EXHIBIT 3.4
===============================================================================
CREDIT AGREEMENT
DATED AS OF
MAY 24, 2002
BY AND BETWEEN
CARRIZO OIL & GAS, INC.,
A TEXAS CORPORATION
AS BORROWER
CCBM, INC.,
A DELAWARE CORPORATION
AS GUARANTOR
AND
HIBERNIA NATIONAL BANK
AS LENDER
===============================================================================
TABLE OF CONTENTS
<Table>
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS.............................................................2
Section 1.1. Defined Terms.......................................................2
Section 1.2. Accounting Terms....................................................14
ARTICLE II
COMMITMENT ..................................................................................15
Section 2.1. The Revolving Line of Credit........................................15
Section 2.2. The Borrowing Base Amount...........................................15
Section 2.3. Revolving Loans.....................................................15
ARTICLE III
NOTES EVIDENCING THE LOANS...................................................................18
Section 3.1. Revolving Note......................................................18
ARTICLE IV
INTEREST RATES...............................................................................18
Section 4.1. Options.............................................................18
Section 4.2. Interest Rate Determination.........................................19
Section 4.3. Conversion Option...................................................19
ARTICLE V
CHANGE OF CIRCUMSTANCES......................................................................19
Section 5.1. Unavailability of Funds or Inadequacy of Pricing....................19
Section 5.2. Change in Laws......................................................19
Section 5.3. Increased Cost or Reduced Return....................................20
Section 5.4. Breakage Costs......................................................21
</Table>
i
<Table>
ARTICLE VI
FEES .................................................................................22
Section 6.1. Facility Fee........................................................22
Section 6.2. Unused Fee..........................................................22
Section 6.3. Letter of Credit Fee................................................23
Section 6.4. Engineering Fee.....................................................23
ARTICLE VII
CERTAIN GENERAL PROVISIONS...................................................................23
Section 7.1. Payments to the Lender..............................................23
Section 7.2. No Offset, etc. ....................................................23
Section 7.3. Principal Amount of Revolving Note..................................23
Section 7.4. Rate Management Transactions........................................24
Section 7.5. Calculation of Fees.................................................24
ARTICLE VIII
PREPAYMENTS..................................................................................24
Section 8.1. Voluntary Prepayments...............................................24
Section 8.2. Mandatory Prepayment Resulting from a Quarterly Reduction...........24
Section 8.3. Mandatory Prepayment Resulting from Overadvances....................24
ARTICLE IX
SECURITY FOR THE INDEBTEDNESS................................................................24
Section 9.1. Security............................................................24
ARTICLE X
CONDITIONS PRECEDENT.........................................................................25
Section 10.1. Conditions Precedent to all Revolving Loans........................25
</Table>
ii
<Table>
ARTICLE XI
REPRESENTATIONS AND WARRANTIES...............................................................27
Section 11.1. Corporate Authority of the Borrower................................27
Section 11.2. Financial Statements...............................................27
Section 11.3. Title to Mortgaged Properties......................................27
Section 11.4. Litigation.........................................................28
Section 11.5. Approvals..........................................................29
Section 11.6. Required Insurance.................................................29
Section 11.7. Licenses...........................................................29
Section 11.8. Adverse Agreements.................................................29
Section 11.9. Default or Event of Default........................................29
Section 11.10. Employee Benefit Plans............................................29
Section 11.11. Investment Company Act............................................29
Section 11.12. Public Utility Holding Company Act................................29
Section 11.13. Regulations X, T and U............................................30
Section 11.14. Location of Offices and Records...................................30
Section 11.15. Information.......................................................30
Section 11.16. Environmental Matters.............................................30
Section 11.17. Solvency of the Borrower..........................................32
Section 11.18. Governmental Requirements.........................................32
Section 11.19. Corporate Authority of the Guarantor..............................32
Section 11.20. Chase Purchase Agreement..........................................33
Section 11.21. Security Agreement................................................33
</Table>
iii
<Table>
Section 11.22. Survival of Representations and Warranties........................33
ARTICLE XII
AFFIRMATIVE COVENANTS........................................................................33
Section 12.1. Financial Statements; Other Reporting Requirements.................33
Section 12.2. Notice of Default; Litigation; ERISA Matters.......................34
Section 12.3. Maintenance of Existence, Properties and Liens.....................35
Section 12.4. Taxes..............................................................35
Section 12.5. Intentionally Deleted..............................................35
Section 12.6. Compliance with Environmental Laws.................................35
Section 12.7. Further Assurances.................................................36
Section 12.8. Financial Covenants................................................37
Section 12.9. Operations.........................................................37
Section 12.10. Change of Location................................................38
Section 12.11. Employee Benefit Plans............................................38
Section 12.12. Deposit and Operating Accounts....................................38
Section 12.13. Production Proceeds...............................................38
Section 12.14. Field Audits; Other Information...................................38
Section 12.15. Insurance.........................................................38
Section 12.16. Subsidiaries......................................................39
Section 12.17. Post Closing Matters..............................................39
Section 12.18. Phase I Environmental Assessment..................................42
ARTICLE XIII
NEGATIVE COVENANTS...........................................................................42
Section 13.1. Limitations on Fundamental Changes.................................42
</Table>
iv
<Table>
Section 13.2. Disposition of Assets..............................................42
Section 13.3. Repurchase of Stock; Restricted Payments...........................42
Section 13.4. Encumbrances; Negative Pledge......................................43
Section 13.5. Debts, Guaranties and Other Obligations............................45
Section 13.6. Investments, Loan and Advances.....................................46
Section 13.7. Other Agreements...................................................48
Section 13.8. Transactions with Affiliates.......................................48
Section 13.9. Use of Revolving Loan Proceeds.....................................48
Section 13.10. Commodity Transactions............................................48
Section 13.11. Intentionally Deleted.............................................49
Section 13.12. Payments on Permitted Subordinated Debt...........................49
ARTICLE XIV
EVENTS OF DEFAULT............................................................................49
Section 14.1. Events of Default..................................................49
Section 14.2. Waivers............................................................51
ARTICLE XV
MISCELLANEOUS................................................................................52
Section 15.1. No Waiver; Modification in Writing.................................52
Section 15.2. Addresses for Notices..............................................52
Section 15.3. Fees and Expenses..................................................52
Section 15.4. Security Interest and Right of Set-off.............................53
Section 15.5. Waiver of Marshaling...............................................53
Section 15.6. Governing Law......................................................53
</Table>
v
<Table>
Section 15.7. Consent to Loan Participation......................................53
Section 15.8. Consent to Syndication.............................................53
Section 15.9. Indemnity..........................................................54
Section 15.10. Maximum Interest Rate.............................................55
Section 15.11. Waiver of Jury Trial; Submission to Jurisdiction..................55
Section 15.12. Severability......................................................56
Section 15.13. Headings..........................................................56
Section 15.14. Confidentiality ..................................................56
</Table>
vi
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (the "Agreement") dated as of May 24, 2002, by
and between CARRIZO OIL & GAS, INC., a Texas corporation (the "Borrower"), CCBM,
INC., a Delaware corporation (the "Guarantor") and HIBERNIA NATIONAL BANK, a
national banking association (the "Lender").
RECITALS:
1. The Guarantor is wholly owned Subsidiary of the Borrower.
2. The Borrower has applied to the Lender for a revolving line of
credit in the maximum aggregate principal amount of $30,000,000.00. Proceeds
from the said line of credit, if extended, will be used in part by the Borrower
to refinance the Borrower's existing indebtedness to Compass Bank, an Alabama
state chartered banking institution ("Compass"). The remainder of the proceeds
will be used by the Borrower to provide working capital and for direct
investment in its oil and gas operations.
3. The indebtedness of the Borrower to Compass arises under that
certain First Amended, Restated, and Combined Loan Agreement dated August 28,
1997, as amended by the First Amendment thereto dated December 23, 1997, the
Second Amendment thereto dated December 30, 1997, the Third Amendment thereto
dated July 30, 1998, the Fourth Amendment thereto dated September 24, 1998, the
Fifth Amendment thereto dated of March 22, 1999, the Sixth Amendment thereto
dated as of April 23, 1999, the Seventh Amendment thereto dated August 27, 1999,
the Eighth Amendment thereto dated November 11, 1999, the Ninth Amendment
thereto dated December 15, 1999, the Tenth Amendment thereto dated November 3,
2000, the Eleventh Amendment thereto dated April 4, 2001, and the Twelfth
Amendment dated July 25, 2001 (as so amended, the "Compass Loan Agreement").
4. The indebtedness of the Borrower to Compass arising under the
Compass Loan Agreement and the collateral therefor will be assigned or has been
assigned to the Lender concurrently with the execution of this Agreement.
Further, this Agreement amends and restates the Compass Loan Agreement.
5. The Lender, subject to the terms and conditions of this Agreement,
has agreed to extend the revolving line of credit to the Borrower.
NOW, THEREFORE, in consideration of the mutual covenants hereunder set
forth, the Borrower, the Guarantor, and Lender do hereby covenant, agree, and
obligate themselves as follows:
Page 1 of 58
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1. DEFINED TERMS. As used in this Agreement, and unless the
context requires a different meaning, the following terms have the meanings
indicated:
"ADVANCE OR ADVANCES" shall mean a Loan or Loans by the Lender
hereunder.
"AGREEMENT" shall mean this Credit Agreement, as the same may from time
to time be amended, modified, supplemented, or restated and in effect
from time to time.
"BASE RATE" shall mean the base rate of interest established from time
to time by The Wall Street Journal, as the "prime" lending rate on
corporate loans posted by at least seventy-five percent (75%) of the
nation's thirty largest banks, and which is not necessarily the lowest
rate charged by the Lender, such rate to be adjusted automatically on
and as of the effective date of any change in such Base Rate.
"BASE RATE INTEREST PERIOD" shall mean, with respect to any Base Rate
Loan, the period ending on the last day of each month, provided,
however, that (i) if any Base Rate Interest Period would end on a day
which is not a Business Day, such Interest Period shall be extended to
the next succeeding Business Day, and (ii) if any Base Rate Interest
Period would otherwise end after the Termination Date, such Interest
Period shall end on the Termination Date.
"BASE RATE LOANS" shall mean any Loan during any period which bears
interest based upon the Base Rate.
"BASE RATE MARGIN" shall mean, with respect to each Base Rate Loan:
(i) 0.375% whenever the Borrowing Base Usage under the
Revolving Line of Credit is greater than or equal to 90%; or
(ii) 0.000% whenever the Borrowing Base Usage under the
Revolving Line of Credit is less than 90%
"BORROWER" shall mean Carrizo Oil & Gas, Inc., a Texas corporation,
together with its successors and assigns.
"BORROWING BASE AMOUNT" shall mean at any time the valuation of the
Borrower's Mortgaged Properties, projected oil and gas prices,
underwriting factors, and any other factors deemed relevant by the
Lender in its sole and complete discretion, all as evaluated and
determined by the Lender in its sole and complete discretion on a
semi-annual basis on October 31 and April 30. In addition, the Lender,
in its sole and complete discretion, may conduct one unscheduled
Borrowing Base Amount redetermination subsequent to each semi-annual
redetermination, and the Borrower, at its option may request (and the
Page 2 of 58
Lender shall promptly thereafter perform) one Borrowing Base Amount
redetermination after each scheduled semi-annual redetermination by the
Lender. The Borrowing Base Amount also is subject to mandatory
Quarterly Reductions. The Lender is not obligated under any
circumstances to establish the Borrowing Base Amount based solely on
oil and gas valuation data for the Mortgaged Properties. The initial
Borrowing Base Amount, based on an effective date of March 31, 2002, is
$12,000,000.00. All such determinations and valuations shall be in
accordance with the Lender's normal practices and standards for oil and
gas loans as may exist at the particular time of determination and
valuation. The Borrowing Base Amount shall never exceed $30,000,000.00.
"BORROWING BASE USAGE" shall mean the quotient of all amounts
outstanding under Revolving Line of Credit plus the face amount of all
outstanding Letters of Credit issued by the Lender under section 2.3.2.
hereof divided by the Borrowing Base Amount then in effect.
"BORROWING DATE" means the date elected by Borrower pursuant to Section
2.3.4. hereof for an Advance.
"BUSINESS DAY" means a day other than a Saturday, Sunday or legal
holiday for commercial banks under the laws of the State of Louisiana
or a day on which national banks are authorized to be closed in
Lafayette, Louisiana.
"CAPITAL LEASE OBLIGATIONS" means any Debt represented by obligations
under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP.
"CHASE PURCHASE AGREEMENT" means that certain Securities Purchase
Agreement dated as of December 15, 1999 among the Borrower, CB Capital
Investors, L.P., Mellon Ventures, L.P., Douglas A. P. Hamilton, Paul B.
Loyd, Jr., and Steven A. Webster, as amended from time to time.
"COLLATERAL" shall mean the Mortgaged Properties and any interest in
any kind of property or assets pledged, mortgaged or otherwise subject
to an Encumbrance in favor of the Lender pursuant to the Collateral
Documents.
"COLLATERAL DOCUMENTS" shall collectively refer to the Mortgage, the
Security Agreement, the Guaranty, and any and all other documents now
or hereafter in which an Encumbrance is created on any property of the
Borrower or of any other Person to secure payment of the Indebtedness
(or any part thereof) of the Borrower to the Lender under this
Agreement and the Revolving Note.
"COMMITMENT" shall mean the Lender's agreement to extend the Revolving
Line of Credit as set forth in the Agreement.
"COMPASS" shall mean Compass Bank, an Alabama state chartered banking
institution.
Page 3 of 58
"CONSOLIDATED CURRENT ASSETS" shall mean the total of the Borrower's
consolidated current assets, including the amounts available for
borrowing under the Borrowing Base Amount, determined in accordance
with GAAP. Current assets will not include the effects, if any, of
marking to market Hedging Agreements pursuant to SFAS No. 133.
