture engaged in
processing, gathering, marketing or transporting oil or gas, (1) all Debt of
such joint venture that would not otherwise constitute Debt of one of Borrower
Entities shall be deemed Debt of Borrower in proportion to its direct or
indirect ownership interest in such joint venture, and (2) such joint venture
shall be reasonably anticipated, at the time of Investment, to enhance the value
of the reserves of Borrower Entities or marketability of production from such
reserves;
(i) the Guaranty and any guaranty by Borrower or any
Subsidiary of Borrower that is permitted under Section 6.3(e);
(j) deposits permitted by the definition of Permitted Liens or
any extension, renewal, or replacement of any of them;
(k) an Investment in Capital Stock resulting from an Asset
Sale pursuant to Section 6.2;
- 17 -
(l) any Guaranty by Borrower of the obligations of any wholly
owned Subsidiary of Borrower to the extent such obligations so guaranteed (A) do
not constitute Debt unless and only to the extent such Debt is otherwise
permitted under Section 6.3, and (B) except to the extent such obligations
constitute Debt otherwise permitted under Section 6.3, such obligations are of
the type customarily incurred by such wholly owned Subsidiary in favor of third
parties in the ordinary course of conducting its Related Business, or
(m) other Investments, provided, however, that such
Investments do not exceed $1 million in the aggregate at any time.
"Permitted Liens" means:
(a) Liens imposed by Governmental Bodies for taxes,
assessments, or other Charges (i) not yet due or (ii) which are being contested
in good faith and by appropriate proceedings, if (i) adequate reserves with
respect thereto are maintained on the books of any of the Borrower Entities in
accordance with GAAP and (ii) such Liens (other than with respect to Permitted
Prior Liens) do not prime the Liens of Lender on the Collateral;
(b) Statutory Liens of landlords, carriers. warehousemen,
mechanics, materialmen, repairmen, mineral interest owners, or other like Liens
arising by operation of law in the ordinary course of business, provided,
however, that (i) the underlying obligations are not overdue for a period of
more than 45 days, or (ii) such Liens are being contested in good faith and by
appropriate proceedings and adequate reserves with respect thereto are
maintained on the books of any of the Borrower Entities in accordance with GAAP;
(c) Pledges of assets or deposits of cash or Cash Equivalents
to secure (o) the performance of bids, trade contracts (other than borrowed
money), leases, statutory obligations, surety bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of business (or to
secure reimbursement obligations or letters of credit in support of such bonds)
in an aggregate amount not in excess of 5% of the PV10 indicated on Borrower's
most recent Proved Reserve Report at the time such pledges or deposits are made,
(ii) appeal or supercede as bonds (or to secure reimbursement obligations or
letters of credit in support of such bonds) in an amount not to exceed $10
million at any one time outstanding, or (iii) pledges or deposits made in the
ordinary course of business in connection with worker's compensation,
unemployment insurance, and other types of social security legislation, property
insurance and liability insurance;
(d) Liens encumbering customary initial deposits and margin
deposits securing Swap Obligations or Permitted Hedging Transactions and Liens
encumbering contract rights under Permitted Hedging Transactions;
(e) Pledges of assets to secure margin obligations, settlement
obligations, reimbursement obligations or letters of credit in connection with
Permitted Hedging Transactions; provided, however, that, at the time such pledge
is made (or, if such pledge secures future Permitted Hedging Transactions, at
the time any such Permitted Hedging Transaction is entered into), the maximum
aggregate exposure under such Permitted Hedging Transactions does not exceed the
greater of (1) $10 million or (2) 5% of the PV10 indicated on Borrower's then
most recent Proved Reserves Report
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(f) Easements, rights-of-way, zoning, similar restrictions and
other similar encumbrances or title defects incurred in the ordinary course of
business which, in the aggregate, are not material in amount, and which do not
in any case materially detract from the value of the property subject thereto
(as such property is used by any of Borrower or any of its Subsidiaries) or
materially interfere with the ordinary conduct of the business of any of
Borrower or any of its Subsidiaries; Liens granted in connection with the
Presale of Gas;
(g) Liens created on or Production Payments granted with
respect to undivided interests in, acreage drilled or to be drilled pursuant to
Drilling Programs, on Hydrocarbons produced therefrom and on the proceeds of
such Hydrocarbons to secure or to provide provision for payment of the Borrowed
Obligations under such Drilling Programs, provided, however, that (i) the number
of wells included in such program commenced in any fiscal year does not exceed
30 per fiscal year (plus the number of wells included in programs commenced in
prior years but not yet completed), (ii) such obligations are limited to a
percentage of production from such wells, (iii) such Liens survive only until
the Person to whom such Lien was granted has received production with a value
equal to the costs, expenses and fees related to property and services provided
or paid for by such Person plus an agreed-upon interest component, and (iv) such
Liens secure obligations that are nonrecourse to each of Borrower or its
Subsidiaries;
(h) Liens on the assets of any entity existing at the time
such assets are acquired by any of Borrower Entities, whether by merger,
consolidation, purchase of assets or otherwise so long as such Liens (u) are not
created, incurred or assumed in contemplation of such assets being acquired by
any of Borrower Entities and (ii) do not extend to any other assets of any of
Borrower or its Subsidiaries;
(i) Any extension, renewal, or replacement of Liens created
pursuant to any of the foregoing clauses provided, however, that such Liens
would have otherwise been permitted under such clauses, and provided further,
that the Liens permitted by this clause (n) do not secure any additional Debt or
encumber any additional property;
(j) Liens constituting or securing (i) Royalty Payment
Obligations and (ii) Drilling Production Payments;
(k) Liens (including extensions and renewals thereof) on real
or personal property, acquired after the Closing Date ("New Property");
provided, however, that (i) such Lien is created solely for the purpose of
securing Debt incurred to finance the cost (including the cost of improvements
or construction) of New Property subject thereto and such Lien is created prior
to or within six months after the later of the acquisition, the completion of
construction, or the commencement of full operation of such New Property, (ii)
the principal amount of the Debt secured by such Lien does not exceed 100% of
such cost including costs and fees related to the financing thereof, and (iii)
any such Lien shall not extend to or cover any property or assets other than
such item of New Property, any improvements on such New Property and any
throughput, capacity or similar agreements related to the operation of such New
Property and (4) the aggregate principal amount of debt and by liens permitted
by the clause (K) shall not exceed $1,000,000 at any time;
(l) Liens under the Security Documents; and
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(m) Liens held by the holders of the allowed Jefferies Secured
Claim, Secured Tax Claims, and. if the Bankruptcy Court so orders, the M&M Lien
Claims.
"Person" means any individual, sole proprietorship,
partnership, corporation, business trust, joint stock company, trust,
unincorporated organization, association, limited liability company,
institution, public benefit corporation, joint venture, entity or government
(whether Federal, state, county, city, municipal or otherwise, including any
instrumentality, division, agency, body or department thereof).
"Plan" means Creditor's Joint Plan Of Reorganization For
Debtors Under Chapter 11 Of The Bankruptcy Code Submitted By Thornwood
Associates LP, dated as of June 27, 2003, and modified July 8, 2003 and has been
or shall be further modified in Case No. 02-21926, in the United States
Bankruptcy Court for the Southern District of Texas, Corpus Christi Division.
"Presale of Gas" means any advance payment agreement or other
arrangement pursuant to which Borrower or any Guarantor, having received full
payment of the purchase price for a specified quantity of Hydrocarbons prior to
the first scheduled date of delivery, is required to deliver, in one or more
installments subsequent to the date of such agreement or arrangement, such
quantity of Hydrocarbons to the purchaser of such Hydrocarbons pursuant to and
during the term of such agreement or arrangement; provided, however, that the
term "Presale of Gas" shall not include (a) any such agreement or other
arrangement covering deliveries of Hydrocarbons for a period not exceeding three
calendar months and pursuant to which Borrower or such Guarantor has received
full payment of the purchase price within 120 days of the last scheduled date of
delivery, (b) a transaction to the extent and only to the extent that it results
in the creation of any Permitted Lien under the definition of "Permitted Liens,"
hereunder (c) Permitted Hedging Transactions, or (d) an Asset Sale involving
Hydrocarbon Reserves.
"Production Payments" means Dollar Denominated Production
Payments and Volumetric Production Payments.
"Proved Reserves Report" means a report prepared by an
independent petroleum reserve engineer acceptable to Lender with respect to
proved Hydrocarbon Reserves.
"PV10" means the Valuation Amount at a 10% discount rate.
"Qualified Capital Stock" means any Capital Stock that is not
Disqualified Capital Stock.
"RCRA" means the Resource Conservation and Recovery Act, 42
U.S.C. Sections 6901 et seq., as same may be amended from time to time.
"Real Property" means all of each of Borrower's and the
guarantors' right, title and interest in and to the owned and leased real
property.
"Receivables" means and includes, as to any Person, any and
all of such Person's now owned or hereafter acquired Accounts, all products and
proceeds thereof, and all books, records, ledger cards, files, correspondence,
and computer files, tapes, disks or software that at any time evidence or
contain information relating to such Person's Accounts.
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"Reference Period" with regard to any Person means the four
full fiscal quarters of such Person ended on or immediately preceding any date
upon which any determination is to be made pursuant to the terms of this
Agreement.
"Refinancing Debt" has the meaning specified in Section
6.3(f).
"Related Business" means (a) the exploration for, acquisition
of, development of, production, transportation, gathering, and processing (in
connection with natural gas and natural gas liquids only) of, crude oil, natural
gas, condensate, and natural gas liquids; provided, however, that the Related
Business shall not include any refining or distilling of Hydrocarbons other than
processing and fractionating natural gas and natural gas liquids, (b) the
drilling and energy services business and pipeline services business, (c) owning
and operating a Hedging Subsidiary, or (d) owning or operating facilities
designed for separation, dehydration, treatment, stabilization, processing or
storage of Hydrocarbons and related operations.
"Release Request" has the meaning set forth in Section 12.2.
"Restricted Investment" means any direct or indirect
Investment by Borrower or any Subsidiary of Borrower other than a Permitted
Investment.
"Restricted Payment" means, with respect to any Person, (a)
any Restricted Investment, (b) any dividend or other distribution on shares of
Capital Stock of such Person or any Subsidiary of such Person, (c) any payment
on account of the purchase, redemption, or other acquisition or retirement for
value of any shares of Capital Stock of such Person, and (d) any defeasance,
redemption, repurchase, or other acquisition or retirement for value, or any
payment in respect of any amendment in anticipation of or in connection with any
such retirement, acquisition, or defeasance, in whole or in part, of any
Subordinated Debt, directly or indirectly, of such Person or a Subsidiary of
such Person prior to the scheduled maturity or prior to any scheduled repayment
of principal in respect of such Subordinated Debt; provided, however, that the
term "Restricted Payment" does not include (i) any dividend, distribution, or
other payment on shares of Capital Stock of a Person solely in shares of
Qualified Capital Stock of such Person that is at least as junior in ranking as
the Capital Stock on which such dividend, distribution, or other payment is to
be made, (ii) any defeasance, redemption, repurchase or other acquisition or
retirement for value of Capital Stock of a Person payable in or from any
combination of (A) shares of Qualified Capital Stock of such Person and (B) the
Net Proceeds of a concurrent sale of Qualified Capital Stock of such Person, in
each case to the extent such Qualified Capital Stock is at least as junior in
ranking as the Capital Stock retired, (iii) any dividend, distribution, or other
payment to Borrower from any of its Subsidiaries, (iv) any defeasance,
redemption, repurchase, or other acquisition or retirement for value, in whole
or in part, of any Subordinated Debt of such Person payable in or from any
combination of (A) shares of Qualified Capital Stock of such Person and (B) the
Net Proceeds of a concurrent sale of Qualified Capital Stock, or both, (v) any
payments or distributions made pursuant to and in accordance with the Plan, or
(vi) the redemption, purchase, retirement or other acquisition of any Debt,
including any premium paid thereon, with the proceeds of any Refinancing Debt
permitted to be incurred pursuant to Section 6.3(f).
"Royalty Payment Obligations" means (a) royalties, overriding
royalties (including those granted in connection with Drilling Programs),
revenue interests, net revenue
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interests, net profit interests, and reversionary interests, (b) the interests
of others in pooling or unitization agreements, production sales contracts and
operating agreements, (c) Liens arising under, in connection with or related to
farm-out, farm-in, joint operating, pooling, unitization or area of mutual
interest agreements or other similar or customary arrangements, agreements or
interests, and (d) similar burdens on the property of Borrower or any Subsidiary
of Borrower; each as incurred in the ordinary course of business and to the
extent such burdens are limited in recourse to (x) the properties subject to
such interests or agreements, (y) the Hydrocarbons produced from such
properties, and (z) the proceeds of such Hydrocarbons.
"Sale and Leaseback Transaction" means an arrangement relating
to property owned on the Effective Date or thereafter acquired whereby Borrower
or a Subsidiary of Borrower transfers such property to a Person and leases it
back from such Person.
"Security Agreement" means the Restructured Security and
Pledge Agreement, dated as of the Effective Date, between Borrower and Lender,
as same may be amended from time to time.
"Security Documents" means each Mortgage, the Security
Agreement and all other security agreements, pledge agreements, mortgages, deeds
of trust, collateral assignments and other agreements or conveyances at any time
delivered to Lender or the Prepetition O&G Lenders to secure all or any part of
the Obligations of Borrower pursuant to this Agreement, any one or more of the
Security Documents, and/or the Note.
"Security Interests" means the Liens on the Collateral created
by the Security Documents in favor of Lender or the Prepetition O & G Lenders.