"CONSOLIDATED CURRENT LIABILITIES" shall mean the total of the
Borrower's consolidated current liabilities, excluding outstanding
principal amounts due under the Commitment, determined in accordance
with GAAP. Current liabilities will not include (i) the effects, if
any, of Hedging Agreements pursuant to SFAS No. 133 and (ii) the
Borrower's obligations under and in connection with the Series B
Preferred Stock issued by Borrower and the Subordinated Promissory
Notes.
"CONSOLIDATED TANGIBLE NET WORTH" shall mean, at any time, the
shareholder's equity of the Borrower on a consolidated basis,
determined in accordance with GAAP, less all unamortized Debt discount
and expense, unamortized deferred charges, goodwill, patents,
trademarks, service marks, trade names, copyrights and organization
expense.
"CURRENT RATIO" shall mean the ratio of Consolidated Current Assets to
Consolidated Current Liabilities.
"DEBT" shall mean without duplication: (i) indebtedness for borrowed
money; (ii) the face amounts of all outstanding standby and commercial
letters of credit and bankers acceptances, matured or unmatured, issued
on behalf of Borrower; (iii) guaranties of the Debt of any other
Person, whether direct or indirect, whether by agreement to purchase
the indebtedness of any other Person or by agreement for the furnishing
of funds to any other Person through the purchase or lease of goods,
supplies or services (or by way of stock purchase, capital
contribution, advance or loan) in each case for the purpose of paying
or discharging the Debt of any other Person; and (iv) the present value
of all obligations for the payment of rent or hire of property of any
kind (real or personal) under leases or lease agreements required to be
capitalized under GAAP; provided that in no event shall the Borrower's
obligations under and in connection with the Series B Preferred Stock
issued by Borrower constitute Debt.
"DEFAULT" shall mean an event which with the giving of notice or the
lapse of time (or both) would constitute an Event of Default hereunder.
"DEFENSIBLE TITLE" shall mean, with respect to the assets of the
Borrower (i) the title of the Borrower to such assets is free and clear
of all Encumbrances of any kind whatsoever (except to the extent
permitted by the Loan Documents), and (ii) as to those wells for which
a "working interest" and a "net revenue interest" are set forth on
Schedule 11.3 (except to the extent disposed of or abandoned in
accordance with the Loan Documents), the Borrower is entitled to
receive the percentage of all hydrocarbons produced, saved and marketed
from such wells in an amount not less than the net revenue interest set
forth therein, without reduction, suspension or termination throughout
the duration of the productive life of such wells, and the Borrower is
obligated to bear the percentage of costs and expenses related to the
maintenance, development and operation of such wells
Page 4 of 58
in an amount not greater than the working interest set forth on such
Schedule, without increase throughout the productive life of such
wells, except increases that also result in a proportionate increase in
net revenue interest and as set forth on such Schedule.
"DESIGNATED TITLE EXCEPTIONS" has the meaning given to such term in
Section 11.3.
"DOLLARS" and "$" shall mean lawful money of the United States of
America.
"EBITDA" means the Borrower's consolidated earnings before interest
expense, income taxes, depreciation, amortization, depletion, oil and
gas asset impairment write downs, lease impairment expense, gains and
losses from the sale of capital assets, and other non-cash charges.
"ENCUMBRANCES" shall mean any interest in property securing an
obligation owed to, or a claim by, a Person other than the owner of the
Property, whether such interest is based on common law, statute or
contract. The term "Encumbrance" shall also include reservations,
exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions and
encumbrances affecting property. For the purpose of the Agreement, the
Borrower shall be deemed to be the owner of any property which it has
acquired or holds subject to a conditional sale agreement or other
arrangements pursuant to which title to the property has been retained
by or vested in some other Person for security purposes; provided,
however, that the term "Encumbrance" shall not include a trust or
similar arrangement established for the purpose of defeasing any
indebtedness pursuant to the terms evidencing or providing for the
issuance of such indebtedness but only to the extent that such
defeasance is permitted under this Agreement.
"ENVIRONMENTAL LAWS" shall mean any federal, state, local or tribal
statute, law, rule, regulation, ordinance, code, permit, consent,
approval, license, written policy or rule of common law now or
hereafter in effect and in each case as amended, and any judicial or
administrative interpretation thereof, including any judicial or
administrative order, injunction, consent decree or judgment, or other
authorization or requirement whenever promulgated, issued or modified,
including the requirement to register underground storage tanks, well
plugging and abandonment requirements, and oil and gas waste disposal
requirements relating to:
(i) emissions, discharges, spills, migration, movement,
releases or threatened releases of pollutants, contaminants, Hazardous
Materials, or hazardous or toxic materials or wastes into or onto soil,
land, ambient air, surface water, ground water, watercourses, publicly
owned treatment works, drains, sewer systems, wetlands or septic
systems;
(ii) the use, treatment, storage, disposal, handling,
manufacturing, transportation, or shipment of Hazardous Materials or
hazardous and/or toxic wastes, material, products or by-products
containing Hazardous Materials (or of equipment or apparatus containing
Hazardous Materials); or
Page 5 of 58
(iii) otherwise relating to pollution or the protection of
human health or the environment, including, without limitation, the
Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, 42 U.S.C. Sections 9601 et seq., as amended, the Resource
Conservation and Recovery Act, 42 U.S.C. Sections 6901 et seq., as
amended, the Hazardous Materials Transportation Act, 49 U.S.C. Sections
1801 et seq., as amended, the Clean Water Act, 33 U.S.C. Sections 1251
et seq., as amended, the Toxic Substances Control Act, 15 U.S.C.
Sections 2601 et seq., as amended, the Clean Air Act, 42 U.S.C.
Sections 7401 et seq., as amended, the federal Water Pollution Control
Act, 33 U.S.C. Section 1251 et seq., as amended, the Safe Drinking
Water Act, 42 U.S.C. Sections 300f et seq., as amended, the Atomic
Energy Act, 42 U.S.C. Sections 2011 et seq., as amended, the Natural
Gas Pipeline Safety Act of 1968, 49 U.S.C. Section 1671 et seq., as
amended, the Federal Insecticide, Fungicide and Rodenticide Act, 7
U.C.S. Sections 136 et seq., as amended, and the Occupational Safety
and Health Act, 29 U.S.C. Sections 651 et seq., as amended, and all
comparable statutes of the States of Louisiana and Texas, and all
comparable local Governmental Requirements in such states, and other
environmental, conservation or protection laws in effect in any
jurisdiction where any of the Mortgaged Properties of the Borrower are
located.
"ENVIRONMENTAL LIABILITIES" means with respect to any Person, any and
all liabilities, responsibilities, losses, sums paid in settlement of
claims, obligations, charges, actions (formal or informal), claims
(including, without limitation, claims for personal injury or for
property damage), liens, administrative proceedings, damages
(including, without limitation, loss or damage resulting from the
occurrence of an Event of Default), punitive damages, consequential
damages, treble damages, penalties, fines, monetary sanctions,
interest, court costs, response and remediation costs, stabilization
costs, encapsulation costs, treatment, storage, or disposal costs,
groundwater monitoring or environmental sampling costs, other causes of
action and any other costs and expenses (including, without limitation,
reasonable attorneys', experts', and consultants' fees, costs of
investigation and feasibility studies and disbursements in connection
with any investigative, administrative or judicial proceeding), whether
direct or indirect, known or unknown, absolute or contingent, past,
present or future arising under, pursuant to or in connection with any
Environmental Law, or any other binding obligation of such Person
requiring abatement of pollution or protection of human health and the
environment.
"ENVIRONMENTAL LIEN" means a Lien in favor of any Governmental
Authority for (i) any liability under Environmental Laws or (ii)
damages arising from, or costs incurred by such Governmental Authority
in response to, a Release or threatened Release of a Hazardous
Materials into the environment.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"EURODOLLAR BUSINESS DAY" shall mean any date other than Saturday,
Sunday or a day on which banking institutions are generally authorized
or obligated by law or executive order to close in the City of London,
England.
Page 6 of 58
"EURODOLLAR INTEREST PERIOD" shall mean, with respect to any Eurodollar
Loan (i) initially, the period commencing on the date such Eurodollar
Loan is made and ending one (1), two (2), three (3), or six (6) months
thereafter as selected by the Borrower pursuant to Section 3.1.2., and
thereafter, each period commencing on the day following the last day of
the next preceding Interest Period applicable to such Eurodollar Loan
and ending one (1), two (2), three (3) or six (6) months thereafter, as
selected by the Borrower pursuant to Section 4.1.2., provided, however,
that (a) if any Eurodollar Interest Period would otherwise expire on a
day which is not a Business Day, such Interest Period shall expire on
the next succeeding Business Day unless the result of such extension
would be to extend such Interest Period into the next calendar month,
in which case such Interest Period shall end on the immediately
preceding Business Day, (b) if any Eurodollar Interest Period begins on
the last Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at the end of
such Interest Period) such Interest Period shall end on the last
Business Day of a calendar month, and (c) any Eurodollar Interest
Period which would otherwise expire after the Termination Date shall
end on the Termination Date.
"EURODOLLAR LOAN" shall mean any Loan during any period which bears
interest at the Eurodollar Rate.
"EURODOLLAR MARGIN" shall mean, with respect to each Eurodollar Loan:
(i) 2.375% per annum whenever the Borrowing Base Usage under
the Revolving Line of Credit is greater than or equal to 90%;
(ii) 2.000% per annum whenever the Borrowing Base Usage under
the Revolving Line of Credit is greater than or equal to 50% but less
than 90%; or
(iv) 1.625% per annum whenever the Borrowing Base Usage under
the Revolving Line of Credit is less than 50%.
"EURODOLLAR RATE" shall mean with respect to any Eurodollar Interest
Period, the offered rate for U.S. Dollar deposits of not less than
$1,000,000 as of 11:00 A.M. City of London, England time two (2)
Eurodollar Business Days prior to the first date of each Eurodollar
Interest Period as shown on the display designated as "British Bankers
Assoc. Interest Settlement Rates" on the Telerate system ("Telerate"),
Page 3750 or Page 3740, or such other page or pages as may replace such
pages on Telerate for the purpose of displaying such rate, rounded
upwards, if necessary to the nearest 1/16% and adjusted for the maximum
cost of reserves, if any. Provided, however, that if such rate is not
available on Telerate then such offered rate shall be otherwise
independently obtained by the Lender from an alternate, substantially
similar independent source available to the Lender or shall be
calculated by the Lender by substantially similar methodology as that
theretofore used to determine such offered rate in Telerate.
Page 7 of 58
"EVENT OF DEFAULT" shall mean individually, collectively and
interchangeably any of the Events of Default set forth below in Section
14.1. hereof.
"FEDERAL FUNDS RATE" means, for any day, the rate per annum equal to
the weighted average of the rates on overnight federal funds
transaction with members of the Federal Reserve System arranged by
federal fund brokers on such day, as published by the Federal Reserve
Bank of New York on the Business Day, next succeeding such day;
provided, however, that (i) if such day is not a Business Day, the
Federal Funds Rate for such day shall be such rate on such transactions
on the next preceding Business Day as so published on the next
succeeding Business Day, and (ii) if no such rate is so published on
the next succeeding Business Day, the Federal Funds Rate for such day
shall be the average of quotations for such Business Day on such
transactions received by the Lender from three (3) federal funds
brokers of recognized standing selected by it. If, for any reason, the
Lender shall have determined (which determination shall be conclusive,
absent manifest error) that it is unable to ascertain the Federal Funds
Rate, including the inability or failure of the Lender to obtain
sufficient quotations in accordance with the terms hereof, the Base
Rate shall be determined without regard to clause (i) of the first
sentence of the definition of Base Rate until the circumstances giving
rise to such inability no longer exist.
"GAAP" shall mean, at any time, accounting principles generally
accepted in the United States as then in effect.
"GOVERNMENTAL AUTHORITY" shall mean any nation or government, any state
or other political subdivision thereof, or entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"GOVERNMENTAL REQUIREMENT" shall mean any applicable state, federal or
local law, statute, ordinance, code, rule, regulation, order or decree.
"GUARANTOR" means CCBM, Inc., a Delaware corporation, and its
successors and assigns.
"GUARANTY" means that certain Commercial Guaranty of even date with the
Agreement by the Guarantor in favor of the Lender, as amended and/or
restated from time to time and in effect.
"HAZARDOUS MATERIALS" means (1) hazardous materials, hazardous wastes,
and hazardous substances including, but not limited to, those
substances, materials and wastes listed in the United States Department
of Transportation Hazardous Materials Table, 49 C.F.R. Section 172.101,
as amended, or listed by the federal Environmental Protection Agency as
hazardous substances under or pursuant to 40 C.F.R. Part 302, as
amended, or substances, materials, contaminants or wastes which are or
become regulated under any Environmental Law, including without
limitation, those substances, materials, contaminants or wastes as
defined in the following statutes and their implementing regulations:
the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801 et
seq., as
Page 8 of 58
amended, the Resource Conservation and Recovery Act, 42 U.S.C. Section
6901 et seq., as amended, the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601 et seq., as
amended, the Toxic Substances Control Act, 15 U.S.C. Section 2601 et
seq., as amended, the Clean Air Act, 42 U.S.C. Section 7401 et seq., as
amended, the federal Water Pollution Control Act, 33 U.S.C. Section
1251 et seq., as amended, the Occupational Safety and Health Act, 2
U.S.C. Section 651 et seq., as amended, the Safe Drinking Water Act, 42
U.S.C. Section 300f et seq., as amended and the Natural Gas Pipeline
Safety Act of 1968, 49 U.S.C. Section 1671 et seq., as amended; (2) all
substances, materials, contaminants or wastes listed in all comparable
statutes of the States of Louisiana and Texas and in comparable local
Requirements of Law in such states; (3) acid gas, sour water streams or
sour water vapor streams containing hydrogen sulfide or other forms of
sulphur, sodium hydrosulfide and ammonia; (4) Hydrocarbons; (5) natural
gas, synthetic gas, and any mixtures thereof; (6) asbestos and/or any
material which contains 1% or more, by weight, of any hydrated mineral
silicate, including but not limited to chrysotile, amosite,
crocidolite, tremolite, anthophylite and/or actinolite, whether friable
or non-friable; (7) PCB's, or PCB containing materials or fluids; (8)
radon; (9) naturally occurring radioactive material, radioactive
substances or waste; (10) salt water and other oil and gas wastes and
(11) any other hazardous or noxious substance, material, pollutant,
emission, or solid, liquid or gaseous waste.