"Subordinated Debt" means Debt which is subordinated and
junior in right of payment to the Obligations in a manner satisfactory to
Lender.
"Subsidiary" with respect to any Person, means (a) a
corporation with respect to which such Person or its Subsidiaries owns, directly
or indirectly, at least fifty percent of such corporation's Capital Stock with
voting power, under ordinary circumstances, to elect directors, or (b) a
partnership in which such Person or a subsidiary of such Person is, at the time,
a general partner of such partnership and has more than 50% of the total voting
power of partnership interests entitled (without regard to the occurrence of any
contingency) to vote in the election of managers thereof, or (c) any other
Person (other than a corporation or a partnership) in which such Person, one or
more Subsidiaries of such Person, or such Person and one or more Subsidiaries of
such Person, directly or indirectly, at the date of determination thereof has
(i) more than a fifty percent ownership interest, or (ii) the power to elect or
direct the election of a majority of the directors or other governing body of
such other Person.
"Swap Obligation" of any Person means any Interest Rate or
Currency Agreement entered into with one or more financial institutions or one
or more futures exchanges in the ordinary course of business and not for
purposes of speculation that is designed to protect such Person against
fluctuations in (a) interest rates with respect to Debt incurred and which shall
have a notional amount no greater than 105% of the principal amount of the Debt
being hedged thereby, or (b) currency exchange rate fluctuations.
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"Term" means the Effective Date through the fifth anniversary
of the Effective Date.
"Transferee" has the meaning provided in Section 14.3 hereof.
"Valuation Amount" means, as of the date of calculation, the
value of future revenues from proven Hydrocarbon Reserves calculated on one of
the following price assumptions (a) the trailing twelve month average of prices
for oil, condensate and gas as calculated at the end of the month immediately
preceding the date of calculation the "SEC Method"), (b) the closing NYMEX spot
price (as adjusted) for the prompt month for oil, condensate and gas as of the
date of calculation held constant ("NYMEX Spot Price Method"), or (c) the price
of oil, condensate and gas for projected reserves as and when extracted during
the next five (5) years employed by the engineering firm of Cawley, Gillespie &
Associates in its report dated as of November 1, 1999, as updated and adjusted
in a manner acceptable to Agent (the "Gillespie Price Method"); provided,
however, with respect to Oil & Gas Reserves which are subject to either hedging
or purchase contracts with fixed prices, the applicable contract price shall be
utilized in determining the Valuation Amount. For purposes of calculating the
Valuation Amount on the Effective Date, the Gillespie Price Method shall be
utilized. In connection with subsequent determinations of the Valuation Amount,
the Borrower shall utilize whichever of the foregoing methods Lender determines
in its sole and absolute discretion is appropriate under the circumstances;
provided; that, unless Lender gives ten days notice to the Borrower to the
contrary, the SEC Method shall be presumed to be appropriate (subject to the
above provision).
"Vehicles" means all trucks, automobiles, trailers and other
vehicles covered by a certificate of title.
"Volumetric Production Payments" means production payment
obligations recorded as deferred revenue in accordance with GAAP, together with
all undertakings and obligations in connection therewith.
"Weighted Average Life" means, as of the date of
determination, with respect to any debt instrument, the quotient obtained by
dividing (a) the sum of the products of the numbers of years from the date of
determination to the dates of each successive scheduled principal payment of
such debt instrument multiplied by the amount of such principal payment by (b)
the sum of all such principal payments.
1.2. UNIFORM COMMERCIAL CODE TERMS. All terms used herein and
defined in the Uniform Commercial Code as adopted in the State of New York shall
have the meaning given therein unless otherwise defined herein.
1.3. CERTAIN MATTERS OF CONSTRUCTION. The terms "herein",
"hereof" and "hereunder" and other words of similar import refer to this
Agreement as a whole and not to any particular section, paragraph or
subdivision. Any pronoun used shall be deemed to cover all genders. Wherever
appropriate in the context, terms used herein in the singular also include the
plural and vice versa. All references to statutes and related regulations shall
include any amendments of same and any successor statutes and regulations. All
references to any instruments or agreements to which Lender is a party,
including, without limitation, references to
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any of the Ancillary Documents, shall include any and all modifications or
amendments thereto and any and all extensions or renewals thereof.
II. PAYMENTS.
2.1. TERM LOAN. On the terms and subject to the conditions
contained in this Agreement, the Lender agrees that the Loans, as defined in the
Original Agreement held by each of the Lenders shall after the Effective Date
constitute a Term Loan to the Borrower, in the amount of $32,500,000. Any
amounts under the Term Loan that are repaid may not be reborrowed. All amounts
owed hereunder shall be paid in full no later than the maturity date of the Term
Loan.
2.2. REPAYMENT OF PRINCIPAL. The principal of the Term Loan
shall be payable annually in four equal consecutive annual payments in the
amount of $5,000,000, commencing on the first anniversary of the Effective Date,
with a final installment of the unpaid principal balance on the fifth
anniversary of the Effective Date.
2.3. ACCELERATION; NOTE. The Term Loan shall be subject to
acceleration upon the occurrence of an Event of Default under this Agreement,
the Security Agreement or the Note or termination of this Agreement and shall be
evidenced by and subject to the terms and conditions set forth in the secured
promissory note attached hereto as Exhibit 2.3 executed in favor of the Lender.
2.4. MANNER OF PAYMENT.
Except as expressly provided, herein, all payments to be made by
Borrower on account of principal and interest shall be made without set-off or
counterclaim and shall be made to Lender at the address set forth in Section
14.6 hereof or at such other address as the Lender may furnish to Borrower in
writing, in each case on or prior to 1:00 p.m., New York time, in Dollars and in
immediately available funds.
III. INTEREST AND FEES.
3.1. INTEREST. Borrower shall pay interest to Lender, at the
rate of ten percent (10%) per annum on the outstanding principal balance of the
Loan semi-annually commencing six (6) months after the Effective Date on the
first day of each month. Upon and after the occurrence of an Event of Default,
and during the continuation thereof, the Loan shall bear interest at the rate of
twelve percent (12%) per annum on the outstanding principal balance of the Loan
(the "Default Rate"), provided, however, upon the occurrence of an Event of
Default described in Section 8.5, the Default Rate shall not be imposed until
thirty (30) days from the occurrence of such Event of Default, assuming such
Event of Default is continuing as of the end of such thirty (30) day period.
3.2. COMPUTATION OF INTEREST Interest hereunder shall be
computed on the basis of a year of 365/6 days and for the actual number of days
elapsed. If any payment to be made hereunder becomes due and payable on a day
other than a Business Day, the due date thereof shall be extended to the next
succeeding Business Day and interest thereon shall be payable at the applicable
Interest Rate during such extension.
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3.3. MAXIMUM CHARGES. In no event whatsoever shall interest
and other charges charged hereunder exceed the highest rate permissible under
law which a court of competent jurisdiction shall, in a final determination,
deem applicable hereto. In the event that Lender has received interest and other
charges hereunder in excess of the highest rate permissible hereto, such excess
amount shall be first applied to any unpaid principal balance owed by Borrower,
and if the then remaining excess amount is greater than the previously unpaid
principal balance, Lender shall promptly refund such excess amount to Borrower
and the provisions hereof shall be deemed amended to provide for such
permissible rate.
IV. REPRESENTATIONS AND WARRANTIES.
Each of Borrower and the Guarantors represents and warrants as follows:
4.1. AUTHORITY. Borrower and each Guarantor has full power,
authority and legal right to enter into this Agreement and the Ancillary
Documents to which it is a party and to perform all Obligations hereunder and
thereunder. The execution, delivery and performance of this Agreement and of the
Ancillary Documents (a) are within Borrower's and each Guarantor's corporate
powers, have been duly authorized, are not in contravention of law or the terms
of Borrower's or any Guarantor's by-laws, certificate of incorporation or other
applicable documents relating to Borrower's or any Guarantor's formation or to
the conduct of Borrower's or any Guarantor's business or of any material
agreement or undertaking to which Borrower or any Guarantor is a party or by
which Borrower or any Guarantor is bound, and (b) will not conflict with nor
result in any breach in any of the provisions of or constitute a default under
or result in the creation of any Lien except Permitted Liens upon any asset of
Borrower or any Guarantor under the provisions of any material agreement,
charter document, instrument, by-law, or other instrument to which Borrower or
any Guarantor is a party or by which it or its property may be bound.
4.2. FORMATION AND QUALIFICATION. Each of Borrower and each
Guarantor is duly incorporated and in good standing under the laws of the state
of its incorporation and is qualified to do business and is in good standing in
every other state or jurisdiction in which qualification and good standing are
necessary for Borrower and each Guarantor to conduct its business and own its
property except where the failure to so qualify could not reasonably be expected
to have a Material Adverse Effect. Borrower has delivered to Lender true and
complete copies of its and each of its Guarantor's certificate of incorporation
and by-laws and will promptly notify Lender of any amendment or changes thereto.
4.3. CORPORATE NAME. Neither Borrower nor any Guarantor has
been known by any other corporate name in the past five years, nor has Borrower
or any Guarantor been the surviving corporation of a merger or consolidation or
acquired all or substantially all of the assets of any Person during the
preceding five (5) years.
4.4. SECURITY INTERESTS. As of the Effective Date, Lender
shall have a legal, valid and enforceable, first priority (subject to Permitted
Liens) perfected security interest in all right, title and interest of each of
Borrower and the guarantor in the "Collateral" described in the Security
Documents. Pursuant to the terms of the Confirmation Order all liens granted
hereunder shall, for all purposes, be valid, perfected, enforceable,
non-avoidable and effective as of the date of the entry of the Confirmation
Order without any further action by the Lender or by
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the Debtors and without the execution, filing or recordation of any financing
statement, security agreement, mortgage or other document.
4.5. PLAN OF REORGANIZATION. As of the Effective Date, the
Confirmation Order has been entered and has become a final order. All other
conditions precedent to the confirmation and effectiveness of the Plan of
Reorganization have been satisfied or waived and the Effective Date has
occurred.
4.6. LOCATION OF BORROWER. Borrower's and each Guarantor's
chief executive office is located at 1300 North Sam Houston Parkway East,
Houston, Texas.
4.7. REPRESENTATIONS, WARRANTIES AND COVENANTS CONCERNING THE
MORTGAGES. Borrower and the Guarantors hereby makes all of the additional
representations, warranties and covenants set forth on Exhibit 4.7 of this
Agreement.
V. AFFIRMATIVE COVENANTS.
5.1. PAYMENT OF OBLIGATIONS. Each of Borrower and the
Guarantors shall duly and punctually pay or cause to be duly and punctually paid
the principal of and interest on all of the Obligations, including each and
every obligation owing under the Note as the same shall become due and payable
under the Note and in accordance with the terms of this Agreement.
5.2. CORPORATE EXISTENCE. Each of Borrower and the Guarantors
shall do or cause to be done all things necessary to preserve and keep in full
force and effect their respective corporate existence in accordance with the
respective organizational documents of each of them and the rights (charter and
statutory) and corporate franchises of Borrower and each Guarantor; provided,
however, that neither Borrower nor any Guarantor shall be required to preserve,
with respect to itself, any right of franchise, and with respect to any of its
Subsidiaries, any such existence, right or franchise, if (a) the Board of
Directors of Borrower or such Guarantor shall determine that the preservation
thereof is no longer desirable in the conduct of the business of Borrower or
such Guarantor and (b) the loss thereof is not disadvantageous in any material
respect to Lender.
5.3. PAYMENT OF TAXES AND OTHER CLAIMS. Each of Borrower and
the Guarantors shall pay or discharge or cause to be paid or discharged, before
the same shall become delinquent all taxes, assessments and governmental charges
(including withholding taxes and any penalties, interest and additions to taxes)
levied or imposed upon Borrower or such Guarantor or any of their respective
properties and assets; provided, however, that Borrower shall not be required to
pay or discharge or cause to be paid or discharged any such tax, assessment or
charge whose amount, applicability or validity is being contested in good faith
by appropriate proceedings and for which disputed amounts adequate reserves have
been established in accordance with GAAP and so long as such taxes (other than
ad valorem and severance taxes), assessments or charges do not prime Lender's
Lien on the Collateral.
5.4. MAINTENANCE OF PROPERTIES AND INSURANCE.
(a) Each of Borrower and the Guarantors shall cause
the properties used or useful to the conduct of their respective businesses to
be maintained and kept in good
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condition, repair and working order (reasonable wear and tear excepted) and
supplied with all necessary equipment and shall cause to be made all necessary
repairs, renewals, replacements, betterments and improvements thereof, all as in
its reasonable judgment may be necessary, so that the business carried on in
connection therewith may be properly and advantageously conducted at all times.
(b) Each of Borrower and the Guarantors shall
provide, or shall cause to be provided, for itself and each of its Subsidiaries,
insurance (including appropriate self-insurance) against loss or damage of the
kinds that in its reasonable, good faith opinion, are adequate and appropriate
for the conduct of its business and the business of such Subsidiaries in a
prudent manner, with reputable insurers or with the government of the United
States of America or an agency or instrumentality thereof, in such amounts, with
such deductibles, and by such methods as is customary, in its reasonable, good
faith opinion, and adequate and appropriate for the conduct of Borrower's and
such Guarantor's business in a prudent manner for companies engaged in a similar
business. In addition, all such insurance shall be payable to Lender as loss
payee, as its interests may appear, under a "standard" or "Texas" loss payee
clause. Without limiting the foregoing, each of Borrower and the Guarantors
shall (i) keep all of its physical property insured with hazard insurance on an
"all risks" basis, with broad form flood and earthquake coverages, with a full
replacement cost endorsement and an "agreed amount" clause in an amount equal to
100% of the full replacement cost of such property, (ii) maintain all such
workers' compensation or similar insurance as may be required by law, and (iii)
maintain, in amounts and with deductibles equal to those generally maintained by
businesses engaged in similar activities in similar geographic areas, general
public liability insurance against claims of bodily injury, death or property
damage occurring on, in or about the properties of Borrower and the Guarantors.
All policies of insurance shall provide for at least ten days'
prior written cancellation notice to Lender. In the event of failure by Borrower
or any Guarantor to provide and maintain insurance as described herein;
provided, however, Lender may, at its option, provide such insurance and charge
the amount thereof to Borrower and/or either of the Guarantors. Borrower and the
Guarantors shall furnish Lender with certificates of insurance and policies
evidencing compliance with the foregoing insurance provision.
(c) Each of Borrower and the Guarantors shall
explore, develop and maintain (or cause to be explored, developed and
maintained) the leases, wells, units and acreage to which the mineral interests
pertain in a prudent manner, and as may be reasonably necessary for the prudent
and economical operation of (and in an effort to maximize the production
capacity of) such leases, wells, units and acreage in accordance with reasonable
and customary industry standards for similar owners of mineral interests.
(d) Each of Borrower and the Guarantors shall act
prudently and in accordance with customary industry standards in managing or
operating its assets, properties, business and investments. Borrower and each
Guarantor will keep in good working order and condition, ordinary wear and tear
excepted, all of its assets and properties which are necessary to the conduct of
its business, including, without limitation, all wells and equipment necessary
or useful in the operation of the Hydrocarbon Reserves.
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5.5. COMPLIANCE WITH LAWS; VIOLATIONS. Each of Borrower and
the Guarantors shall comply in all material respects at all times with all Laws
applicable to the Collateral, and shall promptly notify Lender in writing of any
violation of any law, statute, regulation or ordinance of any Governmental Body,
or of any agency thereof, applicable to Borrower or any Guarantor which could
reasonably be expected to have a Material Adverse Effect.
5.6. EXECUTION OF SUPPLEMENTAL INSTRUMENTS. Each of Borrower
and the Guarantors shall execute and deliver to Lender from time to time, upon
demand, such supplemental agreements, statements, assignments and transfers, or
instructions or documents relating to the Collateral (including, without
limitation, any Liens), and such other instruments as Lender may request, in
order that the full intent of this Agreement may be carried into effect.
5.7. PAYMENT OF DEBT. Each of Borrower and the Guarantors
shall discharge or otherwise satisfy at or before maturity (subject, where
applicable, to specified grace periods and, in the case of the trade payables,
to normal payment practices) all its obligations and liabilities of whatever
nature, except when the amount or validity thereof is currently being contested
in good faith by appropriate proceedings and each of Borrower and the Guarantors
shall have provided for such reserves as Lender may reasonably deem proper and
necessary, subject at all times to any applicable subordination arrangement in
favor of Lender.
5.8. ENVIRONMENTAL MATTERS.
(a) Each of Borrower and the Guarantors shall ensure
and shall cause each of its Subsidiaries to ensure that the Real Property
remains in compliance in all material respects with all applicable Environmental
Laws.
(b) Each of Borrower and the Guarantors shall do all
things necessary to systematically assure and monitor continued compliance in
all material respects with all applicable Environmental Laws, including periodic
reviews of such compliance.
(c) In the event Borrower or any Guarantor, gives or
receives notice of any material release or threat of release of a reportable
quantity of any Hazardous Substances on its Real Property (any such event being
hereinafter referred to as a "Hazardous Discharge") or receives any notice of
material violation, request for information or notification that it is
potentially responsible for investigation or cleanup of environmental conditions
on its Real Property, demand letter or complaint, order, citation, or other
written notice with regard to any material Hazardous Discharge or material
violation of any Environmental Laws affecting its Real Property or its interest
therein (any of the foregoing is referred to herein as an "Environmental
Complaint") from any Governmental Body, then Borrower shall within five (5)
Business Days, give written notice of same to Lender detailing facts and
circumstances of which Borrower or such Guarantor is aware giving rise to the
Hazardous Discharge or Environmental Complaint and periodically inform Lender of
the status of the matter. Such information is to be provided to allow Lender to
protect its security interest in the Collateral and is not intended to create
nor shall it create any obligation upon Lender with respect thereto.
(d) Each of Borrower and the Guarantors shall respond
promptly to any Hazardous Discharge or Environmental Complaint applicable to it
and take all necessary
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action in order to safeguard the health of any Person and to avoid subjecting
the Collateral to any claim or Lien other than a Permitted Lien.
(e) Each of Borrower and the Guarantors shall each
jointly and severally defend and indemnify Lender, its officers, directors,
employees, agents and representatives and hold Lender, its officers, directors,
employees, agents and representatives harmless from and against all loss,
liability, damage and expense, claims, costs, fines and penalties, including
attorney's fees, suffered or incurred by Lender, its officers, directors,
employees, agents and representatives under or on account of any violation by
Borrower or any Guarantor of any Environmental Laws, including, without
limitation, the assertion of any Lien thereunder other than Permitted Liens,
with respect to any Hazardous Discharge, the presence of any Hazardous
Substances in violation of applicable Environmental Laws affecting Borrower's or
such Guarantor's property, whether or not the same originates or emerges from
Borrower's or such Guarantor's property or any contiguous real estate, including
any loss of value of the Collateral as a result of the foregoing, except to the
extent such loss, liability, damage and expense is directly attributable to any
Hazardous Discharge resulting from actions on the part of Lender, its officers,
directors, employees and agents. The obligations of Borrower and the Guarantors
under this Section 5.8 shall arise upon the discovery of the presence of any
Hazardous Substances in violation of applicable Environmental Laws on Borrower's
or such Guarantor's property, whether or not any federal, state, or local
environmental agency has taken or threatened any action in connection with the
presence of any Hazardous Substances. The obligation and the indemnifications
hereunder shall survive the termination of this Agreement.
(f) For purposes of this Section 5.8, all references
to Real Property shall be deemed to include all right, title and interest in and
to each of Borrower's and the Guarantors' owned and leased premises;
5.9. INSPECTIONS. At all times during normal business hours
and upon reasonable notice (unless a Default or Event of Default has occurred or
Lender reasonably suspects that a Default or Event of Default has occurred, in
which event no prior notice shall be required), Lender shall have the right to
(a) visit and inspect each of Borrower's and the Guarantors' properties and the
Collateral, (b) inspect, audit and make extracts from each of Borrower's and the
Guarantors' relevant books and records, including, but not limited to,
management letters prepared by independent accountants, and (c) discuss with
each of the Borrower's and the Guarantors' principal officers and independent
accountants, the business, assets, liabilities, financial condition, results of
operations and business prospects of Borrower.
VI. NEGATIVE COVENANTS
6.1. MERGERS, CONSOLIDATIONS AND OTHER FUNDAMENTAL CHANGES.
(a) Each of Borrower and the Guarantors hereby agree
that none of Borrower or any Guarantor shall, or permit any of its Subsidiaries
to, consolidate with or merge with or into any other Person, or, directly or
indirectly, sell, lease, assign, transfer or convey all or substantially all of
its assets (computed on a consolidated basis), to another Person or group of
Persons acting in concert, whether in a single transaction or through a series
of related
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transactions, until satisfaction in full of the Obligations and termination of
this Agreement, unless:
(i) either (x) Borrower or such Guarantor,
as the case may be, shall be the continuing Person, or (y) the Person (if other
than Borrower) formed by such consolidation or into which Borrower or such
Guarantor, as the case may be, is merged or to which all or substantially all of
the properties and assets of Borrower or such Guarantor, as the case may be, are
transferred as an entirety or substantially as an entirety (Borrower or such
Guarantor, as the case may be, or such other Person being hereinafter referred
to as the "Surviving Person") shall be a corporation or partnership organized
and validly existing under the laws of the United States, any State thereof or
the District of Columbia, and shall expressly assume, by a joinder agreement
supplemental hereto and any supplements to any Security Documents as Lender in
its sole discretion may require, executed and delivered to Lender on or prior to
the consummation of such transaction, in form satisfactory to Lender, all the
obligations of the Borrower or such Guarantor, as the case may be, under this
Agreement and the Ancillary Documents and shall execute such Security Documents
as may be necessary to maintain the Lien of Lender on the Collateral of the
Surviving Person;
(ii) no Default or Event of Default shall
exist or shall occur immediately after giving effect to such transaction;
(iii) immediately after giving effect to
such transaction, on a pro forma basis, (x) the Net Worth of the Surviving
Person is at least equal to the Net Worth of such predecessor or transferring
entity immediately prior to such transaction, and (y) the Surviving Person
immediately after giving effect on a pro forma basis to the Consolidated Fixed
Charges of the Surviving Person, (A) the Consolidated Fixed Charge Coverage
Ratio of the Surviving Person for the Reference Period is greater than 2.5 to 1,
and (B) the Surviving Person's Adjusted Consolidated Tangible Assets are equal
to or greater than 150% of the total consolidated principal amount or accreted
value, as the case may be, of Debt of the Surviving Person; and
(iv) borrower and the Guarantors have
delivered to Lender an Officers' Certificates and an Opinion of Counsel, each
stating that such consolidation, merger, assignment, or transfer and such
supplemental agreements comply with this Section 6.1(a) and that all conditions
precedent herein provided relating to such transaction have been satisfied.
For purposes of this Section 6.1(a), the Consolidated Fixed Charge Coverage
Ratio shall be determined on a pro forma consolidated basis (giving effect to
such transaction) for the four fiscal quarters immediately preceding such
transaction.
(b) For purposes of Section 6.1(a), the sale, lease,
conveyance, assignment, transfer, or other disposition of all or substantially
all of the properties and assets of one or more Subsidiaries of Borrower or any
Guarantor, which properties and assets, if held by Borrower or such Guarantor
instead of such Subsidiaries, would constitute all or substantially all of the
properties and assets of the Borrower or such Guarantor, on a consolidated
basis, shall be deemed to be the transfer of all or substantially all of the
properties and assets of Borrower and such Guarantor.
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(c) Notwithstanding anything contained in the
foregoing to the contrary, any Subsidiary of Borrower or any Guarantor with a
Net Worth greater than zero may merge into Borrower or any Guarantor (or a
wholly owned Subsidiary of Borrower or any Guarantor) at any time, provided,
however, that Borrower shall have delivered to Lender an Officers' Certificate
stating that such Subsidiary has a Net Worth greater than zero and such merger
does not result in a Default or an Event of Default hereunder.
(d) Upon any consolidation or merger, or any transfer
of assets in accordance with Section 6.1(a), the Surviving Person formed by such
consolidation or into which Borrower or any Guarantor is merged or to which such
transfer is made shall succeed to, and be substituted for, and may exercise
every right and power of, Borrower or any Guarantor under this Agreement, the
Security Documents and the other Ancillary Documents with the same effect as if
such Surviving Person had been named as Borrower or a Guarantor herein. When a
Surviving Person duly assumes all of the obligations of Borrower pursuant
hereto, the predecessor shall be released from such obligations.
6.2. ASSET SALES
(a) Each of Borrower and the Guarantors hereby agree
that Borrower and the Guarantors shall not permit any of its Subsidiaries, until
satisfaction in full of the Obligations and termination of this Agreement, to
consummate an Asset Sale unless (x) with respect to Asset Sales by any Guarantor
an amount equal to the Net Cash Proceeds therefrom is (A) applied to repay the
Obligations in such order as Lender may determine, (B) used to make cash
payments in the ordinary course of business and consistent with past practices
that are not otherwise prohibited by this Agreement, provided, however, that the
aggregate amount so used pursuant to this clause (B) from and after the
Effective Date does not exceed $2 million (without duplication of amounts used
for Capital Expenditures in accordance with clause (C) of this Section 6.2
below), or (C) used for Capital Expenditures in a Related Business within 180
days after the date of such Asset Sale or used to reimburse Borrower and its
Subsidiaries for Capital Expenditures made prior to such Asset Sale, or (y) with
respect to proposed Asset Sales by Borrower resulting in Net Cash Proceeds
which, when aggregated with the Net Cash Proceeds of all other Asset Sales in
the same fiscal year (other than Asset Sales to which Lender has consented
hereunder) exceeds $3 million in such fiscal year, such Asset Sale shall not be
consummated unless Lender shall have given its prior written consent and
Borrower shall deposit with Lender an amount equal to the amount of such Net
Cash Proceeds in excess of $1,000,000, to be held as cash collateral for the
Obligations. Absent the existence of an Event of Default, Lender shall release
such cash collateral in an amount (i) which Borrower certifies to Lender was
previously expended by Borrower for Capital Expenditures by Borrower prior to
such Asset Sale and such expended amount has not been previously reimbursed to
Borrower, or (ii) which represents the imminent expenditure of funds by Borrower
for Capital Expenditures in a Related Business within 180 days after the date of
such Asset Sale upon the receipt by Lender of proof reasonably satisfactory to
Lender of such imminent expenditure of funds.