"HEDGING AGREEMENT" means (a) any interest rate or currency swap, rate
cap, rate floor, rate collar, forward agreement, or other exchange or
rate protection agreement or any option with respect to any such
transaction and (b) any swap agreement, cap, floor, collar, exchange
transaction, forward agreement, or other exchange or protection
agreement relating to Hydrocarbons or any option with respect to any
such transaction.
"HYDROCARBONS" means oil, gas, casing head gas, condensate, distillate,
liquid hydrocarbons, gaseous hydrocarbons and all products separated,
settled and dehydrated therefrom and all products refined therefrom,
including, without limitation, kerosene, liquefied petroleum gas,
refined lubricating oils, diesel fuel, drip gasoline, natural gasoline,
helium, sulphur and all other materials.
"INDEBTEDNESS" shall mean, at any time, the Reimbursement Obligations,
obligations of the Borrower under Rate Management Transactions
(including all renewals, extensions, modifications, and substitution
thereof and therefor) and all cancellations, buy backs, reversals,
terminations, or assignments of Rate Management Transactions, and the
indebtedness of the Borrower evidenced by the Revolving Note executed
by the Borrower pursuant to this Agreement, including principal,
interest, costs, expenses and reasonable attorneys' fees and all other
fees and charges, together with all commitment fees and other
indebtedness and costs and expenses for which the Borrower is
responsible under this Agreement or under any of the Related Documents.
In addition, the word "Indebtedness" also includes, any and all other
loans, extensions of credit, obligations, debts and liabilities of the
Borrower, plus interest thereon, that may now and in the future be owed
to or incurred in favor of the Lender, as well as all claims by the
Lender against the Borrower, whether existing now or later; whether
they are voluntary or involuntary, due
Page 9 of 58
or to become due, direct or indirect or by way of assignment,
determined or undetermined, absolute or contingent, liquidated or
unliquidated; whether the Borrower may be liable individually or
jointly with others, of every nature and kind whatsoever, in principal,
interest, costs, expenses and reasonable attorneys' fees and all other
fees and charges; whether the Borrower may be obligated as principal
obligor, guarantor, surety, accommodation party or otherwise.
"INTEREST PAYMENT DATE" shall mean (i) for a Base Rate Loan, the last
Business Day of each month such Loan is outstanding beginning June 30,
2002 and (ii) for a Eurodollar Loan, the last Eurodollar Business Day
of each Eurodollar Interest Period for such Loan, and during any
Eurodollar Interest Period of six (6) months, the Eurodollar Business
Day occurring three (3) months after the commencement of such Interest
Period.
"INTEREST PERIOD" shall mean any Base Rate Interest Period or
Eurodollar Interest Period.
"LEASES" shall mean all present and future oil, gas and mineral leases
or interests therein now owned or hereafter acquired by the Borrower
that form part of the Mortgaged Properties.
"LENDER" means Hibernia National Bank, and its successors and assigns.
"LETTERS OF CREDIT" shall mean the letters of credit issued by the
Lender pursuant to Section 2.3.2. hereof.
"LIABILITIES" shall mean, as to any Person, all indebtedness,
liabilities and obligations of such Person, whether matured or
unmatured, liquidated or unliquidated, primary or secondary, direct or
indirect, absolute, fixed or contingent, and whether or not required to
be considered pursuant to GAAP.
"LOANS" shall mean, collectively, the Revolving Loans.
"LOAN DOCUMENTS" shall mean this Agreement, the Revolving Note, the
Guaranty, the Collateral Documents and any other Related Documents.
"MATERIAL ADVERSE EFFECT" shall mean, with respect to the Borrower
and/or the Guarantor, as the case may be, an event which causes a
material adverse effect on the business, assets, operations or
condition (financial or otherwise) of such Person.
"MAXIMUM RATE" shall mean, at any particular time in question, the
maximum non-usurious rate of interest which under applicable law may
then be charged on the Loans, the Reimbursement Obligations or any
other obligations hereunder. If such Maximum Rate changes after the
date hereof, the Maximum Rate shall be automatically increased or
decreased, as the case may be, without notice to Borrower from time to
time as the effective date of each change in such Maximum Rate.
Page 10 of 58
"MEMORANDUM" shall mean that certain Memorandum of Subordination
Agreement dated as of December 15, 1999, by and among the parties to
the Chase Purchase Agreement and Compass.
"MORTGAGE" shall mean those certain mortgages, security agreements,
and/or deeds of trust by the Borrower in favor of Compass, as restated
in favor of the Lender pursuant to (i) Amended and Restated Mortgage,
Collateral Assignment, Security Agreement, and Financing Statement by
Borrower in favor of the Lender dated of even date with the Agreement,
as the same may be amended, supplemented, and/or restated from time to
time and in effect, and (ii) Deed of Trust, Mortgage, Security
Agreement, Fixture Filing, and Financing Statement by the Borrower in
favor of the Lender dated of even date with the Agreement, as the same
may be amended, supplemented and/or restated from time to time and in
effect.
"MORTGAGED PROPERTIES" shall mean the property and interests of the
Borrower encumbered by the Mortgage.
"NON-RECOURSE INDEBTEDNESS" shall mean Obligations owed by the
Guarantor to Rocky Mountain Gas, Inc., and Obligations of the Borrower
and/or the Guarantor for which the Borrower and/or the Guarantor, as
the case may be, are not personally liable for payment of the
Obligations.
"NOTE" shall mean the Revolving Note as said promissory note may be
renewed or extended, together with all other promissory note or notes
given in renewal, substitution, or as a refinancing of any part of the
indebtedness evidenced thereby.
"OBLIGATIONS" of any Person means Liabilities in any of the following
categories: (a) Liabilities for borrowed money; (b) Liabilities
constituting an obligation to pay the deferred purchase price of
property or services; (c) Liabilities evidenced by a bond, debenture,
note or similar instrument; (d) Liabilities which (i) would under GAAP
be shown on such Person's balance sheet as a liability, and (ii) are
payable more than one year from the date of creation thereof (other
than reserves for taxes and reserves for contingent obligations); (e)
Liabilities arising under Hedging Agreements; (f) Liabilities
constituting principal under leases capitalized in accordance with
GAAP, (g) Liabilities arising under conditional sales or other title
retention agreements; (h) Liabilities owing under direct to indirect
guaranties of Obligations of any other Person or otherwise constituting
obligations to purchase or acquire or to otherwise protect or insure a
creditor against loss in respect of Obligations of any other Person
(such as obligations under working capital maintenance agreements,
agreements to keep-well, or agreements to purchase Obligations, assets,
goods, securities or services), but excluding endorsements in the
ordinary course of business of negotiable instruments in the course of
collection; (i) Liabilities (for example, repurchase agreements and
sale/leaseback agreements) consisting of an obligation to purchase or
lease securities or other property, if such Liabilities arises out of
or in connection with the sale of the same or similar securities or
property; (j) Liabilities with respect to letters of credit or
applications or reimbursement agreements therefor; (k) Liabilities with
respect to payments received in consideration of
Page 11 of 58
oil, gas or other minerals yet to be acquired or produced at the time
of payment (including obligations under "take-or-pay" contracts to
deliver gas in return for payments already received and the
undischarged balance of any production payment created by such Person
or for the creation of which such Person directly or indirectly
received payment); or (l) Liabilities with respect to other obligations
to deliver goods or services in consideration of advance payments
therefor; provided, however, that the "Obligations" of any Person shall
not include Liabilities that were incurred by such Person on ordinary
trade terms to vendors, suppliers, or other Persons providing goods and
services for use by such Person in the ordinary course of its business,
unless and until such Liabilities are outstanding more than 120 days
past original invoice or billing date therefor.
"PERMITTED ENCUMBRANCES" shall have the meaning ascribed to such term
in Section 13.4. hereof.
"PERSON" shall mean an individual or a corporation, partnership, trust,
joint venture, incorporated or unincorporated association, joint stock
company, government, or an agency or political subdivision thereof, or
other entity of any kind.
"PURCHASE MONEY INDEBTEDNESS" means Debt incurred to finance the
acquisition, construction or improvement of any fixed or capital
assets, including Debt assumed in connection with the acquisition of
any such assets or secured by an Encumbrance on any such assets prior
to the acquisition thereof, and any extension, renewal or replacement
of any such Debt.
"QUARTERLY REDUCTION" shall mean each quarterly reduction, if any, to
the Borrowing Base Amount on the last day of each June, September,
December, and March based upon Lender's redetermination of the
Borrowing Base Amount. All such determinations and valuations shall be
in accordance with the Lender's normal practices and standards for oil
and gas loans as may exist at the particular time of determination and
valuation. The initial Quarterly Reduction will be $1,250,000.00
effective June 30, 2002. Thereafter, the Lender will establish the
Quarterly Reduction.
"RATE MANAGEMENT TRANSACTION" means any transaction (including an
agreement with respect thereto) now existing or hereafter entered into
between the Borrower and the Lender or affiliate thereof which is (i)
an interest rate protection agreement, foreign currency exchange
agreement or other interest or interest rate hedging agreement entered
into in the ordinary course and not for speculative purposes or (ii) a
commodity price hedging agreement or arrangement entered into in the
ordinary course and not for speculative purposes.
"REIMBURSEMENT OBLIGATIONS" shall mean at any time, the obligations of
Borrower in respect of all Letters of Credit then outstanding to
reimburse amounts paid by the Lender in respect of any drawing or
drawings under a Letter of Credit.
"RELATED DOCUMENTS" shall mean and include individually, collectively,
interchangeably and without limitation all promissory notes, credit
agreements, loan agreements,
Page 12 of 58
guaranties, security agreements, mortgages, collateral mortgages, deeds
of trust, and all other instruments and documents, whether now or
hereafter existing, executed in connection with the Indebtedness.
"RELEASE" means any release, spill, emission, leak, injection, deposit,
disposal, discharge, dispersal, leaching or migration of any Hazardous
Materials into the environment or into or out of any real property of
Borrower, including the movement of Hazardous Materials through or in
the air, soil, surface water, groundwater and/or land which could
reasonably be expected to form the basis of an Environmental Liability
against Borrower.
"REMEDIAL ACTION" means any action to (i) clean up, remove, treat or in
any other way address Hazardous Materials in the environment, (ii)
prevent the Release or threat of Release or minimize the further
Release of Hazardous Materials so they do not mitigate or endanger or
threaten to endanger public health or welfare or the environment or
(iii) perform pre-remedial studies and investigations and post-remedial
monitoring and care.
"REQUEST FOR ADVANCE" shall mean the Borrower's request for a Revolving
Loan.
"REVOLVING LOANS" shall mean loans made by the Lender under the
Revolving Note to the Borrower in accordance with and subject to the
terms of the Commitment.
"REVOLVING LINE OF CREDIT" shall mean a three (3) year reducing
revolving line of credit to the Borrower pursuant to the Commitment by
the Lender, subject at all times to the Borrowing Base Amount then in
effect.
"REVOLVING NOTE" mean the Revolving Note substantially in the form of
Exhibit "C" hereto issued or to be issued to Lender to evidence the
indebtedness to the such Lender arising by reason of Advances, together
with all modifications, renewals and extensions thereof or of any part
thereof.
"SECURITY AGREEMENT" shall mean that certain Stock Pledge and Security
Agreement executed by the Borrower in favor of the Lender of even date
with the Agreement, affecting 100% of the outstanding stock of the
Guarantor, as the same may be amended, supplemented, and/or restated
from time to time and in effect.
"SOLVENT" shall mean, when used with respect to any Person on a
particular day, that on such date (i) the fair value of the property of
such Person is greater than the total amount of liabilities, including
without limitation, contingent liabilities, of such person, (ii) the
present fair salable value of the assets of such person is not less
than the amount that will be required to pay the probable liability of
such Person on its debts as they become absolute and matured, (iii)
such Person is able to realize upon its assets and pay its debts and
other liabilities, contingent obligations and other commitments as they
mature in the ordinary course of business, (iv) such Person does not
intend to, and does not believe that it will, incur debts and
liabilities beyond such Person's ability to pay as such debts and
liabilities mature, and (v) such Person is not engaged in business or a
transaction, and is
Page 13 of 58
not about to engage in business or a transaction, for which such
Person's property would constitute unreasonably small capital after
giving due consideration to the prevailing practice in the industry in
which such person is engaged. In computing the amount of contingent
liabilities at any time, it is intended that such liabilities will be
computed at the amount which, in light of all of the facts and
circumstances existing at such time, represents the amount that can be
reasonably expected to become an actual or matured liability.
"SUBJECT BUSINESS" shall mean the exploration, development,
exploitation and production of natural gas and crude oil.
"SUBORDINATED PROMISSORY NOTES" shall mean those certain promissory
notes dated December 15, 1999 executed by the Borrower pursuant to the
Chase Purchase Agreement, together with all modifications, renewals and
extensions thereof or any part thereof.
"SUBSIDIARIES" shall mean at any date with respect to any Person all
the corporations of which such Person at such date, directly or
indirectly, owns 50% or more of the outstanding capital stock
(excluding directors' qualifying shares), and "SUBSIDIARY" means any
one of the Subsidiaries.
"TERMINATION DATE" shall mean the earlier to occur of (i) January 31,
2005 or (ii) the date of termination of the Commitment pursuant to
Article XIV hereof.
"TOTAL OUTSTANDINGS" shall mean as of any date, without duplication,
the sum of (i) the total principal balance outstanding on the Revolving
Note, plus (ii) the total face amount of all outstanding Letters of
Credit plus (iii) the total of all Reimbursement Obligations.
"TRANCHE" shall mean a Eurodollar Loan for a particular Interest Period
and/or a Base Rate Loan.
"UCC" shall mean the Uniform Commercial Code-Secured Transactions (La.