(b) Notwithstanding the foregoing limitations on
Asset Sales and restrictions on and requirements for the use of Net Cash
Proceeds therefrom, Borrower and Guarantors, as the case may be, may at any time
and from time to time, but subject to Subsection 6.2(c) below, effect any of the
following transactions, and the Net Cash Proceeds, if any, realized
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from any of the following transactions shall not be subject to the application
requirements of Section 6.2(a):
(i) Borrower and Guarantors may engage in
Asset Sales incident to and resulting from a
transaction expressly permitted under Section 6.1;
(ii) Borrower and Guarantors may sell,
assign, lease, license, transfer, abandon or
otherwise dispose of (a) damaged, worn out,
unserviceable or other obsolete property in the
ordinary course of business, or (b) other property no
longer necessary for the proper conduct of their
business;
(iii) Borrower and Guarantors may convey,
sell, transfer or otherwise dispose of Hydrocarbons
or other mineral products in the ordinary course of
business; and
(iv) Borrower and Guarantors may convey,
sell, transfer or otherwise dispose of Drilling
Production Payments and interests related to Drilling
Programs; provided, however, that an amount equal to
the Net Cash Proceeds of each such conveyance, sale,
transfer or other disposition shall be used for
Capital Expenditures (including without limitation
the reimbursement of Borrower and Guarantors for
Capital Expenditures already made) or to repay the
Obligations.
(c) Notwithstanding anything to the contrary
contained in this Section 6.2, Borrower shall not effect the consummation of,
and shall not permit GB Pipeline or GB Processing, as the case may be, to
consummate a GB Facility Asset Sale unless an amount equal to the Net GB
Financing Proceeds resulting therefrom is (i) distributed by GB Pipeline or GB
Processing, as the case may be, to Borrower and used by Borrower for Capital
Expenditures in a Related Business of Borrower, each within 180 days after the
date of consummation of such GB Facility Asset Sale, or (ii) to the extent not
used in accordance with clause (i) preceding with 180 days after the date of
consummation of such GB Facility Asset Sale, applied by Borrower to repay the
Obligations.
6.3. LIMITATION ON INCURRENCE OF ADDITIONAL DEBT. Except as
set forth in this Section 6.3, from and after the Effective Date, each of
Borrower and the Guarantors hereby agree that none of Borrower nor any Guarantor
shall or shall permit any of its Subsidiaries, until satisfaction in full of the
Obligations and termination of this Agreement, to directly or indirectly,
create, incur, assume, guarantee, or otherwise become liable for, contingently
or otherwise (to "Incur" or, as appropriate, an "Incurrence"), any Debt, except:
(a) the Obligations and the Guaranty;
(b) Debt in an aggregate principal amount outstanding
not to exceed at any one time $5 million;
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(c) Subordinated Debt of Borrower solely to any
wholly owned Subsidiary of Borrower, or Debt of any wholly owned Subsidiary of
Borrower solely to Borrower or to any wholly owned Subsidiary of Borrower;
provided, however, that if any Subsidiary holding such Debt, for any reason, is
no longer deemed a Subsidiary of Borrower, any outstanding Debt incurred by
Borrower or another Subsidiary pursuant to this Section 6.3 (c) shall constitute
a new incurrence of Debt and be subject to the restrictions of Section 6.3.
(d) Debt of Borrower or any Guarantor secured by a
Permitted Lien that meets the requirements of clause (c), (d), or (e) of the
definition of "Permitted Liens" set forth in Section 1.1;
(e) (1) any guaranty of Debt permitted by clauses
(a), (b), (c), or (j) hereof, which guaranty shall not be included in the
determination of the amount of Debt which may be incurred pursuant to (a), (b),
(c), or (i) hereof, or (2) any guarantee by Borrower of the obligations of any
wholly owned Subsidiary of Borrower to the extent such obligations so guaranteed
(A) do not constitute Debt (unless and only to the extent such Debt is otherwise
permitted under this Section 6.3) and (B) except to the extent such obligations
constitute Debt otherwise permitted under this Section 6.3, such obligations are
of the type customarily Incurred by such wholly owned Subsidiary in favor of
third parties in the ordinary course of conducting its Related Business;
(f) Borrower and any Guarantor may incur Debt as an
extension, renewal, replacement, or refunding of (i) any item of the Debt
permitted to be incurred by Section 6.3(j), (ii) Debt existing on the Effective
Date that is secured by assets of GB Pipeline, up to a maximum principal amount
of such Debt so extended, renewed, replaced or refunded under this Section
6.3(f) not to exceed $5 million, (iii) Debt existing on the Effective Date
(other than this Agreement) that is secured by assets of GB Processing, up to a
maximum principal amount of such Debt so extended, renewed, replaced or refunded
under this Section 6.3(f) not to exceed $5 million or (iv) the Debt permitted to
be incurred by this Section 6.3(f) (each such item of Debt is referred to as
"Refinancing Debt"), provided, however, that (1) the maximum principal amount of
each item of Refinancing Debt (or, if such item of Refinancing Debt is issued
with original issue discount, the original issue price of such item of
Refinancing Debt) permitted under this clause (f) may not exceed the lesser of
(x) the principal amount of the item of Debt being extended, renewed, replaced,
or refunded plus reasonable financing fees and other associated reasonable
out-of-pocket expenses including consent payments, premium, if any, and related
fees, in each case other than those paid to an Affiliate (collectively,
"Refinancing Fees"), or (y) if such item of Debt being extended, renewed,
replaced, or refunded was issued at an original issue discount, the original
issue price, plus amortization of the original issue discount as of the time of
the Incurrence of such item of Refinancing Debt plus Refinancing Fees, (2) each
item of Refinancing Debt has a Weighted Average Life and a final maturity that
is equal to or greater than the related Debt being extended, renewed, replaced,
or refunded at the time of such extension, renewal, replacement, or refunding,
and (3) each item of Refinancing Debt shall rank with respect to the Obligations
to an extent no less favorable in respect thereof to Lender than the related
Debt being refinanced;
(g) Debt represented by trade payables or accrued
expenses, in each case incurred on normal, customary terms in the ordinary
course of business, not overdue for a period of more than 45 days (or, if
overdue for a period of more than 45 days, being contested in
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good faith and by appropriate proceedings and adequate reserves with respect
thereto being maintained on the books of Borrower or any Guarantor in accordance
with GAAP) and not constituting any amounts due to banks or other financial
institutions;
(h) Debt of Borrower or any Guarantor to holders of
Allowed Priority Tax Claims under the Plan of Reorganization, to holders of
Allowed Claims in classes 3,4,5 or 6 under the Plan of Reorganization or under
surety bonds, letters of credit or reimbursement obligations related to or
constituting collateral securing Borrower's or any Guarantor's obligations
thereunder;
(i) letters of credit and reimbursement obligations
relating thereto to the extent collateralized by cash or Cash Equivalents;
(j) Debt outstanding on the date hereof;
(k) Debt in respect of Drilling Production Payments
not to exceed the limitation set forth in Section 7.4 of this Agreement.
Debt incurred by any Person that is not a Subsidiary of
Borrower, which Debt is outstanding at the time such Person becomes a Subsidiary
of, or is merged into, or consolidated with Borrower or one of its Subsidiaries,
as the case may be, shall be deemed to have been incurred, as the case may be,
at the time such Person becomes a Subsidiary of, or is merged into, or
consolidated with Borrower or one of its Subsidiaries.
Notwithstanding anything to the contrary contained in this
Section 6.3 or in Section 6.4, Borrower shall not effect the consummation of,
and shall not permit GB Pipeline or GB Processing, as the case may be, to
consummate, a GB Facility Financing unless (A) concurrently with the
consummation of such GB Facility Financing Borrower shall cause a duly executed
and acknowledged GB Consent and Subordination Agreement to be delivered to
Lender and (B) an amount equal to the Net GB Financing Proceeds resulting
therefrom is (i) used by GB Pipeline or GB Processing, as the case may be, for
Capital Expenditures in a Related Business of such Person within 180 days after
the date of consummation of such GB Facility Financing, (ii) distributed by GB
Pipeline or GB Processing, as the case may be, to Borrower and used by Borrower
for Capital Expenditures in a Related Business of such Borrower, each within 180
days after the date of consummation of such GB Facility Financing, (iii) used,
in part, as contemplated in the preceding clause (i), and used, in part, as
contemplated in the preceding clause (ii), or (iv) to the extent not used in
accordance with clause (i), (ii) or (iii) preceding within 180 days after the
date of consummation of such GB Facility Financing, distributed by GB Pipeline
or GB Processing, as the case may be, to Borrower and, on the 181st day after
the date of consummation of such GB Facility Financing, such amount, if any,
distributed to Borrower pursuant to this clause (iv) shall be deemed to be
included within the Net Cash Proceeds subject to application pursuant to Section
6.2(a)(x)(A).
For the purpose of determining compliance with this Section
6.3, (A) if an item of Debt meets the criteria of more than one of the types of
Debt described in the above clauses, Borrower, Guarantors or the Subsidiary in
question shall have the right to determine in its sole discretion the category
to which such Debt applies and shall not be required to include the amount and
type of such Debt in more than one of such categories and may elect to apportion
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such item of Debt between or among any two or more of such categories otherwise
applicable, and (B) the amount of any Debt which does not pay interest in cash
or which was issued at a discount to face value shall be deemed to be equal to
the amount of the liability in respect thereof determined in accordance with
GAAP.
6.4. CREATION OF LIENS. Each of Borrower and the Guarantors
hereby agree that none of Borrower nor any Guarantor shall or permit any of its
Subsidiaries, until satisfaction in full of the Obligations and termination of
this Agreement, to create or suffer to exist any Lien upon or against any of its
property or assets now owned or hereafter acquired, except Permitted Liens. For
the purpose of determining compliance with this Section 6.4, if a Lien meets the
criteria of more than one of the types of Permitted Liens, Borrower, Guarantors
or the Subsidiary in question shall have the right to determine in its sole
discretion the category of Permitted Lien to which such Lien applies, shall not
be required to include such Lien in more than one of such categories, and may
elect to apportion such Lien between or among any two or more categories
otherwise applicable.
6.5. LIMITATION ON INVESTMENTS, LOANS AND ADVANCES. Each of
Borrower and the Guarantors hereby agree that none of Borrower nor any Guarantor
shall, or permit any of its Subsidiaries, until satisfaction in full of the
Obligations and termination of this Agreement, to make any advance, loan,
extension of credit or capital contribution to, or purchase any stock, bonds,
note, debentures or other securities of or any assets constituting a business
unit of, or make any other investment in, any Person, except pursuant to a
Permitted Investment.
6.6. LIMITATION ON RESTRICTED PAYMENTS. Each of Borrower and
the Guarantors hereby agree that none of Borrower nor any Guarantor shall, or
permit any of its Subsidiaries, until satisfaction in full of the Obligations
and termination of this Agreement, to directly or indirectly make any Restricted
Payment.
6.7. NATURE OF BUSINESS. Each of Borrower and the Guarantors
hereby agree that none of Borrower nor any Guarantor shall, or permit any of its
Subsidiaries, until satisfaction in full of the Obligations and termination of
this Agreement, to directly or indirectly engage to any substantial extent in
any line or lines of business activity other than a Related Business or such
other business activities as are reasonably related or incidental thereto.
6.8. SUBSIDIARIES. Each of Borrower and the Guarantors hereby
agree that none of Borrower nor any Guarantor shall, or permit any of its
Subsidiaries, until satisfaction in full of the Obligations and termination of
this Agreement, to form any Material Subsidiary unless such Material Subsidiary
executes and delivers a joinder to this Agreement joining this Agreement as a
Guarantor and such other documents and instruments deemed appropriate by Lender
with respect to such Subsidiary promptly following such formation or
acquisition.
6.9. FISCAL YEAR AND ACCOUNTING CHANGES. Each of Borrower and
the Guarantors hereby agree that none of Borrower nor any Guarantor shall, or
permit any of its Subsidiaries, until satisfaction in full of the Obligations
and termination of this Agreement: to change its fiscal year from January 31 or
make any significant change (i) in accounting treatment and reporting practices
except as required by GAAP or (ii) in tax reporting treatment except as required
by law; provided, however, that Borrower may change its tax year to conform to
its fiscal year.
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6.10. AMENDMENT OF ARTICLES OF INCORPORATION, BY-LAWS. Each of
Borrower and the Guarantors hereby agree that none of Borrower nor any Guarantor
shall, or shall permit any of its Subsidiaries, until satisfaction in full of
the Obligations and termination of this Agreement, to amend or modify any
material term or provision of its Articles of Incorporation or By-Laws unless
required by law.
6.11. CHANGES RELATING TO SUBORDINATED DEBT. Each of Borrower
and the Guarantors hereby agree that none of Borrower nor any Guarantor shall,
or permit any of its Subsidiaries, until satisfaction in full of the Obligations
and termination of this Agreement, to amend the terms of any Subordinated Debt
if the effect of such amendment is to: (a) increase the interest rate on such
Debt; (b) shorten the maturity of such Subordinated Debt; (c) change any event
of default or add any covenant with respect to such Debt; (d) change the payment
provisions of such Debt; (e) change the subordination provisions thereof; or (f)
change or amend any other term if such change or amendment would materially
increase the obligations of the obligor or confer additional material rights on
the holder of such Debt in a manner adverse to Borrower or Lender.
VII. FINANCIAL COVENANTS.
Until payment of the Obligations and termination of this Agreement,
Borrower agrees that:
7.1. PV10 VALUATION. The PV 10 of the Borrower and the
Guarantos, net of any assets subject to liens senior to the liens granted to
Lender pursuant to this Agreement, shall not be less than two hundred (200%)
percent of the outstanding Obligations under this Agreement and the Note (at the
end of any calendar quarter); provided however, that if such amount falls below
200% of the such outstanding Obligations, the Borrower shall, within five (5)
days, reduce the outstanding Obligations under this Agreement and the Note by
the amount necessary to remain in compliance herewith. Any reduction in the
amount of the outstanding Obligations pursuant to this provision shall be a
permanent reduction.
VIII. EVENTS OF DEFAULT.
The occurrence of any one or more of the following events shall
constitute an Event of Default:
8.1. PAYMENT OF PRINCIPAL OR INTEREST. Failure by Borrower to
pay any principal or interest on the Obligations when due, whether at maturity
or by reason of acceleration pursuant to the terms of this Agreement or by
notice of intention to prepay, or by required prepayment or failure to pay any
other liabilities or make any other payment, fee or charge provided for herein
or in any Ancillary Document when due;
8.2. MISLEADING REPRESENTATION OR WARRANTY. Any representation
or warranty made or deemed made by Borrower in this Agreement or any Ancillary
Document or in any certificate, document or financial or other statement
furnished at any time in connection herewith or therewith shall prove to have
been misleading in any material respect on the date when made or deemed to have
been made;
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8.3. OBSERVING ARTICLE VII COVENANTS. Failure by Borrower to
perform, keep or observe any term or covenant contained in Article VII of this
Agreement, without Lender's prior written consent.
8.4. ATTACHMENT AGAINST PROPERTY. Issuance of a notice of
Lien, levy, assessment, injunction or attachment against Borrower's, any
Subsidiary's or any Guarantor's property having an aggregate value in excess of
$250,000 which is not stayed or lifted within thirty (30) days;
8.5. OBSERVING AGREEMENT COVENANTS. Failure or neglect of
Borrower to perform, keep or observe any term, provision, condition or covenant
contained in (a) this Agreement or any Ancillary Document (other than any
provision in this Article VIII) if the same shall remain unremedied for thirty
(30) days or more after written notice from Lender to Borrower of any such
failure and (b) Article VIII of this Agreement if the same shall remain
unremedied for ten (10) days or more after the occurrence thereof;
8.6. JUDGMENTS. Any judgment is rendered or judgment liens
filed against Borrower, any Subsidiary or any Guarantor for an amount in excess
of $250,000 which within thirty (30) days of such rendering or filing is not
either satisfied, stayed or discharged of record;
8.7. INSOLVENCY OF BORROWER. Borrower shall (a) apply for,
consent to or suffer the appointment of, or the taking of possession by, a
receiver, custodian, trustee, liquidator or similar fiduciary of itself or of
all or a substantial part of its property, (b) make a general assignment for the
benefit of creditors, (c) commence a voluntary case under any state or federal
bankruptcy laws (as now or hereafter in effect), (d) be adjudicated a bankrupt
or insolvent, (e) file a petition seeking to take advantage of any other law
providing for the relief of debtors, (f) acquiesce to, or fail to have
dismissed, within thirty (30) days, any petition filed against it in any
involuntary case under such bankruptcy laws, or (g) take any action for the
purpose of effecting any of the foregoing;
8.8. INABILITY TO PAY DEBTS. Borrower shall admit in writing
its inability, or be generally unable, to pay its debts as they become due or
cease operations of its present business;
8.9. INSOLVENCY OF SUBSIDIARY OR GUARANTOR. Any Material
Subsidiary of Borrower, or any Guarantor, shall (a) apply for, consent to or
suffer the appointment of, or the taking of possession by, a receiver,
custodian, trustee, liquidator or similar fiduciary of itself or of all or a
substantial part of its property, (b) admit in writing its inability, or be
generally unable, to pay its debts as they become due or cease operations of its
present business, (c) make a general assignment for the benefit of creditors,
(c) commence a voluntary case under any state or federal bankruptcy laws (as now
or hereafter in effect), (e) be adjudicated a bankrupt or insolvent, (f) file a
petition seeking to take advantage of any other law providing for the relief of
debtors, (g) acquiesce to, or fail to have dismissed, within thirty (30) days,
any petition filed against it in any involuntary case under such bankruptcy
laws, or (viii) take any action for the purpose of effecting any of the
foregoing;
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8.10. CHANGE IN BORROWER'S CONDITION. Any change in Borrower's
condition or affairs (financial or otherwise) which in Lender's opinion
materially impairs the Collateral or the ability of Borrower to perform its
Obligations under this Agreement;
8.11. LIENS. Any Lien created hereunder or provided for hereby
or under any related agreement, with respect Collateral having a value of
$50,000 or greater, for any reason ceases to be or is not a valid and perfected
Lien having a first priority interest (other than Permitted Liens);
8.12. DEFAULT UNDER ANCILLARY DOCUMENT. A default or event of
default has occurred and been declared and continuing under any Ancillary
Document which default shall not have been cured or waived within any applicable
grace period;
8.13. PAYMENT DEFAULT. A default by Borrower or any Subsidiary
or Guarantor in the payment, when due (after any applicable grace period or
extension for the payment thereof) of any principal of or interest on any Debt
having a principal amount, individually or in the aggregate, in excess of
$50,000, except so long as the requisite holder or holders of such Debt shall
have waived such default;
8.14. MATERIAL ADVERSE EFFECT. A default of the obligations of
Borrower or any Guarantor under any other agreement to which it is a party shall
occur which may reasonably be expected to have a Material Adverse Effect and
which default is not cured within any applicable grace period;
8.15. MATERIAL PROVISION Any material provision of this
Agreement shall, for any reason, cease to be valid and binding on any of
Borrower or the Guarantors, or Borrower or any of the Guarantors shall so claim
in writing to Lender;
8.16. MODIFICATION TO INTELLECTUAL PROPERTY OR AGREEMENTS. If
(a) any Governmental Body shall (i) revoke, terminate, suspend or adversely
modify any license, permit, patent, trademark or tradename of Borrower or any of
the Guarantors, the continuation of which is material to the continuation of
Borrower's or any of the Guarantors' business, or (ii) commence proceedings to
suspend, revoke, terminate or adversely modify any such license, permit,
trademark, tradename or patent and such proceedings shall not be dismissed or
discharged within sixty (60) days, or (iii) schedule or conduct a hearing on the
renewal of any license, permit, trademark, tradename or patent necessary for the
continuation of Borrower's or any of the Guarantors' business and the staff of
such Governmental Body issues a report recommending the termination, revocation,
suspension or material, adverse modification of such license, permit, trademark,
tradename or patent; (b) any agreement, which is necessary or material to the
operation of Borrower's or any of the Guarantors' business, shall be revoked or
terminated and not replaced by a substitute acceptable to Lender within thirty
(30) days after the date of such revocation or termination, and such revocation
or termination and non-replacement could have a Material Adverse Effect;
8.17. COLLATERAL SEIZURE. Any portion of the Collateral shall
be seized or taken by a Governmental Body;
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8.18. GUARANTOR DEFAULT. If any Guarantor defaults in the
payment of any of its payment obligations under the Guaranty and such default
shall continue for a period of ten (10) days hereunder or under the Guaranty or
if any proceeding shall be brought by Borrower or any Guarantor to challenge the
validity, binding effect of this Agreement or the Guaranty, or should this
Agreement or the Guaranty cease to be a valid, binding and enforceable
obligation of a Guarantor.
8.19. NYMEX GAS CLOSING PRICE. If the average NYMEX closing
market price of gas per MMBtu drops below $3.00 in any month, unless the PV10
attributable to proven developed producing wells of the Borrower and the
Guarantors (excluding any PV10 attributable to wells subject to Production
Payments) is at least 200% of the outstanding Obligations.
IX. LENDER'S RIGHTS AND REMEDIES AFTER DEFAULT.
9.1. RIGHTS AND REMEDIES. Upon the occurrence of (a) an Event
of Default pursuant to Section 8.7, all Obligations shall be immediately due and
payable and this Agreement, and (b) any of the other Events of Default and at
any time thereafter (such default not having previously been cured), at the
option of Lender, all Obligations shall be immediately due and payable and
Lender shall have the right to terminate this Agreement. Upon the occurrence of
any Event of Default, Lender shall have the right to exercise any and all other
rights and remedies provided for herein, under the Uniform Commercial Code and
at law or equity generally, including, without limitation, the right to
foreclose the security interests granted herein and to realize upon any
Collateral by any available judicial procedure and/or to take possession of and
sell any or all of the Collateral with or without judicial process. Lender may
enter any of Borrower's and the Guarantors' premises or other premises without
legal process and without incurring liability to Borrower or any Guarantor
therefor, and Lender may thereupon, or at any time thereafter, in its discretion
without notice or demand, take the Collateral and remove the same to such place
as Lender may deem advisable. With or without having the Collateral at the time
or place of sale, Lender may sell the Collateral, or any part thereof, at public
or private sale, at any time or place, in one or more sales, at such price or
prices, and upon such terms, either for cash, credit or future delivery, as
Lender may elect. Except as to that part of the Collateral which is perishable
or threatens to decline speedily in value or is of a type customarily sold on a
recognized market, Lender shall give Borrower and the Guarantors reasonable
notification of such sale or sales, it being agreed that in all events written
notice mailed to Borrower and the Guarantors at least five (5) days prior to
such sale or sales is reasonable notification. At any public sale Lender may bid
for and become the purchaser, and Lender or any other purchaser at any such sale
thereafter shall hold the Collateral sold absolutely free from any claim or
right of whatsoever kind, including any equity of redemption and such right and
equity are hereby expressly waived and released by Borrower and the Guarantors.
In connection with the exercise of the foregoing remedies, Lender is granted
permission, without charge, to use all of the trademarks, trade styles, trade
names, patents, patent applications, licenses, franchises and other proprietary
rights of each of Borrower and the Guarantors, which are used in connection with
the Collateral for the purpose of disposing of such Inventory and Equipment for
the purpose of completing the manufacture of such Collateral. The proceeds
realized from the sale of any Collateral shall be applied in accordance with
Section 9.5 hereof. If any deficiency shall arise, Borrower and the Guarantors
shall remain liable to Lender therefor.
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9.2. LENDER'S DISCRETION. Lender shall have the right in its
sole discretion to determine which rights, Liens, security interests or remedies
Lender may at any time pursue, relinquish, subordinate, or modify or to take any
other action with respect thereto and such determination will not in any way
modify or affect any of Lender's or Lender' rights hereunder.
9.3. SETOFF. In addition to any other rights which Lender may
have under applicable law, upon the occurrence of an Event of Default hereunder,
Lender shall have a right to apply any of the property of Borrower or any
Guarantor that is held by Lender to reduce the Obligations.
9.4. RIGHTS AND REMEDIES NOT EXCLUSIVE. The enumeration of the
foregoing rights and remedies is not intended to be exhaustive and the exercise
of any right or remedy shall not preclude the exercise of any other right or
remedies provided for herein or otherwise provided by law, all of which shall be
cumulative and not alternative.
9.5. ALLOCATION OF PAYMENTS AFTER EVENT OF DEFAULT.
Notwithstanding any other provisions of this Agreement to the contrary, after
the occurrence and during the continuance of an Event of Default, all amounts
collected or received by Lender on account of the Obligations or any other
amounts outstanding under any of the Ancillary Documents or in respect of the
Collateral may, at Lender's discretion, be paid over or delivered as follows:
FIRST: to the payment of all reasonable
out-of-pocket costs and expenses (including without
limitation, reasonable attorneys' fees) of Lender in
connection with enforcing the rights of Lender under
this Agreement and the Ancillary Documents and any
protective advances made by Lender with respect to
the Collateral under or pursuant to the terms of this
Document;
SECOND: to the payment of all of the
Obligations consisting of accrued interest;
THIRD: to the payment of the outstanding
principal amount of the Obligations;
FOURTH: to the payment of all other
Obligations and other obligations which shall have
become due and payable under the Ancillary Documents
or otherwise and not repaid pursuant to clauses
"FIRST", "SECOND" and "THIRD" above;
FIFTH: to the payment of the surplus, if
any, to whoever may be lawfully entitled to receive
such surplus.
In carrying out the foregoing, amounts received shall be
applied in the numerical order provided until exhausted prior to application to
the next succeeding category.
X. WAIVERS AND JUDICIAL PROCEEDINGS.
10.1. WAIVER OF NOTICE. Borrower and each Guarantor hereby
waives notice of non-payment of any of the Receivables, demand, presentment,
protest and notice thereof with
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respect to any and all instruments, notice of acceptance hereof, notice of loans
or advances made, credit extended, Collateral received or delivered, or any
other action taken in reliance hereon, and all other demands and notices of any
description, except such as are expressly provided for herein.
10.2. DELAY. No delay or omission on Lender's part in
exercising any right, remedy or option shall operate as a waiver of such or any
other right, remedy or option or of any default.
10.3. JURY WAIVER. EACH PARTY TO THIS AGREEMENT HEREBY
EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION (A) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN
ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES
HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE
TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE AND
EACH PARTY HEREBY CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO
THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH
ANY COURT AS WRITTEN EVIDENCE OF THE CONSENTS OF THE PARTIES HERETO TO THE
WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
XI. EFFECTIVE DATE AND TERMINATION.
11.1. TERM. This Agreement, which shall inure to the benefit
of and shall be binding upon the respective successors and permitted assigns of
each of Borrower, each Guarantor (except for any successor or assign of a
Guarantor in connection with a transaction as a result of which the relevant
Guaranty will be released or terminated pursuant to the terms of this
Agreement), and Lender, shall become effective on the date hereof and shall
continue in full force and effect until the last day of the Term unless sooner
terminated as herein provided.