R.S. 10:9-101 et seq.) in the State of Louisiana, as amended from time
to time, provided that if by reason of mandatory provisions of law, the
perfection or effect of perfection or non-perfection of the Lender's
Encumbrances against the Collateral is governed by the Uniform
Commercial Code as in effect in a jurisdiction other than the State of
Louisiana, then "UCC" means the Uniform Commercial Code as the same may
be amended from time to time and in effect in such other jurisdiction.
SECTION 1.2. ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP, and all financial
data submitted pursuant to this Agreement shall be prepared in accordance with
GAAP.
Page 14 of 58
ARTICLE II
COMMITMENT
SECTION 2.1. THE REVOLVING LINE OF CREDIT. Subject to the terms and
conditions of this Agreement, the Lender agrees to make Advances to the Borrower
during the period from the date hereof until the Termination Date, by making
Revolving Loans under the Revolving Line of Credit to the Borrower from time to
time, provided, however, that at no time shall the sum of the aggregate
principal amount of such Revolving Loans to the Borrower made by the Lender
under the Revolving Line of Credit at such time outstanding exceed the Borrowing
Base Amount then in effect.
SECTION 2.2. THE BORROWING BASE AMOUNT. The initial Borrowing Base
Amount is hereby fixed at $12,000,000.00 effective March 31, 2002. It is agreed
and understood that the Lender will re-evaluate and re-establish the Borrowing
Base Amount on a semi-annual basis on each October 31 and April 30. The
Borrowing Base Amount also is subject, in the Lender's sole and complete
discretion, to one (1) unscheduled redetermination of the Borrowing Base Amount
after each scheduled semi-annual redetermination by the Lender. The Borrower, at
its option, also may request (and the Lender shall promptly thereafter perform)
one (1) unscheduled Borrowing Base Amount redetermination after each scheduled
semi-annual redetermination by the Lender. The parties agree and understand that
the Borrowing Base Amount is further subject to Quarterly Reductions based upon
the Lender's re-evaluation of the Borrowing Base Amount at such time.
SECTION 2.3. REVOLVING LOANS.
SECTION 2.3.1. REVOLVING LOANS. Subject to the terms and conditions of
this Agreement, the Lender agrees to make Revolving Loans to the Borrower from
time to time under the Revolving Line of Credit in accordance with the terms of
this Agreement. Within the limits set forth herein, the Borrower may borrow from
the Lender hereunder, repay any and all such Revolving Loans as hereinafter
provided and reborrow hereunder; provided, however, each Revolving Loan shall be
in an amount not less than $250,000.00 The Borrower's obligation to repay the
Revolving Loans made by the Lender shall be evidenced by the Revolving Note.
Revolving Loans shall bear interest, at Borrower's option, at the Base Rate plus
the Base Rate Margin or the Eurodollar Rate plus the Eurodollar Margin. The
total number of Tranches under the Revolving Line of Credit which may be
outstanding at any time hereunder shall never exceed five (5) Tranches, whether
such Tranches are Base Rate Loans, Eurodollar Loans, or a combination thereof.
SECTION 2.3.2. LETTERS OF CREDIT. On the terms and conditions
hereinafter set forth, the Lender shall from time to time during the period
beginning on the date of this Agreement and ending on the Termination Date upon
request of Borrower issue standby letters of credit for the account of the
Borrower for general corporate purposes in such amounts as the Borrower may
request but not to exceed in the aggregate face amount at any time outstanding
the sum of $5,000,000.00 (subject to the additional limitations on the amounts
thereof set forth in Section 2.3.3. below), each such letter of credit shall
have an expiry date no later than the earlier of one
Page 15 of 58
(1) year from the date of issuance or the Termination Date, whichever occurs
first (the "Letters of Credit"). On each day during the period while any such
Letter of Credit is issued and outstanding in accordance with the provisions of
this Agreement, the sum of the face amount of each such outstanding Letter of
Credit shall be treated as an Advance under the Revolving Line of Credit.
Borrower hereby unconditionally agrees to pay and reimburse the Lender for the
amount of each payment under any Letter of Credit that is in substantial
compliance with the provisions of such Letter of Credit at or prior to the date
on which payment is made by the Lender to the beneficiary thereunder, without
presentment, demand, protest or other formalities of any kind. Upon receipt from
any beneficiary of any Letter of Credit of any demand for payment under such
Letter of Credit, the Lender shall promptly notify the Borrower of the demand
and the date upon which such payment is to be made by the Lender to such
beneficiary in respect of such demand. Forthwith upon receipt of such notice
from the Lender, Borrower shall advise the Lender whether or not it intends to
borrow under the Revolving Line of Credit to finance its obligations to
reimburse the Lender, and if so, submit a Request for Advance as provided in
Section 2.3.4. hereof.
SECTION 2.3.3. PROCEDURE FOR OBTAINING LETTERS OF CREDIT. The amount
and date of issuance, renewal, extension or reissuance of a Letter of Credit
pursuant to the Section 2.3.2. shall be designated by the Borrower's written
request delivered to the Lender at least three (3) Business Days prior to the
date of such issuance, renewal, extension or reissuance. Concurrently with or
promptly following the delivery of the request for a Letter of Credit, the
Borrower shall execute and deliver to the Lender an application and agreement
with respect to the Letter of Credit, said application and agreement to be in
the form customarily used by the Lender. The terms of this Agreement shall
control in case of any conflict between the terms of this Agreement and the
Lender's form of application and agreement with respect to Letters of Credit.
The Lender shall not be obligated to issue, renew, extend or reissue such
Letters of Credit if (i) the Lender does not approve the requested form of the
Letter of Credit or any of the terms thereof, such approval not to be
unreasonably withheld, (ii) the amount thereon when added to the amount of the
outstanding Letters of Credit exceeds $5,000,000.00, or (iii) the amount thereof
when added to the total outstanding Advances under the Revolving Line of Credit
would exceed the Borrowing Base Amount then in effect. Borrower agrees to pay
the Lender a fee for the issuance of each Letter of Credit, which fee shall be
due and payable by the Borrower to the Lender upon issuance of each Letter of
Credit by the Lender and on each anniversary date of such issuance while such
Letter of Credit is outstanding. The said fee shall be a per annum fee in the
amount equal to the applicable Eurodollar Margin times the face amount of the
Letter of Credit for such period (calculated separately for each Letter of
Credit).
SECTION 2.3.4. MANNER AND NOTICE OF BORROWING UNDER THE REVOLVING LINE
OF CREDIT. Requests For Advances under the Revolving Line of Credit may be made
by the Borrower, in writing (including facsimile transmission) to the Lender and
such requests shall be fully authorized by the Borrower if made by any one of
the persons designated by the Borrower in writing to the Lender. The form of
Request for Advance is attached hereto as Exhibit "B", and includes a
designation by Borrower of the Borrowing Date. The Lender shall have the right,
but not the obligation, to verify any telephone requests by calling the person
who made the request at the telephone number designated by the Borrower in
writing to the Lender. Requests For
Page 16 of 58
Advances must be received by not later than 11:00 a.m. (Central Time) (i) one
(1) Business Day prior to the Borrowing Date in the case of Base Rate Loans, or
(ii) three (3) Business Days prior to any proposed Borrowing Date in the case of
Eurodollar Loans. Not later than 2:00 p.m., Lafayette, Louisiana time, on the
Borrowing Date, the Lender shall make available to Borrower the aggregate amount
of such requested Advance by crediting same to Borrower's checking account and
mailing the resulting credit advice to Borrower. The Lender shall not incur any
liability to Borrower in acting upon any Request for Advance referred to above
which the Lender believes in good faith to have been given by a duly authorized
officer or other person authorized to borrow on behalf of Borrower or for
otherwise acting in good faith under this Section 2.3.4. Upon funding of
Advances by the Lender in accordance with this Agreement, pursuant to any such
Request for Advance, Borrower shall have effected Advances hereunder. Each
Request for Advance for a Revolving Loan must specify whether such Loan is a
Eurodollar Loan or a Base Rate Loan and the applicable Tranche. The Lender's
copy of such credit advice indicating such deposit to the account of the
Borrower shall be deemed conclusive evidence of the Borrower's indebtedness to
the Lender in connection with such borrowing. The aggregate outstanding amount
of principal and interest due by the Borrower at any given time under the
Commitment shall be and constitute the indebtedness of the Borrower to the
Lender under the Revolving Note made by the Borrower. When each Advance is made
by the Lender to the Borrower hereunder, the Borrower shall be deemed to have
renewed and reissued the Revolving Note for the amount of the Advance plus all
amounts due by the Borrower to the Lender under the Commitment immediately prior
to such advance.
SECTION 2.3.5. USE OF PROCEEDS. The Borrower shall use the proceeds of
the Revolving Loans to refinance its senior secured debt with Compass, to
finance working capital requirements, and for direct investments in its oil and
gas operations.
Page 17 of 58
ARTICLE III
NOTE EVIDENCING THE LOANS
SECTION 3.1. REVOLVING NOTE.
SECTION 3.1.1. FORM OF REVOLVING NOTE. The Revolving Loans shall be
evidenced by a Revolving Note in the maximum aggregate face amount of
$30,000,000.00, in favor of the Lender, and shall be in the form of Exhibit "C"
attached hereto with appropriate insertions. Notwithstanding the face amount of
the Note, the actual principal amount due from Borrower to the Lender on account
of the Revolving Note, as of any date of computation, shall be the sum of
Advances then and theretofore made on account thereof, less all principal
payments actually received by Lender in collected funds with respect thereto.
Although the Revolving Note may be dated as of the date of this Agreement,
interest in respect thereof shall be payable only for the period during which
the loans evidenced thereby are outstanding and, although the stated amount of
the Revolving Note may be higher, the Revolving Note shall be enforceable, with
respect to Borrower's obligation to pay the principal amount thereof, only to
the extent of the unpaid principal amount of the loans.
SECTION 3.1.2. PAYMENT OF THE REVOLVING NOTE. Subject to the
requirements of Article VIII below, interest on the unpaid principal balance of
the Revolving Note shall be payable on each Interest Payment Date and on the
Termination Date. Subject to the requirements of Article VIII below, the
outstanding principal due under the Revolving Note resulting from Advances under
shall be due and payable on the Termination Date.
ARTICLE IV
INTEREST RATES
SECTION 4.1. OPTIONS.
SECTION 4.1.1. BASE RATE LOANS. On Base Rate Loans, Borrower agrees to
pay interest calculated on the basis of a year consisting of 365/366 days with
respect to the unpaid principal amount of each Base Rate Loan from the date the
proceeds thereof are made available to Borrower until maturity (whether by
acceleration or otherwise), at a varying rate per annum equal to the lesser of
(i) the Maximum Rate and (ii) the Base Rate plus the Base Rate Margin. Past due
principal, to the extent permitted by law, shall bear interest, payable upon
demand, at the lesser of (i) the Maximum Rate and (ii) the default rate
specified in the Revolving Note.
SECTION 4.1.2. EURODOLLAR LOANS. On Eurodollar Loans, Borrower agrees
to pay interest calculated on the basis of a year consisting of 360 days with
respect to the unpaid principal amount of each Eurodollar Loan from the date the
proceeds thereof are made available to Borrower until maturity (whether by
acceleration or otherwise), at a varying rate per annum equal to the lesser of
(i) the Maximum Rate and (ii) the Eurodollar Rate plus the Eurodollar Margin.
Past due principal, to the extent permitted by law, shall bear interest, payable
on demand, at the lesser of (i) the Maximum Rate and (ii) the default rate
specified in the Revolving Note. Upon three (3) Business Days written notice
prior to the making by the Lender of any Eurodollar Loan (in the case of the
initial Interest Period therefor) or the expiration date of each succeeding
Interest Period (in the case of subsequent Interest Periods therefor), Borrower
shall have the
Page 18 of 58
option, subject to compliance by Borrower with all of the provisions of this
Agreement, as long as no Event of Default exists, to specify whether the
Interest Period commencing on any such date shall be a one (1), two (2), three
(3) or six (6) month period. If the Lender shall not have received timely notice
of a designation of such Interest Period as herein provided, Borrower shall be
deemed to have elected to convert all maturing Eurodollar Loans to Base Rate
Loans.
SECTION 4.2. INTEREST RATE DETERMINATION. The Lender shall determine
each interest rate applicable to any Base Rate Loan or Eurodollar Loan and its
determination shall be conclusive absent manifest error. The Lender shall notify
the Borrower of each interest rate determination within a reasonable time after
each such determination.
SECTION 4.3. CONVERSION OPTION. Borrower may elect from time to time
(i) to convert all or any part of its Eurodollar Loans to Base Rate Loans by
giving the Lender irrevocable notice of such election in writing prior to 10:00
a.m. (Lafayette, Louisiana time) on the conversion date and such conversion
shall be made on the requested conversion date, provided that any such
conversion of Eurodollar Loan shall only be made on the last day of the
Eurodollar Interest Period with respect thereof, and (ii) to convert all or any
part of its Base Rate Loans to Eurodollar Loans by giving the Lender irrevocable
written notice of such election three (3) Business Days prior to the proposed
conversion and such conversion shall be made on the requested conversion date
or, if such requested conversion date is not a Business Day on the next
succeeding Business Day. Any such conversion shall not be deemed to be a
prepayment of any of the Loans for purposes of this Agreement on the Revolving
Note.
ARTICLE V
CHANGE OF CIRCUMSTANCES
SECTION 5.1. UNAVAILABILITY OF FUNDS OR INADEQUACY OF PRICING. In the
event that, in connection with any proposed Eurodollar Loan, the Lender
determines, which determination shall, absent manifest error, be final,
conclusive and binding upon all parties, due to changes in circumstances since
the date hereof, adequate and fair means do not exist for determining the
Eurodollar Rate or such rate will not accurately reflect the costs to the Lender
of funding Eurodollar Loans for such Eurodollar Interest Period, the Lender
shall give notice of such determination to the Borrower, whereupon, until the
Lender notifies the Borrower that the circumstances giving rise to such
suspension no longer exist, the obligation of the Lender to make, continue or
convert Loans into Eurodollar Loans shall be suspended, and all loans to
Borrower shall be Base Rate Loans during the period of suspension.