11.2. TERMINATION. The termination of the Agreement shall not
affect any of the rights of Borrower, any Guarantor or Lender's, or any of the
Obligations having their inception prior to the effective date of such
termination, and the provisions hereof shall continue to be fully operative
until all transactions entered into, rights or interests created or Obligations
have been fully disposed of, concluded or liquidated. The Liens and rights
granted to Lender hereunder and the financing statements filed hereunder shall
continue in full force and effect, notwithstanding the termination of this
Agreement or the fact that Borrower's Account may from time to time be
temporarily in a zero or credit position, until all of the Obligations of
Borrower and the Guarantors have been paid or performed in full after the
termination of this Agreement or Borrower or any Guarantor has furnished Lender
with an indemnification satisfactory to Lender with respect thereto.
Accordingly, Borrower and each Guarantor waives any rights which it may have
under the Uniform Commercial Code to demand the filing of termination statements
with respect to the Collateral, and Lender shall not be required to send such
termination statements to
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Borrower, or to file them with any filing office, unless and until this
Agreement shall have been terminated in accordance with its terms and all
Obligations paid in full in immediately available funds. All representations,
warranties, covenants, waivers and agreements contained herein shall survive
termination hereof until all Obligations are paid or performed in full.
XII. RELEASE OF COLLATERAL.
12.1. DISPOSITION OF CERTAIN COLLATERAL WITHOUT REQUESTING
RELEASE. Borrower or its Subsidiaries may, so long as an Event of Default shall
not have occurred and be continuing or would exist after giving effect thereto
and without requesting or receiving the consent of Lender (a) make cash payments
(including repayments of Debt permitted to be incurred hereby) that are not
otherwise prohibited by this Agreement, and (b) dispose of property in a
transaction permitted by Section 6.2(b).
12.2. REQUESTING RELEASE OF COLLATERAL.
(a) Upon receipt of Borrower's request to release
Collateral (a "Release Request"), Lender shall execute and deliver, any
instruments deemed by Borrower to be reasonably necessary or reasonably
appropriate to release all or a part of the Collateral from the security
interests of Lender, if the provisions of this Section 12.2 have been complied
with. Any such Release Request shall request Lender to execute one or more
specifically described release instruments (which release instruments shall
accompany such Release Request) and shall certify (i) that no Event of Default
has occurred and is continuing (or with respect to a Release Request relating to
any of the Security Documents, that no event of default has occurred and is
continuing or would exist after giving effect thereto under the applicable
Security Document), and (ii) that one of the conditions of this Section 12.2 set
forth below (specifying such condition) has been fulfilled, and if such
specified condition is described in clause (i) below, that the conditions of
Section 12.1, if applicable, have been, or simultaneously with or immediately
following the release will be, fulfilled:
(1) the Collateral will be disposed of in compliance with
Section 12.1;
(2) the Net Proceeds from the Collateral will be
immediately released to Lender to repay the Obligations;
(3) the Collateral is to be released in connection with an
Asset Sale made in compliance with Section 6.2; all of the
conditions precedent to the termination of the Security
Document under which the Lien in the Collateral to be released
was created, or to the release of such Collateral from the
Lien created by such Security Document, as set forth in such
Security Document, have been satisfied;
(4) the Collateral to be released secures, or will secure
upon release, debt or other obligations that constitute First
Lien Debt; or
(5) the release of the Collateral to be released is
required pursuant to, or is required in order to effect
compliance with, the Plan or a Plan Order.
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(b) At the request of Borrower (or with respect to
releases under the Security Documents, the grantor of the security interest
thereunder), Lender shall, in lieu of releasing any Collateral pursuant to this
Section 12.2, execute and deliver a Subordination Agreement with respect to such
Collateral in form and substance acceptable to Lender.
XIII. GUARANTY.
13.1. GUARANTY. Each Guarantor jointly and severally assumes
and unconditionally guaranties to Lender the prompt payment when due (whether by
acceleration or otherwise) of all present and future Obligations, and
irrespective of the genuineness, validity, regularity or enforceability of such
Obligations, or of any instrument evidencing any of the Obligations or of any
collateral therefor or of the existence or extent of such collateral, and
irrespective of the allowability, allowance or disallowance of any or all of the
Obligations in any case commenced by or against Borrower under Title 11, United
States Code, including, without limitation, post-petition interest, fees, costs
and charges that would have accrued or been added to the Obligations but for the
commencement of such case.
13.2. NO IMPAIRMENT. Lender may at any time and from time to
time, either before or after the maturity thereof, without notice to or further
consent of any Guarantor, extend the time of payment of, exchange or surrender
any collateral for, renew or extend any of the Obligations or increase or
decrease the interest rate thereon, and may also make any agreement with
Borrower or with any other party to or person liable on any of the Obligations,
or interested therein, for the extension, renewal, payment, compromise,
discharge or release thereof, in whole or in part, or for any modification of
the terms thereof or of any Ancillary Documents, or make any election of rights
Lender may deem desirable under the United States Bankruptcy Code, as amended,
or any other federal or state bankruptcy, reorganization, moratorium or
insolvency law relating to or affecting the enforcement of creditors' rights
generally (any of the foregoing, an "Insolvency Law") without in any way
impairing or affecting the obligations of Guarantors hereunder. The obligations
of Guarantors hereunder shall be effective regardless of the subsequent
incorporation, merger or consolidation of Borrower, or any change in the
composition, nature, personnel or location of Borrower and shall extend to any
successor entity to Borrower, including a debtor in possession or the like under
any Insolvency Law.
13.3. GUARANTY ABSOLUTE. Each Guarantor guarantees that the
Obligations will be paid strictly in accordance with the terms of this Agreement
and/or any other document, instrument or agreement creating or evidencing the
Obligations, regardless of any law, regulation or order now or hereafter in
effect in any jurisdiction affecting any of such terms or the rights of Borrower
with respect thereto. Each Guarantor hereby knowingly accepts the full range of
risk encompassed within a contract of "continuing guaranty" which risk includes
the possibility that Borrower will contract additional indebtedness for which
such Guarantor may be liable hereunder after Borrower's financial condition or
ability to pay its lawful debts when they fall due has deteriorated, whether or
not Borrower has properly authorized incurring such additional indebtedness.
Each Guarantor acknowledges that (a) no oral representations, including any
representations to extend credit or provide other financial accommodations to
Borrower, have been made by Lender to induce such Guarantor to enter into this
Agreement and (b) any extension of credit to Borrower shall be governed solely
by the provisions of this Loan Agreement and the Ancillary Documents. The
liability of each Guarantor under this Agreement shall be absolute and
unconditional, in accordance with its terms, and shall remain in full force
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and effect without regard to, and shall not be released, suspended, discharged,
terminated or otherwise affected by, any circumstance or occurrence whatsoever,
including, without limitation: (i) any waiver, indulgence, renewal, extension,
amendment or modification of or addition, consent or supplement to or deletion
from or any other action or inaction under or in respect of this Agreement and
the Ancillary Documents or any other instruments or agreements relating to the
Obligations or any assignment or transfer of any thereof; (ii) any lack of
validity or enforceability of any of this Agreement, the Ancillary Documents or
any assignment or transfer of any thereof; (iii) any furnishing of any
additional security to Lender or its assignees or any acceptance thereof or any
release of any security by Lender or its assignees; (iv) any limitation on any
party's liability or obligation under this Agreement, the Ancillary Documents or
any other documents, instruments or agreements relating to the Obligations or
any assignment or transfer of any thereof or any invalidity or unenforceability,
in whole or in part, of any such document, instrument or agreement or any term
thereof; (v) any bankruptcy, insolvency, reorganization, composition,
adjustment, dissolution, liquidation or other like proceeding relating to
Borrower or any Guarantor, or any action taken with respect to this Agreement by
any trustee or receiver, or by any court, in any such proceeding, whether or not
the undersigned shall have notice or knowledge of any of the foregoing; (vi) any
exchange, release or nonperfection of any Collateral, or any release, or
amendment or waiver of or consent to departure from any guaranty or security,
for all or any of the Obligations; or (viii) any other circumstance which might
otherwise constitute a defense available to, or a discharge of, any Guarantor.
Any amounts due from any Guarantor to Lender shall bear interest until such
amounts are paid in full at the highest rate then applicable to the Obligations.
13.4. WAIVERS
(a) . This is a guaranty of payment and not of
collection. Lender shall be under no obligation to institute suit, exercise
rights or remedies or take any other action against Borrower or any other person
liable with respect to any of the Obligations or resort to any collateral
security held by it to secure any of the Obligations as a condition precedent to
any Guarantor being obligated to perform as agreed herein and each Guarantor
hereby waives any and all rights which it may have by statute or otherwise which
would require Lender to do any of the foregoing. Each Guarantor further consents
and agrees that Lender shall not be under any obligation to marshal any assets
in favor of any Guarantor, or against or in payment of any or all of the
Obligations. Each Guarantor hereby waives all rights of suretyship. Each
Guarantor hereby waives any rights to interpose any defense, counterclaim or
offset of any nature and description which it may have or which may exist
between and among Lender, Borrower and/or any Guarantor with respect to any
Guarantor's obligations hereunder, or which Borrower may assert on the
underlying debt, including but not limited to failure of consideration, breach
of warranty, fraud, payment (other than cash payment in full of the
Obligations), statute of frauds, bankruptcy, infancy, statute of limitations,
accord and satisfaction, and usury.
(b) Each Guarantor further waives (i) notice of the
acceptance of this Agreement, of the making of any such loans or extensions of
credit, and of all notices and demands of any kind to which such Guarantor may
be entitled, including, without limitation, notice of adverse change in
Borrower's financial condition or of any other fact which might materially
increase the risk of any Guarantor and (ii) presentment to or demand of payment
from
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anyone whomsoever liable upon any of the Obligations, protest, notices of
presentment, non-payment or protest and notice of any sale of collateral
security or any default of any sort.
13.5. PAYMENTS FROM GUARANTOR. Lender, with or without notice
to any Guarantor, may apply on account of the Obligations any payment from any
Guarantor or any other guarantor, or amounts realized from any security for the
Obligations.
13.6. NO TERMINATION. This is a continuing irrevocable
guaranty and shall remain in full force and effect and be binding upon each
Guarantor and each Guarantor's successors and assigns, until all of the
Obligations have been paid in full and this Agreement has been terminated. If
any of the present or future Obligations are guaranteed by Persons in addition
to Guarantors, the death, release or discharge in whole or in part or the
bankruptcy, merger, consolidation, incorporation, liquidation or dissolution of
one or more of them shall not discharge or affect the liabilities of any
Guarantor hereunder.
13.7. RECAPTURE. Anything in this Agreement to the contrary
notwithstanding, if Lender receives any payment or payments on account of the
liabilities guarantied hereby, which payment or payments or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
and/or required to be repaid to a trustee, receiver, or any other party under
any Insolvency Law, common law or equitable doctrine, then to the extent of any
sum not finally retained by Lender, each Guarantor's obligations to Lender shall
be reinstated and this Agreement shall remain in full force and effect (or be
reinstated) until payment shall have been made to Lender, which payment shall be
due on demand.
13.8. GUARANTIES OF BORROWER AND MATERIAL SUBSIDIARIES.
Borrower and each of its Material Subsidiaries acknowledge, by their execution
and delivery of this Agreement and each Guaranty, that Lender is relying on the
provisions of this Article XIII, the Security Agreement and the Confirmation
Order in extending credit hereunder on the Effective Date, that all Material
Subsidiaries of Borrower are benefiting by the financing being provided by
Lender and that Lender would not have agreed to provide such financing without
the guaranties of all Material Subsidiaries, the Security Agreement and the
Confirmation Order.
XIV. MISCELLANEOUS.
14.1. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO CONFLICTS OF LAW PROVISIONS THEREOF, APPLIED TO CONTRACTS TO BE PERFORMED
WHOLLY WITHIN THE STATE OF NEW YORK. ANY JUDICIAL PROCEEDING BROUGHT BY OR
AGAINST BORROWER OR ANY GUARANTOR WITH RESPECT TO ANY OF THE OBLIGATIONS, THIS
AGREEMENT OR ANY RELATED AGREEMENT MAY BE BROUGHT IN ANY COURT OF COMPETENT
JURISDICTION IN THE STATE OF NEW YORK, UNITED STATES OF AMERICA, AND, BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, BORROWER AND EACH GUARANTOR ACCEPTS
FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY,
THE NON-EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY AGREES
TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT.
BORROWER AND EACH GUARANTOR HEREBY WAIVES
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PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH
SERVICE OF PROCESS MAY BE MADE BY REGISTERED MAIL (RETURN RECEIPT REQUESTED)
DIRECTED TO BORROWER OR ANY GUARANTOR AT ITS ADDRESS SET FORTH IN SECTION 17.6
AND SERVICE SO MADE SHALL BE DEEMED COMPLETED FIVE (5) DAYS AFTER THE SAME SHALL
HAVE BEEN SO DEPOSITED IN THE MAILS OF THE UNITED STATES OF AMERICA. NOTHING
HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW OR
SHALL LIMIT THE RIGHT OF LENDER TO BRING PROCEEDINGS AGAINST BORROWER OR ANY
GUARANTOR IN THE COURTS OF ANY OTHER JURISDICTION. BORROWER AND EACH GUARANTOR
WAIVE ANY OBJECTION TO JURISDICTION AND VENUE OF ANY ACTION INSTITUTED HEREUNDER
AND SHALL NOT ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE OR BASED
UPON FORUM NON CONVENIENS. ANY JUDICIAL PROCEEDING BY BORROWER OR ANY GUARANTOR
AGAINST LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER OR CLAIM IN ANY WAY
ARISING OUT OF, RELATED TO OR CONNECTED WITH THIS AGREEMENT OR ANY RELATED
AGREEMENT, SHALL BE BROUGHT ONLY IN A FEDERAL OR STATE COURT LOCATED IN THE CITY
OF NEW YORK, STATE OF NEW YORK.