SECTION 5.2. CHANGE IN LAWS. If at any time after the date hereof any
new law or any change in existing laws or in the interpretation by any
governmental authority, central bank, or comparable agency charged with the
administration or interpretation thereof, of any new or existing laws shall make
it unlawful for the Lender to make or continue to maintain or fund Eurodollar
Loans hereunder, then Lender shall promptly notify Borrower in writing of
Lender's
Page 19 of 58
obligation to make, continue or convert Loans into Eurodollar Loans under this
Agreement shall be suspended until it is no longer unlawful for Lender to make
or maintain Eurodollar Loans. Upon receipt of such notice, Borrower shall either
repay the outstanding Eurodollar Loans owed to the Lender, without penalty, on
the last day of the current Interest Periods (or, if Lender may not lawfully
continue to maintain and fund such Eurodollar Loans, immediately), or Borrower
may convert such Eurodollar Loans at such appropriate time to Base Rate Loans.
SECTION 5.3. INCREASED COST OR REDUCED RETURN.
(i) If, after the date hereof, the adoption of any
applicable law, rule, or regulation, or any change in any applicable law, rule,
or regulation, or any change in the interpretation or administration thereof by
any governmental authority, central bank, or comparable agency charged with the
interpretation or administration thereof, or compliance by the Lender with any
request or directive (whether or not having the force of law) of any such
governmental authority, central bank, or comparable agency:
(A) shall subject Lender to any tax, duty, or
other charge with respect to any Eurodollar Loans, the
Revolving Note, or its obligation to make Eurodollar Loans,
or change the basis of taxation of any amounts payable to
Lender under this Agreement, or the Revolving Note, in
respect of any Eurodollar Loans (other than franchise taxes
and taxes imposed on the overall net income of Lender);
(B) shall impose, modify, or deem applicable any
reserve, special deposit, assessment, or similar requirement
(other than reserve requirements, if any, taken into account
in the determination of the Eurodollar Rate) relating to any
extensions of credit or other assets of, or any deposits
with or other liabilities or commitments of, Lender,
including the Commitment of Lender hereunder; or
(C) shall impose on Lender or on the London
interbank market any other condition affecting this
Agreement or the Revolving Note or any of such extensions of
credit or liabilities or commitments;
and the result of any of the foregoing is to increase the cost to Lender of
making, converting into, continuing, or maintaining any Eurodollar Loans or to
reduce any sum received or receivable by Lender under this Agreement or the
Revolving Note with respect to any Eurodollar Loans, then pursuant to Section
5.3(v) Borrower shall pay to Lender such amount or amounts as will compensate
Lender for such increased cost or reduction. If Lender requests compensation by
Borrower under this Section 5.3., Borrower may, by notice to Lender, suspend the
obligation of Lender to make or continue Eurodollar Loans, or to convert all or
part of the Base Rate Loan owing to Lender to Eurodollar Loans, until the event
or condition giving rise to such request ceases to be in effect (in which case
the provisions of Section 5.3. shall be applicable); provided that such
suspension shall not affect the right of Lender to receive the compensation so
requested.
Page 20 of 58
(ii) If, after the date hereof, Lender shall have determined
that the adoption of any applicable law, rule, or regulation regarding capital
adequacy or any change therein or in the interpretation or administration
thereof by any governmental authority, central bank, or comparable agency
charged with the interpretation or administration thereof, or any request or
directive regarding capital adequacy (whether or not having the force of law) of
any such governmental authority, central bank, or comparable agency, has or
would have the effect of reducing the rate of return on the capital of Lender or
any corporation controlling Lender as a consequence of Lender's obligations
hereunder to a level below that which Lender or such corporation could have
achieved but for such adoption, change, request, or directive (taking into
consideration its policies with respect to capital adequacy), then from time to
time pursuant to Section 5.3(v) Borrower shall pay to Lender such additional
amount or amounts as will compensate Lender for such reduction.
(iii) Lender shall promptly notify Borrower of any event of
which it has knowledge, occurring after the date hereof, which will entitle
Lender to compensation pursuant to this Section 5.3. will designate a separate
lending office, if applicable, if such designation will avoid the need for, or
reduce the amount of, such compensation and will not, in the judgment of Lender,
be otherwise disadvantageous to it. If Lender claims compensation under this
Section 5.3., Lender shall simultaneously furnish to Borrower a statement
setting forth the additional amount or amounts to be paid to it hereunder which
shall be conclusive in the absence of manifest error. In determining such
amount, Lender may use any reasonable averaging and attribution methods.
(iv) If Lender gives notice to the Borrower pursuant to
Section 5.3. hereof, Lender shall simultaneously give to the Borrower a
statement signed by an officer of Lender setting forth in reasonable detail the
basis for, and the calculation of such additional cost, reduced payments or
capital requirements, as the case may be, and the additional amounts required to
compensate Lender therefor.
(v) Within fifteen (15) days after receipt by the Borrower
of any notice referred to in Section 5.3., the Borrower shall pay to Lender such
additional amounts as are required to compensate Lender for the increased cost,
reduce payments or increase capital requirements identified therein, as the case
may be; provided, that the Borrower shall not be obligated to compensate Lender
for any increased costs, reduced payments or increased capital requirements to
the extent that Lender incurs the same prior to a date six (6) months before
Lender gives the required notice.
SECTION 5.4. BREAKAGE COSTS. Without duplication under any other
provision hereof, if Lender incurs any actual loss, cost or expense (including,
without limitation, any loss of profit and loss, cost, expense or premium
reasonably incurred by reason of the liquidation or re-employment of deposits or
other funds acquired by Lender to fund or maintain any Eurodollar Loan or the
relending or reinvesting of such deposits or amounts paid or prepaid to the
Lender as a result of any of the following events other than any such occurrence
as a result in the change of circumstances described in Sections 5.1. and 5.2.:
Page 21 of 58
(i) any payment, prepayment or conversion of a Eurodollar
Loan on a date other than the last day of its Eurodollar Interest
Period (whether by acceleration, prepayment or otherwise);
(ii) any failure to make a principal payment of a Eurodollar
Loan on the due date thereof; or
(iii) any failure by the Borrower to borrow, continue,
prepay or convert to a Eurodollar Loan on the dates specified in a
notice given pursuant to this Agreement.
then the Borrower shall within 15 days after demand pay to Lender such amount as
will reimburse Lender for such loss, cost or expense. If Lender makes such a
claim for compensation, it shall simultaneously furnish to Borrower a statement
setting forth the amount of such loss, cost or expense in reasonable detail
(including an explanation of the basis for and the computation of such loss,
cost or expense) and the amounts shown on such statement shall be conclusive and
binding absent manifest error.
ARTICLE VI
FEES
SECTION 6.1. FACILITY FEE. The Borrower shall pay to the Lender a
facility fee in the amount equal to $60,000.00, payable upon execution of this
Agreement by the Borrower. An additional facility fee of one-half percent (.50%)
of the incremental amount of any increase to the Borrowing Base Amount shall be
owed by Borrower to the Lender, and such fee shall be payable by Borrower upon
its acceptance of said increase; provided, however, if the Borrowing Base Amount
is reduced and then reinstated to a higher amount, the additional facility fee
will be applicable only to the incremental amount, if any, by which the higher
amount exceeds the previous highest Borrowing Base Amount. The Borrower hereby
authorizes the Lender to debit its account maintained with the Lender for
collection of the facility fees.
SECTION 6.2. UNUSED FEE. The Borrower shall pay the Lender an unused
fee calculated on the unused portion of the Borrowing Base Amount as follows:
(i) if the Borrowing Base Usage is greater than or equal to 90%, the unused fee
is 0.50%; (ii) if the Borrowing Base Usage is greater than or equal to 50% but
less than 90%, the unused fee is 0.50%; and (iii) if the Borrowing Base Usage is
less than 50%, the unused fee is 0.375%. The unused fee will be payable
quarterly in arrears on the last day of each fiscal quarter, commencing June 30,
2002. The unused portion of the Borrowing Base Amount shall be determined on a
daily basis by subtracting from the Borrowing Base Amount the Total
Outstandings, and by averaging said daily amounts for the period for which the
fee is to be determined. The Borrower hereby authorizes the Lender to debit its
account maintained with the Lender for collection of the unused fee.
Page 22 of 58
SECTION 6.3. LETTER OF CREDIT FEE. The Borrower shall pay to the
Lender a fee for each Letter of Credit as provided in Section 2.3.3. of this
Agreement.
SECTION 6.4. ENGINEERING FEE. The Borrower shall pay to the Lender a
fee of $7,500.00 for each unscheduled determination of the Borrowing Base Amount
requested by Borrower. The Borrower hereby authorizes the Lender to debit its
account maintained with the Lender for collection of the fee.
ARTICLE VII
CERTAIN GENERAL PROVISIONS
SECTION 7.1. PAYMENTS TO THE LENDER. All payments of principal,
interest, fees and any other amounts due hereunder or under any of the other
Related Documents shall be made to the Lender at its office in New Orleans,
Louisiana at 313 Carondelet Street, New Orleans, Louisiana 70130, or at such
other location that the Lender may from time to time designate in writing to the
Borrower, in each case in immediately available funds.
SECTION 7.2. NO OFFSET, ETC. All payments by the Borrower hereunder
and under any of the other Related Documents shall be made without setoff and
free and clear of and without deduction for any taxes, levies, imposts, duties,
charges, fees, deductions, withholdings, compulsory loans, restrictions or
conditions of any nature now or hereafter imposed or levied by any jurisdiction
or any political subdivision thereof or taxing or other authority therein unless
the Borrower is compelled by law to make such deduction or withholding. If any
such obligation is imposed upon the Borrower with respect to any amount payable
by it hereunder or under any of the other Loan Documents, the Borrower will pay
to the Lender, on the date on which such amount is due and payable hereunder or
under such other Related Document, such additional amount in Dollars as shall be
necessary to enable the Lender to receive the same net amount which the Lender
would have received on such due date had no such obligation been imposed upon
the Borrower. The Borrower will deliver promptly to the Lender certificates or
other valid vouchers for all taxes or other charges deducted from or paid with
respect to payments made by the Borrower hereunder or under such other Loan
Documents.
SECTION 7.3. PRINCIPAL AMOUNT OF REVOLVING NOTE. The Borrower
acknowledges and understands that notwithstanding the stated principal amount of
the Revolving Note, that the Lender's obligation to fund Advances under the
Revolving Note is limited for all purposes to the terms and conditions of this
Agreement, including but not limited to, availability under the Borrowing Base
Amount then in effect. IN ADDITION, THE BORROWER UNDERSTANDS AND AGREES THAT
NOTWITHSTANDING ANY PROVISION IN THIS AGREEMENT OR THE REVOLVING NOTE TO THE
CONTRARY, THAT THE LENDER SHALL NOT BE OBLIGATED TO FUND ANY AMOUNT IN EXCESS OF
THE BORROWING BASE AMOUNT THEN IN EFFECT.
Page 23 of 58
SECTION 7.4. RATE MANAGEMENT TRANSACTIONS. The Borrower is permitted
to enter into Rate Management Transactions with the Lender.
SECTION 7.5. CALCULATION OF FEES. The fees set forth in Article VI
above will be calculated on the basis of a year consisting of 360 days.
ARTICLE VIII
PREPAYMENTS
SECTION 8.1. VOLUNTARY PREPAYMENTS. Borrower may at any time and from
time to time, without premium or penalty, prepay Base Rate Loans. Borrower may
at any time and from time to time, without penalty or premium subject to Section
5.4. hereof, prepay Eurodollar Loans outstanding upon at least three (3)
Business Day's notice to Lender.
SECTION 8.2. MANDATORY PREPAYMENT RESULTING FROM A QUARTERLY
REDUCTION. Subject to Section 5.4 above, in the event the outstanding principal
amount of all Loans under the Revolving Line of Credit exceed, as a result of a
Quarterly Reduction, the Borrowing Base Amount then in effect, the Borrower
shall make (on the first Business Day of the month following the Quarterly
Reduction) a mandatory prepayment to the Lender of the excess amount and
accrued, unpaid interest (through the date of payment) on such excess amount.
SECTION 8.3. MANDATORY PREPAYMENT RESULTING FROM OVERADVANCES. Except
as otherwise required by Section 13.2, in the event the unpaid principal amount
of the Revolving Loans ever exceeds the Borrowing Base Amount then in effect
(including any scheduled or unscheduled redetermination of the Borrowing Base
Amount), the Borrower (at its option) agrees, within thirty (30) days after
notice from Lender of the occurrence of such an excess amount (an "overadvance")
to do the following (individually or in combination): (a) make a lump sum
payment to the Lender in an amount equal to the overadvance; (b) grant to the
Lender security interests or mortgage liens on new collateral having, in the
Lender's sole discretion an incremental Borrowing Base Amount value at least
equal to one hundred percent (100%) of such overadvance; or (c) make the first
of six (6) (or fewer) consecutive monthly payments to the Lender, each in the
amount equal to one-sixth (or such corresponding lesser amount if fewer than six
payments are made) of the overadvance.
ARTICLE IX
SECURITY FOR THE INDEBTEDNESS
SECTION 9.1. SECURITY. The Indebtedness of the Borrower to the Lender
under this Agreement and the Revolving Note shall be secured by the following:
(a) the Mortgage;
Page 24 of 58
(b) the Security Agreement (and physical delivery to the Lender of the
stock certificates therein described);
(c) the Guaranty; and
(d) any additional Collateral Documents granted by any Person in favor
of Lender as security for the Indebtedness of the Borrower to the Lender under
this Agreement and the Revolving Note.
The Borrower understands and acknowledges that item (a) and (b) above
constitute first priority mortgage liens and security interests affecting the
Mortgaged Properties and 100% of the outstanding stock of the Guarantor in favor
of the Lender, subject only to Permitted Encumbrances and Designated Title
Exceptions as herein provided.
ARTICLE X
CONDITIONS PRECEDENT
SECTION 10.1. CONDITIONS PRECEDENT TO ALL REVOLVING LOANS. The
obligation of the Lender to make any Revolving Loan hereunder shall be subject
to the satisfaction and the continued satisfaction of the following conditions
precedent:
(a) On or prior to the date hereof, the Borrower shall have executed
and delivered to the Lender this Agreement, the Revolving Note, the Mortgage,
the Security Agreement, and all other documents required by this Agreement, all
in form and substance and in such number of counterparts as may be required by
the Lender;
(b) On or prior to the date hereof, the Guarantor shall have executed
and delivered to the Lender this Agreement, the Guaranty, and all other
documents required by this Agreement, all in form and substance and in such
number of counterparts as may be required by the Lender;
(c) The representations, warranties, and covenants of the Borrower as
set forth in this Agreement, or in any Related Document furnished to the Lender
in connection herewith, shall be and remain true and correct as of such date
(except to the extent specifically limited to a specified date);
(d) On or prior to the date hereof, the Lender shall have received a
favorable legal opinion of counsel to the Borrower and the Guarantor covering
the transactions contemplated by this Agreement, in form, scope and substance
satisfactory to the Lender;
(e) The Lender shall have received certified resolutions of the
Borrower and the Guarantor authorizing the execution of all documents and
instruments contemplated by this Agreement;
Page 25 of 58
(f) The Lender shall have received all fees, charges and expenses
which are due and payable as specified in this Agreement and any Related
Documents;
(g) No Default or Event of Default shall exist or shall result from
the making of a Loan or the issuance of a Letter of Credit;
(h) The Borrower shall have provided the Lender with all financial
statements, reports and certificates required by this Agreement;
(i) On or prior to the date hereof, the Lender shall have received the
articles of incorporation and bylaws, as amended, and the Lender's counsel shall
have reviewed the foregoing documents and is satisfied with the validity, due
authorization and enforceability thereof and of all Related Documents;
(j) On or prior to the date hereof, the Lender shall have received
evidence acceptable to the Lender and their counsel that its Encumbrances
affecting the Collateral shall have a first priority position, subject only to
Permitted Encumbrances;
(k) The Borrower shall have complied with the procedure set forth in
this Agreement, for the making of a Revolving Loan;
(l) Except as disclosed on Schedule 10.1 attached hereto there shall
have occurred no Material Adverse Effect since the date of the most recent
financial statements delivered by Borrower to Lender hereunder;
(m) The Lender's reasonable satisfactory review prior to the date
hereof of all environmental matters related to the Mortgaged Properties;
(n) The Borrower must maintain insurance as required by Section 11.6,
and deliver to Lender evidence of such insurance coverage;
(o) To the extent requested by Lender and required by the Loan
Documents, the Borrower shall have executed and delivered to the Lender blank
form letters in lieu of division orders, in form and substance satisfactory to
the Lender; and
(p) On or prior to the date hereof, the Lender shall have received
title opinions from counsel to Borrower (or other title information reasonably
acceptable to the Lender) covering not less than eighty percent (80%) of the
present value of the initial Borrowing Base Amount, as determined by the Lender,
which opinions (or other title information reasonably acceptable to the Lender)
must satisfy (in the Lender's reasonable discretion) the first sentence of
Section 11.3.
The Lender reserve the right, in its sole discretion, to waive any one
or more of the foregoing conditions precedent.
Page 26 of 58
ARTICLE XI
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lender as follows:
SECTION 11.1. CORPORATE AUTHORITY OF THE BORROWER. The Borrower is a
corporation duly created, validly existing, and in good standing under the laws
of the state its incorporation, and is duly qualified and in good standing as
foreign corporation in Louisiana and all other jurisdictions where the failure
to qualify would have an adverse effect upon its ability to perform its
obligations under this Agreement and all Related Documents to which it is a
party. The Borrower has the corporate power to enter into this Agreement,
execute the Revolving Note, Mortgage, Security Agreement, and grant the liens
and security interests in the Collateral in the manner and for the purpose
contemplated by the Collateral Documents. The Borrower has the corporate power
to perform its obligations hereunder and under the Loan Documents and Related
Documents. The execution, delivery, and performance by the Borrower of the Loan
Documents and Related Documents have all been duly authorized by all necessary
corporate or company action, and do not and will not result in any violation by
the Borrower of any provision of any law, rule, regulation, order, writ,
judgment, decree, determination or award presently in effect having
applicability to the Borrower, or the articles of incorporation and bylaws of
the Borrower. Except as set forth in Schedule 11.1 attached hereto, the making
and performance by the Borrower of the Loan Documents and Related Documents do
not and will not result in a breach of or constitute a default under any
material indenture or loan or credit agreement or any other material agreement
or instrument to which the Borrower is a party or by which it may be bound or
affected, or result in, or require, the creation or imposition of any mortgage,
deed of trust, pledge, lien, security interest or other charge or encumbrance of
any nature (other than as contemplated by the Related Documents) upon or with
respect to any of the properties now owned or hereafter acquired by the
Borrower. Each of the Loan Documents and Related Documents to which the Borrower
is a party constitutes a legal, valid and binding obligation of the Borrower,
enforceable in accordance with its terms.
SECTION 11.2. FINANCIAL STATEMENTS. The most recent balance sheet of
the Borrower at the dates thereof, and the related statements of income and
retained earnings for the year then ended, copies of which have been delivered
to the Lender fairly present in all material respects the financial condition of
the Borrower as of the date or dates thereof. Each of said financial statements
were prepared in conformity with GAAP and, except as otherwise disclosed to
Lender in writing, applied on a basis consistent with the preceding year. No
Material Adverse Effect has occurred since said dates in the financial position
or in the results of operations of the Borrower in its business taken as a
whole.
SECTION 11.3. TITLE TO MORTGAGED PROPERTIES. Except as set forth on
Schedule 11.3 attached hereto, the Borrower has Defensible Title to the
Mortgaged Properties at a book cost in excess of $200,000 (except to the extent
that (a) such assets have thereafter been disposed of in compliance with this
Agreement or (b) leases for such property have expired pursuant to their terms),
and, in each case free and clear of all Encumbrances except (other than
Permitted
Page 27 of 58
Encumbrances) (i) Encumbrances for taxes not yet due and payable or, if payable,
that are being contested in good faith in the ordinary course of business, (ii)
statutory Encumbrances (including materialmen's, mechanic's, repairmen's,
landlord's and other similar encumbrances) arising in the ordinary course of
business to secure payments not yet due and payable or, if payable, that are
being contested in good faith in the ordinary course of business, (iii)
easements, restrictions, reservations or other encumbrances, as well as such
imperfections or irregularities of title, if any, as are not material, (iv)
obligations or duties to any municipality or public authority with respect to
any franchise, grant, license or permit and all applicable laws, rules,
regulations and orders of any Governmental Authority, (v) all lessors'
royalties, overriding royalties, net profits interests, production payments,
carried interests, reversionary interests and other burdens on or deductions
from the proceeds of production, (vi) the terms and conditions of joint
operating agreements and other oil and gas contracts, (vii) all rights to
consent by, required notices to, and filings with or other actions by
governmental or tribal entities, if any, in connection with the change of
ownership or control of an interest in federal, state, tribal or other domestic
governmental oil and gas leases, if the same are customarily obtained subsequent
to such change of ownership or control, but only insofar as such consents,
notices, filings and other actions relate to the transactions contemplated by
this Agreement, (viii) any preferential purchase rights, (ix) required third
party consents to assignment, (x) conventional rights of reassignment prior to
abandonment and (xi) the terms and provisions of oil and gas leases, unit
agreements, pooling agreements, and other documents creating interests
comprising the oil and gas properties; provided, however, the exceptions
described in clauses (iv) through (xi) inclusive above are qualified to include
only those exceptions in each case which do not operate to (A) reduce the net
revenue interest of the Borrower below that set forth on Schedule 11.3, (B)
increase the proportionate share of costs and expenses of leasehold operations
attributable to or to be borne by the working interest of the Borrower above
that set forth on Schedule 11.3 without a proportionate increase in the net
revenue interest of the Borrower or (C) increase the working interest of the
Borrower above that set forth on Schedule 11.3 without a proportionate increase
in the net revenue interest of the Borrower, and, provided, further, that the
foregoing defects, limitations, liens and encumbrances, whether individually
material or not, do not in the aggregate create a Material Adverse Effect upon
the Borrower (the categories of exceptions in clauses (iv) through (xi), as so
qualified and as any such exceptions may exist from time to time, being referred
to as the "DESIGNATED TITLE EXCEPTIONS"). The Mortgage constitutes a legal,
valid and perfected first Encumbrance on the property interests covered thereby,
subject only to Designated Title Exceptions, Permitted Encumbrances, and matters
disclosed on Schedule 11.3. Further, as of the date hereof, the oil and gas
properties constituting not less than ninety percent (90%) of the present value
of the initial Borrowing Base Amount are Mortgaged Properties.
SECTION 11.4. LITIGATION. Other than as set forth in Schedule 11.4 and
as may be disclosed to the Lender in writing after the date of this Agreement,
there are no legal actions, suits or proceedings pending or, to the best
knowledge of the Borrower, threatened against or affecting the Borrower, or any
of its properties before any court or administrative agency (federal, state or
local), which could reasonably be expected to constitute a Material Adverse
Effect, and there are no judgments or decrees affecting the Borrower, or its
property (including, without limitation, the Collateral) which are or could
reasonably be expected to become an Encumbrance against such property (other
than a Designated Title Exception or a Permitted Encumbrance), provided that no
Page 28 of 58
breach of this Section 11.4 shall occur if the same is discharged within thirty
days after the date of entry thereof or an appeal or appropriate proceeding for
review thereof is taken within such period and a stay of execution pending such
appeal is obtained.
SECTION 11.5. APPROVALS. No authorization, consent, approval or formal
exemption of, nor any filing or registration with, any governmental body or
regulatory authority (federal, state or local), and no vote, consent or approval
of the shareholders of the Borrower is or will be required in connection with
the execution and delivery by the Borrower of the Related Documents or the
performance by the Borrower of its obligations hereunder and under the other
Related Documents, except to the extent obtained.
SECTION 11.6. REQUIRED INSURANCE. The Borrower maintains insurance
with insurance companies in such amounts and against such risks as is usually
carried by owners of similar businesses and properties in the same general areas
in which Borrower operates.
SECTION 11.7. LICENSES. The Borrower possesses adequate franchises,
licenses and permits to own its properties and to carry on its business as
presently conducted, except where the failure to do so could not reasonably be
expected to have a Material Adverse Effect.
SECTION 11.8. ADVERSE AGREEMENTS. Except as described in Schedule
10.1, the Borrower is not a party to any agreement or instrument, nor subject to
any charter or other restriction, materially and adversely affecting the
business, properties, assets, or operations of the Borrower or its condition
(financial or otherwise), and the Borrower is not in default in the performance,
observance or fulfillment of any of the obligations, covenants or conditions
contained in any agreement or instrument to which it is a party, which default
would constitute a Material Adverse Effect.
SECTION 11.9. DEFAULT OR EVENT OF DEFAULT. No Default or Event of
Default hereunder has occurred and is continuing or will occur as a result of
the giving effect hereto.
SECTION 11.10. EMPLOYEE BENEFIT PLANS. Each employee benefit plan as
to which the Borrower may have any liability complies in all material respects
with all applicable requirements of law and regulations, and (i) no Reportable
Event (as defined in ERISA) has occurred and is continuing with respect to any
such plan, (ii) the Borrower has not withdrawn from any such plan or initiated
steps to do so, and (iii) no steps have been taken to terminate any such plan.
SECTION 11.11. INVESTMENT COMPANY ACT. The Borrower is not an
"investment company" or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended.
SECTION 11.12. PUBLIC UTILITY HOLDING COMPANY ACT. The Borrower is not
a "holding company," or a "subsidiary company" of a "holding company," within
the meaning of the Public Utility Holding Company Act of 1935, as amended.
Page 29 of 58
SECTION 11.13. REGULATIONS X, T AND U. The Borrower is not engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying margin stock (within the
meaning of Regulations X, T and U of the Board of Governors of the Federal
Reserve System), and none of the proceeds of the Loans will be used for the
purpose of purchasing or carrying such margin stock.
SECTION 11.14. LOCATION OF OFFICES AND RECORDS. As of the date hereof,
the chief place of business of the Borrower, and the office where the Borrower
keeps all of its records concerning the Collateral, is 14701 St. Mary's Lane,
Suite 800, Houston, Texas 77079.
SECTION 11.15. INFORMATION. All written information heretofore or
contemporaneously herewith furnished by the Borrower to the Lender for the
purposes of or in connection with this Agreement or any transaction contemplated
hereby (excluding projections, estimates, and engineering reports) is, and all
such information hereafter furnished by or on behalf of the Borrower to the
Lender will be, true and accurate in every material respect on the date as of
which such information is dated or certified; and none of such information is or
will be incomplete by omitting to state any material fact necessary to make such
information not misleading as of such date, taken as a whole. To the best
knowledge of Borrower, the engineering reports delivered to the Lender in
connection with this Agreement do not contain any material inaccuracies and/or
omissions. The said engineering reports, however, are based upon professional
opinions, estimates and projections and the Borrower does not warrant that such
opinions, estimates and projections will ultimately prove to have been accurate.
All other projections and estimates by the Borrower delivered hereunder or in
connection herewith were prepared in good faith on the basis of the assumptions
believed by the Borrower in good faith to be reasonable in light of the then
current and foreseeable business conditions of the Borrower and its Subsidiaries
at the time of preparation thereof, it being understood by the Lender that
actual results may vary from projected results.