14.2. ENTIRE UNDERSTANDING
(a) This Agreement and the documents executed
concurrently herewith contain the entire understanding between Borrower,
Guarantors and Lender and supersedes all prior agreements and understandings, if
any, relating to the subject matter hereof. Any promises, representations,
warranties or guarantees not herein contained and hereinafter made shall have no
force and effect unless in writing, and executed by the party or parties making
such representations, warranties or guarantees. Neither this Agreement nor any
portion or provisions hereof may be changed, modified, amended, waived,
supplemented, discharged, cancelled or terminated orally or by any course of
dealing, or in any manner other than by an agreement in writing, signed by the
party to be charged. Borrower and each Guarantor acknowledges that it has been
advised by counsel in connection with the execution of this Agreement and
Ancillary Documents and is not relying upon oral representations or statements
inconsistent with the terms and provisions of this Agreement.
(b) The Lender and Borrower may, subject to the
provisions of this Section 14.2(b), from time to time enter into written
supplemental agreements to this Agreement, the Note or the Ancillary Documents
executed by Borrower and each Guarantor, for the purpose of adding or deleting
any provisions or otherwise changing, varying or waiving in any manner the
rights of Lender, Borrower or Guarantors thereunder or the conditions,
provisions or terms thereof of waiving any Event of Default thereunder, but only
to the extent specified in such written agreements.
Any such supplemental agreement shall be binding upon Borrower, Guarantors and
Lender and all future holders of the Obligations. In the case of any waiver,
Borrower, Guarantors and Lender shall be restored to their former positions and
rights, and any Event of Default waived shall be deemed to be cured and not
continuing, but no waiver of a specific Event of Default shall extend to any
subsequent Event of Default (whether or not the subsequent Event of Default is
the same as the Event of Default which was waived), or impair any right
consequent thereon.
- 46 -
14.3. SUCCESSORS AND ASSIGNS; NEW LENDER.
(a) This Agreement shall be binding upon and inure to
the benefit of Borrower, each Guarantor, Lender, all future holders of the
Obligations (a "Transferee") and their respective successors and assigns, except
neither Borrower nor any Guarantor may assign or transfer any of its rights or
obligations under this Agreement without the prior written consent of Lender.
(b) Borrower and each Guarantor authorizes Lender to
disclose to any Transferee and any prospective Transferee any and all financial
information in Lender's possession concerning Borrower and each Guarantor which
has been delivered to Lender by or on behalf of Borrower or any Guarantor
pursuant to this Agreement or in connection with Lender's credit evaluation of
Borrower or any Guarantor provided such party agrees to be bound by the
confidentiality provision of Section 14.15 hereof.
14.4. APPLICATION OF PAYMENTS. Lender shall have the
continuing and exclusive right to apply or reverse and re-apply any payment and
any and all proceeds of Collateral to any portion of the Obligations. To the
extent that Borrower makes a payment or Lender receives any payment or proceeds
of the Collateral for Borrower's benefit, which are subsequently invalidated,
declared to be fraudulent or preferential, set aside or required to be repaid to
a trustee, debtor in possession, receiver, custodian or any other party under
any bankruptcy law, common law or equitable cause, then, to such extent, the
Obligations or part thereof intended to be satisfied shall be revived and
continue as if such payment or proceeds had not been received by Lender.
14.5. INDEMNITY. Borrower and each Guarantor shall indemnify
Lender and each of their respective officers, directors, Affiliates and
employees from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses and disbursements
of any kind or nature whatsoever (including, without limitation, fees and
disbursements of counsel) which may be imposed on, incurred by, or asserted
against Lender in any litigation, proceeding or investigation instituted or
conducted by any Governmental Body or any other Person with respect to any
aspect of, or any transaction contemplated by, or referred to in, or any matter
related to, this Agreement or the Ancillary Documents, whether or not Lender is
a party thereto, except to the extent that any of the foregoing arises out of
the willful misconduct or gross (not mere) negligence of the party being
indemnified.
14.6. NOTICE. Any notice or request hereunder may be given to
Borrower, any Guarantor or to Lender at their respective addresses set forth
below or at such other address as may hereafter be specified in a notice
designated as a notice of change of address under this Section. Any notice or
request hereunder shall be given by (a) hand delivery, (b) overnight courier,
(c) registered or certified mail, return receipt requested, or (d) telecopy to
the number set out below (or such other number as may hereafter be specified in
a notice designated as a notice of change of address) with electronic
confirmation of its receipt. Any notice or other communication required or
permitted pursuant to this Agreement shall be deemed given (a) when personally
delivered to any officer of the party to whom it is addressed, (b) on the
earlier of actual receipt thereof or three (3) days following posting thereof by
certified or registered mail, postage prepaid, or (c) upon actual receipt
thereof when sent by a recognized overnight delivery service or (d) upon actual
receipt thereof when sent by telecopier to the number set forth
- 47 -
below with electronic confirmation of its receipt, in each case addressed to
each party at its address set forth below or at such other address as has been
furnished in writing by a party to the other by like notice:
(A) If to Lender at:
Thornwood Associates LP
c/o Icahn Associates Corp.
767 Fifth Avenue, 47th Floor
New York, New York 10153
Attn: Vincent Intrieri
Keith Schaitkin, Esq.
Telephone: (212) 702-4328
Facsimile: (212) 750-5815
(B) If to Borrower or any Guarantor, at:
TransTexas Gas Corporation
c/o National Energy Group, Inc.
4925 Greenville Avenue, Suite 1400
Dallas, TX 75201
Attn: Bob Alexander
(214) 692-9211 -Telephone
(214) 692-5055 -- Facsimile
14.7. SURVIVAL. The obligations of each of Borrower and the
Guarantor under Sections 11.2, 14.5, and 14.6 shall survive termination of this
Agreement and the Ancillary Documents and payment in full of the Obligations.
14.8. SEVERABILITY. If any part of this Agreement is contrary
to, prohibited by, or deemed invalid under applicable laws or regulations, such
provision shall be inapplicable and deemed omitted to the extent so contrary,
prohibited or invalid, but the remainder hereof shall not be invalidated thereby
and shall be given effect so far as possible.
14.9. EXPENSES. All costs and expenses including, without
limitation, reasonable attorneys' fees and disbursements incurred by Lender (i)
in all efforts made to enforce payment of any Obligation or effect collection of
any Collateral, or (ii) in connection with the entering into, modification,
amendment, administration and enforcement of this Agreement or any consents or
waivers hereunder and all related agreements, documents and instruments, or
(iii) in instituting, maintaining, preserving, enforcing and foreclosing on
Lender's security interest in or Lien on any of the Collateral, whether through
judicial proceedings or otherwise, or (iv) in defending or prosecuting any
actions or proceedings arising out of or relating to Lender's transactions with
Borrower, or (v) in connection with any advice given to Lender with respect to
its rights and obligations under this Agreement and all related agreements,
shall be reimbursed by Borrower and shall be part of the Obligations.
14.10. INJUNCTIVE RELIEF. Borrower and each Guarantor
recognizes that, in the event Borrower or any Guarantor fails to perform,
observe or discharge any of its obligations or liabilities under this Agreement,
any remedy at law may prove to be inadequate relief to Lender; therefore, Lender
shall
- 48 -
be entitled to temporary and permanent injunctive relief in any such case
without the necessity of proving that actual damages are not an adequate remedy.
14.11. CONSEQUENTIAL DAMAGES. Neither Lender nor its offices,
directors, partners, employees, agents or representatives shall be liable to
Borrower or any Guarantor for any special, direct, punitive, exemplary or
consequential damages arising from any breach of contract, tort or other wrong
relating to the establishment, administration or collection of the Obligations.
14.12. CAPTIONS. The captions at various places in this
Agreement are intended for convenience only and do not constitute and shall not
be interpreted as part of this Agreement.
14.13. COUNTERPARTS; FAXED SIGNATURES. This Agreement may be
executed in any number of and by different parties hereto on separate
counterparts, all of which, when so executed, shall be deemed an original, but
all such counterparts shall constitute one and the same agreement. Any signature
delivered by a party by facsimile transmission shall be deemed to be an original
signature hereto.
14.14. CONSTRUCTION. The parties acknowledge that each party
and its counsel have reviewed this Agreement and that the normal rule of
construction to the effect that any ambiguities are to be resolved against the
drafting party shall not be employed in the interpretation of this Agreement or
any amendments, schedules or exhibits thereto.
14.15. CONFIDENTIALITY. Lender and each Transferee agree to
use commercially reasonable efforts (equivalent to the efforts Lender applies to
maintain the confidentiality of its own confidential information) to maintain as
confidential all non-public information obtained by Lender or such Transferee
pursuant to this Agreement; provided, however, Lender and each Transferee may
disclose such confidential information (a) to its examiners, outside auditors,
counsel and other professional advisors (provided such advisors are informed of
and agree to be bound by the confidentiality provisions of this Agreement), (b)
to Lender or to any prospective Transferees (provided that such prospective
Transferees agree to be bound by the confidentiality provisions of the
Agreement), (c) as required or requested by any governmental authority or
representative thereof or pursuant to legal process and (d) which ceases to be
confidential through no fault of Lender; provided, further that unless
specifically prohibited by applicable law or court order, Lender and each
Transferee shall use its best efforts prior to disclosure thereof, to notify
Borrower of the applicable request for disclosure of such non-public information
(i) by a governmental authority or representative thereof (other than any such
request in connection with an examination of the financial condition of a Lender
or a Transferee by such governmental authority) or (ii) pursuant to legal
process.
[SIGNATURES FOLLOW]
- 49 -
IN WITNESS WHEREOF, each of the parties has executed this Agreement as
of the day and year first above written.
TRANSTEXAS GAS CORPORATION,
as Borrower
By: _________________________________
Its: ________________________________
GALVESTON BAY PROCESSING CORPORATION,
as Guarantor
By: _________________________________
Its: ________________________________
GALVESTON BAY PIPELINE COMPANY,
as Guarantor
By: _________________________________
Its: ________________________________
THORNWOOD ASSOCIATES LP, as Lender
By: _________________________________
Its: ________________________________
- 50 -
EXHIBIT 2.3
FORM OF AMENDED AND RESTATED O&G NOTE
EXHIBIT 4.7
ADDITIONAL REPRESENTATIONS AND COVENANTS
All defined terms herein not otherwise defined in the Agreement shall
have the meanings ascribed thereto in the Mortgages.
A. Representations and Warranties. Borrower and each Guarantor hereby
warrants and represents, as of the date hereof (giving effect to the
Confirmation Order and the transactions contemplated thereunder and under the
Plan and the Security Documents) to Lender as follows:
1. Leases. With respect to Leases covering all wells and Lands
to which value has been ascribed in that certain reserve report,
prepared as of November 1, 1999 (the "Netherland Reserve Report"), by
Netherland Sewell & Associates, LLC: (a) the Leases are valid,
subsisting leases as to all such wells and Lands, and are superior and
paramount to all other Oil and Gas Leases respecting the properties to
which they pertain and all rentals, royalties and other amounts due and
payable in accordance with the terms of the Leases have been duly paid
or provided for; (b) the Leases are in full force and effect; and (c)
except as disclosed in writing by Borrower or a Guarantor to Lender,
Borrower, and to the best of Borrower's and each Guarantor's knowledge
all other parties to the Leases, have performed in all material
respects all obligations required to be performed by them and are not
in material default under nor in receipt of any claim of material
default under any Lease, and no event has occurred which, with the
passage of time or the giving of notice or both, would cause a material
breach of, or default under, any Lease, and neither Borrower nor any
Guarantor has knowledge of any material breach or anticipated breach by
the other parties to any Lease.
2. Documents. Each of the existing Material Production Sale
Contracts is valid, binding and enforceable in accordance with its
respective terms (except as the enforceability thereof may be limited
by bankruptcy, insolvency, reorganization or moratorium or other
similar laws relating to creditor's rights and by general equitable
principles which may limit the right to obtain equitable remedies
(regardless of whether such enforceability is considered in a
proceeding at equity or at law), and except as rights to indemnity
thereunder may be limited by applicable law) and is in full force and
effect, and no material default on the part of any party thereto exists
thereunder. To the best knowledge of Borrower and each Guarantor, all
amounts due and payable in accordance with the terms of each Material
Production Sale Contract have been duly paid or provided for and the
obligations to be performed under each of the Material Production Sale
Contracts have been duly performed, in all material respects in
accordance with the terms of such contracts and any related agreements,
and in conformity with all applicable laws, rules, regulations and
orders of all courts and regulatory authorities having jurisdiction.