SECTION 11.16. ENVIRONMENTAL MATTERS. Except as previously disclosed
to the Lender in writing or as could not reasonably be expected to result in a
Material Adverse Effect:
(a) To the best of Borrower's knowledge and belief after due inquiry,
Borrower is in compliance with all applicable Environmental Laws;
(b) To the best of Borrower's knowledge and belief after due inquiry,
Borrower has obtained all consents and permits required under all applicable
Environmental Laws to operate its business as presently conducted or as proposed
to be conducted and all such consents and permits are in full force and effect
and Borrower is in compliance with all terms and conditions of such approvals;
(c) To the best of Borrower's knowledge and belief after due inquiry,
neither Borrower nor any of the present property or operations of Borrower is
subject to any order from or agreement with any Governmental Authority or
private party respecting (i) failure to comply with any Environmental Law or any
Remedial Action or (ii) any Environmental Liabilities arising from the Release
or threatened Release except those orders and agreements with which Borrower has
complied;
Page 30 of 58
(d) To the best of Borrower's knowledge and belief after due inquiry,
none of the operations of Borrower is subject to any judicial or administrative
proceeding alleging a violation of, or liability under, any Environmental Law;
(e) None of the operations of Borrower, to its best knowledge after
due inquiry, is the subject of any investigation by any Governmental Authority
evaluating whether any Remedial Action is needed to respond to a Release or
threatened Release;
(f) Borrower has not been required to file any notice under any
Environmental Law indicating past or present treatment, storage or disposal of a
hazardous waste as defined by 40 CFR Part 261 or any state or local equivalent
which could reasonably be expected to have a Material Adverse Effect;
(g) Borrower has not been required to file any notice under any
applicable Environmental Law reporting a Release which could reasonably be
expected to have a Material Adverse Effect;
(h) There is not now, nor, to the best knowledge of Borrower, has
there ever been, on or in any property of Borrower:
(i) any unauthorized generation, treatment, recycling,
storage or disposal of any hazardous waste as
defined by 40 CFR Part 261 or any state or local
equivalent,
(ii) any underground storage tanks or surface
impoundments without proper permits,
(iii) any asbestos - containing material, or
(iv) any polychlorinated biphenyls (PCBs) used in
hydraulic oils, electrical transformers or other
equipment;
(i) There have been no written commitments or agreements involving
Borrower from or with any Governmental Authority or any private entity
(including, without limitation, the owner of the Mortgaged Properties or any
portion thereof) relating to the generation, storage, treatment, presence,
Release, or threatened Release which could reasonably be expected to have a
Material Adverse Effect on or into any of the properties of Borrower or the
environment (including off-site disposal of Hazardous Materials) or any Remedial
Action with respect thereto in non-compliance or violation of any Environmental
Law;
(j) Borrower has not received any written notice or claim to the
effect that it is or may be liable to any Person as a result of the Release or
threatened Release which could reasonably be expected to have a Material Adverse
Effect;
Page 31 of 58
(k) To the best of Borrower's knowledge and belief after due inquiry,
Borrower has no known liability in connection with any material Release or
material threatened Release which could reasonably be expected to have a
Material Adverse Effect;
(l) After due inquiry, no Environmental Lien has attached (and
continues to attach) to any properties of Borrower, provided that no breach of
this Section 11.16(l) shall occur if the same is discharged within thirty days
after the attachment thereof or an appeal or other appropriate proceeding for
review thereof is taken within said thirty day period and/or a stay of execution
pending such appeal is obtained; and
(m) To the Borrower's best knowledge after due inquiry, there have
been no environmental investigations, studies, audits, tests, reviews or other
analyses conducted by or which are in the possession of Borrower in relation to
any violation of Environmental Laws which violation could reasonably be expected
to have a Material Adverse Effect in relation to any properties or facility now
or previously owned or leased by Borrower which have not been made available to
Lender.
SECTION 11.17. SOLVENCY OF THE BORROWER. The Borrower is and after
consummation of the transactions contemplated by this Agreement (including the
making of the Loans and the issuance of Letters of Credit), and after giving
effect to all obligations incurred by the Borrower in connection herewith, will
be, Solvent.
SECTION 11.18. GOVERNMENTAL REQUIREMENTS. The Collateral is in
compliance with all current governmental requirements affecting the said
property, except where failure could not reasonably be expected to have a
Material Adverse Effect.
SECTION 11.19. CORPORATE AUTHORITY OF THE GUARANTOR. The Guarantor is
a corporation duly created, validly existing, and in good standing under the
laws of the state of its incorporation, and is duly qualified and in good
standing as foreign corporation in all other jurisdictions where the failure to
qualify would have an adverse effect upon its ability to perform its obligations
under this Agreement and all Related Documents to which it is a party. The
Guarantor has the corporate power to enter into this Agreement and the Guaranty.
The Guarantor has the power to perform its obligations hereunder and under the
Loan Documents and Related Documents to which it is a party. The making and
performance by the Guarantor of the Loan Documents and Related Documents to
which it is a party have all been duly authorized by all necessary corporate or
company action, and do not and will not violate any provision of any law, rule,
regulation, order, writ, judgment, decree, determination or award presently in
effect having applicability to the Guarantor, or the articles of incorporation
and bylaws of the Guarantor. The making and performance by the Guarantor of the
Loan Documents and Related Documents to which it is a party do not and will not
result in a breach of or constitute a default under any material indenture or
loan or credit agreement or any other material agreement or instrument to which
the Guarantor is a party or by which it may be bound or affected, or result in,
or require, the creation or imposition of any mortgage, deed of trust, pledge,
lien, security interest or other charge or encumbrance of any nature (other than
as contemplated by the Related Documents) upon or with respect to any of the
properties now owned or hereafter acquired by the Guarantor, and the Guarantor
is not in default under or in violation of any such order, writ, judgment,
Page 32 of 58
decree, determination, award, indenture, agreement or instrument to the extent
any such default or violation could reasonably be expected to have a Material
Adverse Effect. Each of the Loan Documents and Related Documents to which the
Guarantor is a party constitutes a legal, valid and binding obligation of the
Guarantor, enforceable in accordance with its terms.
SECTION 11.20. CHASE PURCHASE AGREEMENT. As of the date hereof
(without giving effect to any material modifications which may hereafter be made
to this Agreement), (i) the Indebtedness is entitled to the benefits accorded
the Senior Indebtedness (as such term is defined in the Chase Purchase
Agreement) and (ii) the consent of the Investors (as such term is defined in the
Chase Purchase Agreement) is not required for the Borrower's execution of and
performance under this Agreement.
SECTION 11.21. SECURITY AGREEMENT. The Security Agreement constitutes
a first priority security interest affecting one hundred percent (100%) of the
issued and outstanding stock of the Guarantor, and there are no other
Encumbrances affecting the said stock.
SECTION 11.22. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
Borrower understands and agrees that the Lender is relying upon the above
representations and warranties in making the Loans to the Borrower. The Borrower
further agrees that the foregoing representations and warranties shall be true
and correct in all material respects as of the date(s) made or deemed made and
shall remain in full force and effect until such time as the Indebtedness shall
be paid in full, or until this Agreement shall be terminated, whichever is the
last to occur.
ARTICLE XII
AFFIRMATIVE COVENANTS
In addition to the covenants contained in the Collateral Documents,
which covenants are hereby ratified and confirmed by the Borrower, the Borrower
covenants and agrees as follows:
SECTION 12.1. FINANCIAL STATEMENTS; OTHER REPORTING REQUIREMENTS. The
Borrower will furnish or cause to be furnished to the Lender:
(a) as soon as available and in any event within one hundred
twenty (120) days following the close of fiscal year of the
Borrower, audited consolidated financial statements of the
Borrower consisting of a balance sheet as at the end of such
fiscal year and statements of income, and statement of cash
flow for such fiscal year, setting forth in each case in
comparative form the corresponding figures for the preceding
fiscal year, certified by Ernst & Young or such other
independent certified public accountants of recognized
standing acceptable to the Lender (such acceptance not to be
unreasonably withheld),
(b) as soon as available and in any event within forty-five (45)
days following the close of each calendar quarter, interim
consolidated financial statements of the Borrower,
consisting of a balance sheet as of the end of such quarter
and
Page 33 of 58
statements of income and cash flow, certified as true and
correct by the Borrower's chief financial officer as having
been prepared in accordance with GAAP consistently applied,
(c) upon each submission of the financial statements required by
(a) and (b) above, a compliance certificate signed by the
chief financial officer of the Borrower in the form attached
hereto as Exhibit A, certifying that he has reviewed this
Agreement and to the best of his knowledge no Default or
Event of Default has occurred, or if such Default or Event
of Default has occurred, specifying the nature and extent
thereof, that all financial covenants in this Agreement have
been met, and providing a computation of all financial
covenants contained herein, and details of any waivers,
amendments, or modifications of any covenant contained in
this Agreement, and said certificate shall include a
schedule of all Hedging Agreements,
(d) as soon as available and in any event within thirty (30)
days after filing, a copy of the Borrower's federal tax
returns,
(e) by March 31st of each year, a third party engineering report
(at Borrower's expense) dated as of the preceding December
31 covering oil and gas properties owned by the Borrower and
included or to be included in the Borrowing Base Amount, in
form and substance reasonably satisfactory to the Lender,
(f) as soon as available and in any event within forty five (45)
days after the end of each quarter, the following reports
and data: reports of production (attributable to oil and gas
properties owned by the Borrower and included or to be
included in the Borrowing Base Amount), commodity prices,
sales revenues, operating expenses for the Leases evaluated
for determination of the Borrowing Base Amount, and
production taxes, in form and content reasonably acceptable
to the Lender,
(g) as soon as available and in any event by September 30th of
each year, an internally prepared engineering report
covering oil and gas properties owned by the Borrower and
included or to be included in the Borrowing Base Amount, and
dated as of no earlier than the preceding June 30, in form
and content reasonably satisfactory to the Lender, and
(i) subject to Section 12.14, such other financial information
or other information concerning the Borrower as the Lender
may reasonably request from time to time.
SECTION 12.2. NOTICE OF DEFAULT; LITIGATION; ERISA MATTERS. The
Borrower will give written notice to the Lender as soon as reasonably possible
and in no event more than five (5) Business Days of (i) the occurrence of any
Default or Event of Default hereunder of which it has knowledge, (ii) the filing
of any actions, suits or proceedings against the Borrower in any court or before
any governmental authority or tribunal of which it has knowledge, which could
reasonably be expected to cause a Material Adverse Effect with respect to the
Borrower, (iii) the occurrence
Page 34 of 58
of a reportable event under, or the institution of steps by the Borrower to
withdraw from, or the institution of any steps to terminate, any employee
benefit plan as to which the Borrower may have liability, or (iv) the occurrence
of any other action, event or condition of any nature of which it has knowledge
which could reasonably be expected to cause, or lead to, or result in, any
Material Adverse Effect to the Borrower.
SECTION 12.3. MAINTENANCE OF EXISTENCE, PROPERTIES AND LIENS. The
Borrower will (i) continue to engage in the Subject Business and other business
activities reasonably related to thereto; (ii) maintain its existence and good
standing in each jurisdiction in which it is required to be qualified; (iii)
keep and maintain all franchises, licenses and properties necessary in the
conduct of its business in good order and condition, except to the extent the
failure to do so could not reasonably be expected to cause a Material Adverse
Effect; (iv) duly observe and conform to all material requirements of any
governmental authorities relative to the conduct of its business or the
operation of its properties or assets, except to the extent the failure to do so
could not reasonably be expected to cause a Material Adverse Effect; and (v) the
Borrower will maintain in favor of the Lender a first perfected lien and
security interest in the Collateral, subject only to Permitted Encumbrances and
Designated Title Exceptions.
SECTION 12.4. TAXES. The Borrower shall pay or cause to be paid when
due, all taxes, local and special assessments, and governmental charges of every
type and description, that may from time to time be imposed, assessed and levied
against its properties. The Borrower further agrees to furnish the Lender with
evidence that such taxes, assessments, and governmental and other charges due by
the Borrower have been paid in full and in a timely manner, if such data is
requested by the Lender. Notwithstanding the foregoing, the Borrower may
withhold any such payment or elect to contest any lien if the Borrower is in
good faith conducting an appropriate proceeding to contest the obligation to pay
and so long as the Lender's interest in the Collateral is not jeopardized.
SECTION 12.5. INTENTIONALLY DELETED.
SECTION 12.6 COMPLIANCE WITH ENVIRONMENTAL LAWS. The Borrower shall
comply with and shall use reasonable commercial efforts to cause all of its
employees, agents, invitees or sublessees (while such Persons are acting within
the scope of their relationship with the Borrower) to (i) comply with all
Environmental Laws with respect to the disposal of Hazardous Materials, (ii) pay
immediately when due the cost of removal of any such Hazardous Materials, and
(iii) keep the Borrower's properties free of any lien imposed pursuant to any
Environmental Laws, provided that no breach of this Section 12.6 shall occur if
(a) the same is discharged within thirty (30) days after the Borrower is
notified of non-compliance or an appeal or appropriate proceedings for review
thereof is taken within such period and Borrower is not obligated to comply
pending such appeal or other appropriate proceedings or (b) failure to do so
could not reasonably be expected to have a Material Adverse Effect.
The Borrower shall give notice to the Lender as soon as reasonably
possible and in no event more than five (5) days after it receives any
compliance orders, environmental citations, or other notices from any
Governmental Authority relating to any Environmental Liabilities relating to its
properties or elsewhere which may reasonably be expected to result in a Default
of Event of
Page 35 of 58
Default; the Borrower agrees to take any and all reasonable steps, and to
perform any and all reasonable actions necessary or appropriate to promptly
comply with any such citations, compliance orders or Environmental Laws
requiring the Borrower to remove, treat or dispose of such Hazardous Materials,
and, upon Lender's request, to provide the Lender with satisfactory evidence of
such compliance in excess of $500,000; provided, however, that nothing contained
herein shall preclude the Borrower from contesting any such compliance orders or
citations if such contest is made in good faith, appropriate reserves are
established for the payment for the cost of compliance therewith, and the
Lender's security interest in any such property affected thereby (or the
priority thereof) is not jeopardized.