3. Title. Except for Permitted Liens, Borrower or a Guarantor,
as the case may be, has (a) good and indefeasible title to, and is
possessed of, the portion of the Collateral constituting the leasehold
estates under the Leases referred to in All above (b) good and
marketable title to the portion of the Collateral constituting Pipeline
Assets or other personal property for the use and operation of such
Pipeline Assets as it has been
used in the past and as it is proposed to be used in the business of
storing and transporting Hydrocarbons and other products and any lack
of title to such Pipeline Assets or personal property related thereto
has not had and will not have any material adverse effect on Borrower's
or either Guarantor's ability to use the Pipeline Assets and related
personal property as it is proposed to be used in Borrower's or e
either Guarantor's business and will not materially increase the cost
of such use, and (c) good title to the portion of the Collateral
constituting personal property that is not described in the foregoing
clause (b). Borrower owns, in the aggregate, not more than the amount
of undivided working interests and not less than the amount of net
revenue interests in the Leases set forth in the Netherland Reserve
Report. For purposes of this Paragraph (c), "working interest" shall
refer to Borrower's (or a Guarantor's) share of expense in the
applicable Lease, well or drilling and production unit shown in the
Netherland Reserve Report, and "net revenue interest" shall refer to
Borrower's (or a Guarantor's) share of production from the applicable
Lease, well or drilling and production unit after satisfaction of all
royalties, overriding royalties, production payments or similar
non-operating interests. Each of the Material Production Sale Contracts
is free from any material credit, deduction, allowance, defense,
dispute, setoff, or counterclaim (other than current charges provided
for in such instruments but not yet due and payable), and there is no
material extension or indulgence with respect thereto. Neither Borrower
nor any Guarantor is aware of any defect in or challenge to its
ownership of the rights or other interests in any of the Collateral
that would, individually or in the aggregate, materially lessen the
value of the Collateral for its use as part of the Pipeline Assets or
materially interfere with the ordinary conduct of the business of
Borrower or any Guarantor or the use of the Collateral for the purposes
for which held, except as expressly disclosed to Lender in writing.
4. Contracts. Neither Borrower nor any Guarantor is obligated
by virtue of any prepayment under any Production Sale Contract,
balancing agreement or other similar contract providing for the sale by
Borrower or any Guarantor of Hydrocarbons, helium and/or other
minerals, which contains a "take or pay" clause or under any similar
prepayment agreement or arrangement, including, without limitation,
"gas balancing agreements" to deliver Hydrocarbons, helium and/or other
minerals (amounting to a material portion of the Hydrocarbons, helium
and/or other minerals covered hereby) at some future time without then
or thereafter receiving full payment therefor.
5. Producing Wells. All producing wells located on the Lands
have been drilled, operated and produced in conformity in all material
respects with all applicable laws, rules, regulations and orders of all
regulatory authorities having jurisdiction and are subject to no
material penalties on account of past production, and such wells are,
in fact, bottomed under and are producing from, and the well bores are
wholly within, the Lands.
6. Pipelines and Pipeline Assets. All Pipelines and Pipeline
Assets have been constructed and operated in conformity in all material
respects with all applicable laws, rules, regulations and orders of all
regulatory authorities having jurisdiction and, except as expressly
disclosed in writing to Lender, are subject to no material penalties on
account of past operations.
Ex. 1.2A-2
B. Particular Covenants and Agreements of Borrower and the Guarantors.
Borrower and each of the Guarantors hereby covenants to Lender as follows:
1. Operation of Collateral. So long as the Obligations or any
part thereof remains unpaid, and whether or not Borrower is the
operator of the Collateral, each of Borrower and the Guarantors shall,
at their own expense:
(a) do all things necessary to keep
unimpaired Borrower's or such Guarantor's rights and remedies
in or under the Collateral and, except as otherwise permitted
in this Agreement, shall (i) not abandon any well or forfeit,
surrender, release or default under (other than any
abandonment, forfeiture, surrender, release or default that,
individually or in the aggregate with all other such defaults,
would not have a Material Adverse Effect) any Lease to which
value has been ascribed in the Proved Reserve Report, or in
the event Borrower or a Guarantor is not the operator, shall
use commercially reasonable efforts to prevent any of the
above, unless undertaken in the ordinary course of business,
(ii) enter into or otherwise acquire obligations under
Production Sale Contracts (as defined in the Mortgages) only
on terms and conditions to which a reasonably prudent
producer, seller, purchaser, or processor, as applicable, of
Subject Minerals, would agree, and (iii) not abandon, sell,
convey, assign, lease or otherwise transfer any right, title
or interest of Borrower or a Guarantor into or under the
Pipelines or the Pipeline Assets, or consent to any of the
foregoing except as permitted in Section 6.2 of this
Agreement;
(b) except as otherwise permitted in this
Agreement, perform or cause to be performed, each and all
covenants, agreements, terms, conditions and limitations
imposed upon Borrower or any Guarantor or any of their
respective predecessors in interest (except where any failure
to so perform or cause to be performed, individually or in the
aggregate with all other such failures, would not have a
Material Adverse Effect) and expressly contained in (i) the
Leases and any instrument or document relating thereto, and
(ii) any assignment or other form of conveyance, under or
through which the Leases, the Pipelines, Pipeline Assets,
Lands, or Rights-of-Way and Franchises, or an undivided
interest therein are now held, and perform or cause to be
performed all implied covenants and obligations imposed upon
Borrower or a Guarantor in connection therewith or with any
document or instrument relating thereto;
(c) cause, or in the event Borrower or any
Guarantor is not the operator of the Subject Interests or the
Pipeline Assets, use commercially reasonable efforts to cause,
the Subject Interests and the Pipeline Assets to be
maintained, developed, protected against drainage, and
continuously operated for the production of Hydrocarbons,
helium and/or other minerals, and the gathering, storing,
transmission and distribution of Hydrocarbons, as applicable,
in a good and workmanlike manner as would be operated by a
prudent operator and in compliance in all material respects
with all applicable operating agreements and contracts, and
all applicable federal, state and local laws, rules and
regulations, excepting those being contested in good faith in
such a manner as not to
Ex. 1.2A-3
jeopardize Lender's or Lender's rights in and to the Subject
Interests or the Pipeline Assets, as applicable;
(d) except as otherwise permitted in this
Agreement, cause to be paid, promptly as and when due and
payable, except where the failure to make any such payments
would not, individually or in the aggregate, have a Material
Adverse Effect, all rentals, delay rentals, royalties and
Obligations payable in respect of the Subject Interests, and
all expenses incurred in or arising from the operation or
development of the Subject Interests, or, in the event
Borrower or any Guarantor is not the operator, shall use its
best efforts to cause each of the foregoing to be paid;
(e) cause the Equipment necessary for the
business operations of Borrower and each Guarantor to be kept
in good and effective operating condition (reasonable wear and
tear excepted) and all repairs, renewals, replacements,
additions and improvements thereof or thereto, needful to the
production of the Subject Minerals, to be promptly made;
(f) except as otherwise permitted by this
Agreement, cause the Pipelines to be kept in good and
effective operating condition (reasonable wear and tear
excepted), and all repairs, renewals, replacements, additions
and improvements thereof or thereto, necessary to the
gathering, storing, transmission and distribution of
Hydrocarbons through the Pipelines, to be promptly made;
(g) deliver, or cause to be delivered, to
Lender a copy of any notice, demand or other communication
from any other party to any material Leases or any material
Production Sale Contract, relating to any alleged, potential
or actual material breach thereunder or material breach of any
of the covenants, agreements, terms, or limitations thereof or
purporting to terminate or in any other way adversely affect
the rights of Borrower or any of the Guarantors thereunder.
2. Recording, Etc. Each of Borrower and the Guarantors will
promptly and at their own expense record, register, deposit and file
this and every other instrument in addition or supplemental hereto in
such offices and places and at such times and as often as may be
necessary to perfect, preserve, protect and renew the lien and security
interest hereof as a recorded lien on the real property and fixtures
now or hereafter comprising the Collateral and perfected security
interest on the personal property and fixtures now or hereafter
comprising the Collateral, as the case may be and the rights and
remedies of Lender hereunder, and otherwise will do and perform all
matters or things necessary or expedient to be done or observed by
reason of any law or regulation of the State of Texas or of the United
States of America or any other state of the United States or of any
other competent authority, for the purpose of effectively creating,
maintaining and preserving the lien and security interest created by
this Agreement and the perfection and priority thereof.
3. Records, Statements and Reports. Each of Borrower and the
Guarantors will keep proper books of record and account in which
complete and correct entries will be made of their respective
transactions in accordance with GAAP consistently applied.
Ex. 1.2A-4
4. Further Assurances. Each of Borrower and the Guarantors
will execute and deliver such other and further instruments and will
use its best efforts to do such other and further acts as in the
opinion of Lender may be necessary or desirable to carry out more
effectively the purposes of the Mortgage, including, without limiting
the generality of the foregoing, (a) prompt correction of any defect
which may hereafter be discovered in the title to the Collateral or any
part thereof other than Permitted Liens or in the execution and
acknowledgment of the Mortgage, the Note or other document executed in
connection herewith or therewith, (b) prompt execution and delivery of
all division or transfer orders that in the opinion of Lender are
needed to transfer effectively to Lender the assigned proceeds of
production from the Subject Interests, (c) obtaining any necessary
governmental approvals, including, without limitation, those of the
State of Texas and (d) prompt execution of any supplements or
amendments to this Agreement for purposes of memorializing the
encumbrance of any after acquired property.
5. Adverse Claim. Each of the Borrower and the Guarantors will
warrant and forever defend, subject to the Permitted Liens, the title
to the Collateral unto Lender against every Person whomsoever lawfully
claiming the same or any part thereof. Should an adverse claim be made
against or a cloud develop upon the title to any part of the
Collateral, other than Permitted Liens, or upon the lien and security
interest created by the Mortgage, each of Borrower and the Guarantors
agrees that it will immediately defend such adverse claim or take
appropriate action to remove such cloud at its own expense, and each of
Borrower and the Guarantors further agrees that after prior notice to
such person, Lender may take such other action as it deems advisable to
protect and preserve its interests in the Collateral, and, in such
event, each of Borrower and the Guarantors will, jointly and severally,
indemnify Lender against any and all costs, attorneys' fees and other
expenses which it or they may incur in defending against any such
adverse claim or taking action to remove any such cloud.
6. Notice of Pooling or Unitization. Except as otherwise
provided in the Mortgages hereof, each of Borrower and the Guarantors
will promptly notify Lender in writing upon the first filing of any
petition or request with any governmental or regulatory agency
regarding any pooling or unitization arrangement pertaining to the
Collateral or any part thereof, and any pooling or unitization
arrangement which is imposed or which Borrower or any of the Guarantors
learns may be imposed on the Collateral or any part thereof, which
would cause Borrower or any of the Guarantors to suffer a significant
reduction in income on a monthly basis from the Collateral.
7. Compliance with Operating Agreements. Each of Borrower and
the Guarantors agrees to promptly pay all bills for labor and materials
incurred in the operation of the Collateral and will promptly pay its
share of all costs and expenses incurred under any joint operating
agreement affecting the Collateral or any portion thereof (except for
those amounts being disputed in good faith and for which adequate
reserves have been made); will furnish Lender, as and when requested,
full information as to the status of any joint account maintained with
others under any such operating agreement; will not take any action to
incur any liability or lien thereunder.
8. Evidence of Title. Promptly upon receipt of a written
request from Lender, each of Borrower and the Guarantors will furnish
and deliver, at the election of Lender,
Ex. 1.2A-5
either (a) complete or supplemental abstracts of title, as the case may
be, prepared by competent abstractors, or (b) title opinions prepared
by competent legal counsel and, in either event, covering title to
property described in the most recent Proved Reserve Report from the
sovereignty of the soil to the latest practicable date, when taken
together with abstracts and/or title opinions previously furnished to
Lender by Borrower. Should Borrower or any Guarantor fail to furnish
such abstracts upon such request, Lender may obtain such abstracts, and
any and all costs incurred thereby shall be payable by Borrower or such
Guarantor to Lender upon demand at the principal offices of Lender. The
abstracts shall be and constitute a part of the Collateral as defined
above.
9. Notification of Legal Proceedings. Each of Borrower and the
Guarantors will notify Lender promptly and in writing of the
commencement of any legal material proceedings affecting the Collateral
or any part thereof, and will take such action as may be necessary to
preserve the rights of Borrower, any Guarantor or Lender affected
thereby; and should Borrower or any Guarantor fail or refuse to take
any such action, Lender may at its election take such action on behalf
and in the name and at the cost and expense of Borrower or such
Guarantor.
10. Transfer or Division Orders. Upon written request of
Lender, each of Borrower and the Guarantors will execute and deliver
written notices of assignments to any persons, corporations or other
entities owing or which may in the future owe to Borrower monies or
accounts arising in connection with (a) any oil, gas or mineral
production from all or any portion of the Collateral; (b) any gas
contracts, processing contracts or other contracts relating to all or
any portion of the Collateral; or (c) the operation of or production
from all or any portion of the Collateral. The notices of assignments
shall advise the third parties that all of the monies or accounts
described above have been assigned to Lender, and if required by
Lender, shall also require and direct that future payments thereof,
including amounts then owing and unpaid, be paid directly to Lender.
11. Performance of Gas Contracts. Each of Borrower and the
Guarantors will perform and observe in all material respects all of its
obligations under each contract relating to the sale of gas produced
from or attributable to the Collateral except where the failure to do
so could not have a Material Adverse Effect.
12. Borrower Holds as Nominee. In the event that Lender
forecloses or attempts to foreclose on the Collateral, but such
foreclosure will not become effective as to some or all of the
Collateral unless and until the consent of a third party is obtained,
then each of Borrower and the Guarantors agrees to hold title to such
portion of the Collateral as nominee for Lender or any other party who
would have acquired such Collateral at foreclosure until such time as
the necessary consents are obtained. In acting as nominee, each of
Borrower and the Guarantors shall take such acts, and only such acts,
with respect to the Collateral as Lender or any other party who would
have acquired the same may direct and the beneficial interest under
such Collateral shall run to Lender or such other party. Each of
Borrower and the Guarantors shall enter into a nominee agreement in
form and substance satisfactory to Lender or such other party and
execute any other documents or agreements reasonably necessary to
effectuate the provisions of this section.
Ex. 1.2A-6
Ex. 1.2A-7