Regardless of whether any Event of Default hereunder shall have
occurred and be continuing, the Borrower (i) releases and waives any present or
future claims against the Lender for indemnity or contribution in the event the
Borrower becomes liable for any Environmental Lien and/or Remedial Action, and
(ii) agrees to defend, indemnify and hold harmless the Lender from any and all
liabilities (including strict liability), actions, demands, penalties, losses,
costs or expenses (including, without limitation, reasonable attorneys fees and
remedial costs), suits, administrative orders, agency demand letters, costs of
any settlement or judgment and claims of any and every kind whatsoever which may
now or in the future (whether before or after the termination of this Agreement)
be paid, incurred, or suffered by, or asserted against the Lender by any person
or entity or governmental agency for, with respect to, or as a direct or
indirect result of, the presence on or under, or the escape, seepage, leakage,
spillage, discharge, emission, or release from or onto the property of the
Borrower of any Hazardous Materials, regulated by any Environmental Laws,
contamination resulting therefrom, or arising out of, or resulting from, the
environmental condition of such property or the applicability of any
Environmental Laws relating to hazardous materials (including, without
limitation, CERCLA or any so called federal, state or local "super fund" or
"super lien" laws, statute, ordinance, code, rule, regulation, order or decree)
regardless of whether or not caused by or within the control of the Lender (the
costs and/or liabilities described in (i) and (ii) above being hereinafter
referred to as the "Environmental Liabilities"). THE COVENANTS AND INDEMNITIES
CONTAINED IN THIS SECTION 12.6 SHALL SURVIVE THE TERMINATION OF THIS AGREEMENT,
BUT EXCLUDING ALL INDEMNITY MATTERS ARISING BY REASON OF THE GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT ON THE PART OF ANY INDEMNIFIED PARTY; AND, PROVIDED, HOWEVER,
NO RELEASE, WAIVER, DEFENSE OR INDEMNITY SHALL BE AFFORDED UNDER THIS SECTION
12.6 IN RESPECT OF ANY PROPERTY FOR ANY OCCURRENCE ARISING FROM THE ACTS OR
OMISSIONS OF THE LENDER OR ITS AGENTS OR REPRESENTATIVES DURING THE PERIOD AFTER
WHICH SUCH PERSON, ITS SUCCESSORS OR ASSIGNS, OR ITS AGENTS OR REPRESENTATIVES,
SHALL HAVE OBTAINED OWNERSHIP, OPERATION OR POSSESSION OF SUCH PROPERTY (WHETHER
BY FORECLOSURE OR DEED IN LIEU OF FORECLOSURE, AS MORTGAGEE-IN-POSSESSION OR
OTHERWISE). ANY CLAIMS UNDER THIS SECTION 12.6 SHALL BE SUBJECT TO SECTION 15.9.
SECTION 12.7. FURTHER ASSURANCES. The Borrower will, at any time and
from time to time, execute and deliver such further instruments and take such
further action as may reasonably be requested by the Lender, in order to cure
any defects in the execution and delivery of, or to
Page 36 of 58
comply with or accomplish the covenants and agreements contained in this
Agreement or the Collateral Documents.
SECTION 12.8. FINANCIAL COVENANTS. The Borrower shall comply with the
following covenants and ratios:
(a) MINIMUM CURRENT RATIO. The Borrower shall at all times
maintain a minimum Current Ratio of 1.0 to 1.0.
(b) MINIMUM TANGIBLE NET WORTH. The Borrower shall at all times
maintain a minimum Consolidated Tangible Net Worth of
$56,000,000.00 plus 100% of the any increase in
shareholder's equity resulting from the sale or issuance of
preferred (to the extent such issuances increase
shareholders equity on a GAAP basis) and common stock in
Borrower subsequent to March 31, 2002, plus 50% of the
Borrower's net income (excluding losses) subsequent to March
31, 2002, excluding the effect of any cumulative after-tax
amounts of ceiling test write-downs incurred pursuant to
Regulation SX4.10 of the Securities and Exchange Commission
subsequent to December 31, 2001.
(c) MINIMUM QUARTERLY DEBT SERVICE COVERAGE RATIO. The Borrower
shall maintain at the end of each quarter a Debt service
coverage ratio of not less than 1.25 to 1.0. For purposes of
this covenant, the non-cash effects, if any, of Hedging
Agreements pursuant to SFAS 133 will not be included, nor
will the effect, if any, of ceiling test write-downs
pursuant to Regulation SX4.10 of the Securities and Exchange
Commission be included. Debt service coverage shall be
calculated based on GAAP as follows: the ratio of (a) the
difference of (i) EBITDA for the quarter just ended
(excluding EBITDA related to assets pledged to secure
Non-Recourse Indebtedness), minus (ii) permitted cash
dividends paid during the quarter just ended, divided by (b)
the sum of (i) required principal and interest paid in cash
on the Indebtedness during the quarter just ended, plus (ii)
all principal and interest paid in cash on Debt other than
the Indebtedness during the quarter just ended, plus (iii)
the positive difference, if any, of (x) principal and
interest paid in cash on Non-Recourse Indebtedness during
the quarter just ended, minus (y) positive EBITDA related to
assets pledged to secure Non-Recourse Indebtedness during
the quarter just ended.
SECTION 12.9. OPERATIONS. The Borrower shall conduct its business
affairs in a reasonable and prudent manner and in compliance with all applicable
federal, state and municipal laws, ordinances, rules and regulations respecting
its properties, charters, businesses and operations, including compliance with
all minimum funding standards and other requirements of ERISA of 1974, and other
laws applicable to any employee benefit plans which they may have, except to the
extent the failure to do so could not reasonably be expected to cause a Material
Adverse Effect.
Page 37 of 58
SECTION 12.10. CHANGE OF LOCATION. The Borrower shall, within ten (10)
Business Days prior to any such change, notify the Lender in writing of any
proposed change in the location of its chief executive office.
SECTION 12.11. EMPLOYEE BENEFIT PLANS. The Borrower will maintain each
employee benefit plan as to which it may have any liability, in material
compliance with all applicable requirements of law and regulations.
SECTION 12.12. DEPOSIT AND OPERATING ACCOUNTS. The Borrower will
maintain its primary operating and savings accounts with the Lender.
SECTION 12.13. PRODUCTION PROCEEDS. Subject to the terms and
conditions of the Mortgage, the Borrower will cause all production proceeds and
revenues attributable to the Mortgaged Properties to be paid and deposited in
the Borrower's accounts maintained with Lender, and shall not redirect initial
deposit of such proceeds to any other accounts.
SECTION 12.14. FIELD AUDITS; OTHER INFORMATION. Upon reasonable prior
notice, the Borrower shall allow the Lender's employees and agents access to its
books and records and properties during normal business hours to perform field
audits from time to time. The Borrower shall pay all reasonable costs and
expenses associated with such field audits. The Borrower will provide the Lender
with such other information as the Lender may reasonably request from time to
time, subject in all cases to any confidentiality restrictions that may be
applicable to the Borrower and its Subsidiaries and to any confidentiality
restrictions that the Borrower reasonably imposes on the Persons receiving such
information; provided, however, that neither the Borrower nor any of its
Subsidiaries shall be required to disclose to Lender or any agents or
representatives thereof any information which is the subject of attorney-client
privilege or attorney's work product privilege properly asserted by the
applicable Person to prevent the loss of such privilege in connection with such
information; and provided, further, that the Borrower will use commercially
reasonable efforts to furnish such information (excluding information covered by
confidentiality restrictions in agreements relating to seismic, geologic or
geophysical data or similar technical and business matters relating to the
exploration for oil and gas), which requirement shall be satisfied if the Lender
is offered the opportunity to review such confidential information by executing
or otherwise becoming a party to the confidentiality restrictions on
substantially the same terms (including any standstill provisions) as are
applicable to the Borrower.
SECTION 12.15. INSURANCE. The Borrower shall maintain in effect all
insurance required by this Agreement and the Collateral Documents, and the
Borrower agrees to comply with the requirements of Section 11.6. above. The
Borrower agrees to provide the Lender with certificates or binders evidencing
such insurance coverage on an annual basis, and, if requested by the Lender, the
Borrower further agrees to promptly furnish the Lender with copies of all
renewal notices and copies of receipts for paid premiums. The Borrower shall
provide the Lender with certificates or binders evidencing insurance coverage
pursuant to all renewal or replacement policies of insurance no later than
fifteen (15) days before any such existing policy or policies should expire.
Page 38 of 58
SECTION 12.16. SUBSIDIARIES. The Borrower agrees that any Subsidiary
of the Borrower formed by or behalf of the Borrower after the date of this
Agreement shall execute a guaranty of the Indebtedness (in a form substantially
similar to the Guaranty).
SECTION 12.17. POST CLOSING MATTERS. The Borrower agrees that within
ninety (90) days from the execution of this Agreement, the Borrower shall (i)
obtain ratifications of the following oil, gas and mineral leases from the heirs
of the lessors under said leases, record the said mineral leases in Lafourche
Parish, provide certified copies of the recorded leases to the Lender, and
execute an amendment to the Mortgage (and a financing statement) to add the said
leases to the Mortgaged Properties, in a form reasonably acceptable to the
Lender: (a) Lease dated effective September 1, 2000, executed by Patricia Jones
Edgerton, as Executrix of the Succession of Nettie Marie Jones in favor of
Carrizo Oil & Gas, Inc. covering the West Quarter of the Northeast Quarter of
the Southwest Quarter in Section 45, Township 17 South, Range 21 East; and (b)
Lease dated effective September 1, 2001, executed by Patricia Jones Edgerton as
Executrix of the Succession of Nettie Marie Jones, Goyamo Oil Co., LLC,
Montecito Oil Company, Louisiana Delta Farms, LLC, and Martin J. McAndrews, Jr.
in favor of Carrizo Oil & Gas, Inc. covering 80 acres in Section 45, Township 17
South, Range 21 East; (ii) provide copies of the court proceedings authorizing
Greg Schaefer as Guardian of the Person and Estate of Russell Schaefer to
execute the lease in favor of Jerry L. Keehan, dated April 7, 1999 recorded in
Volume 544, Page 716, Official Records of Matagorda County, Texas; (iii) obtain
a release of the following lien, record said release in Brooks County, Texas,
and provide a certified copy of the recorded release to the Lender: Deed of
Trust in favor of Texas Commerce Bank, National Association, dated January 18,
1995 by Encinitas Partners, Ltd., filed January 22, 1995 under file # 064035,
Brooks County, Texas; and (iv) obtain an assignment of a 35% gross working
interest in the following leases from Brigham Oil & Gas, L.P. in favor of
Borrower, record said assignment in Matagorda County, Texas, and provide a
certified copy of said assignment to Lender:
(a) LESSOR: Ramon Richard Rooth
LESSEE: Brigham Oil & Gas, L.P.
DATE: February 10, 1999
RECORDED: Volume 536, Page 870
(b) LESSOR: Rooth Rice Corporation
LESSEE: Brigham Oil & Gas, L.P.
DATE: February 9, 1999
RECORDED: Volume 536, Page 172
(c) LESSOR: Linnea Eileen Rooth Dilley
LESSEE: Brigham Oil & Gas, L.P.
DATE: February 10, 1999
RECORDED: Volume 537, Page 679
(d) LESSOR: Eric Lee Rooth
LESSEE: Brigham Oil & Gas, L.P.
DATE: February 10, 1999
RECORDED: Volume 536, Page 161
Page 39 of 58
(e) LESSOR: Mylla Wolters
LESSEE: Jerry L. Keehan, Inc.
DATE: February 17, 1999
RECORDED: Volume 540, Page 889
(f) LESSOR: John C. Meeks
LESSEE: Jerry L. Keehan, Inc.
DATE: February 16, 1999
RECORDED: Volume 533, Page 712
(g) LESSOR: Callie Hamon
LESSEE: Jerry L. Keehan, Inc.
DATE: February 11, 1999
RECORDED: Volume 540, Page 891
(h) LESSOR: Winnie Lee Thebeau
LESSEE: Jerry L. Keehan, Inc.
DATE: February 16, 1999
RECORDED: Volume 533, Page 736
(i) LESSOR: Callie Barnett
LESSEE: Jerry L. Keehan, Inc.
DATE: February 11, 1999
RECORDED: Volume 533, Page 714
(j) LESSOR: Jim G. Meeks
LESSEE: Jerry L. Keehan, Inc.
DATE: February 16, 1999
RECORDED: Volume 540, Page 893
(k) LESSOR: Leta Wright
LESSEE: Jerry L. Keehan, Inc.
DATE: February 15, 1999
RECORDED: Volume 540, Page 895
(l) LESSOR: Billie Marie Schaefer
LESSEE: Jerry L. Keehan, Inc.
DATE: February 11, 1999
RECORDED: Volume 540, Page 898
(m) LESSOR: Henry Philip Schaefer
LESSEE: Jerry L. Keehan, Inc.
DATE: February 11, 1999
RECORDED: Volume 540, Page 900
Page 40 of 58
(n) LESSOR: R. Schaefer Estate
LESSEE: Jerry L. Keehan, Inc.
DATE: April 7, 1999
RECORDED: Volume 544, Page 716
(o) LESSOR: Ginger B. Winkelmann
LESSEE: Jerry L. Keehan, Inc.
DATE: May 19, 1999
RECORDED: Volume 547, Page 381
(p) LESSOR: Gayle Scheffer Mitchum
LESSEE: Jerry L. Keehan, Inc.
DATE: May 19, 1999
RECORDED: Volume 547, Page 383
(q) LESSOR: Carl J. Schaefer, Jr.
LESSEE: Jerry L. Keehan, Inc.
DATE: May 19, 1999
RECORDED: Volume 547, Page 385
(r) LESSOR: Quentin B. Schaefer
LESSEE: Jerry L. Keehan, Inc.
DATE: May 19, 1999
RECORDED: Volume 547, Page 387
(s) LESSOR: Jane Schaefer Noteware
LESSEE: Jerry L. Keehan, Inc.
DATE: May 19, 1999
RECORDED: Volume 547, Page 389
(t) LESSOR: Gulf Coast Water Company
LESSEE: Brigham Oil & Gas, L.P.
DATE: August 22, 2001
RECORDED: Volume 634, Page 646
(u) LESSOR: Matagorda County, Texas
LESSEE: Brigham Oil & Gas, L.P.
DATE: September 28, 2001
RECORDED: Volume 633, Page 730
(v) LESSOR: Commissioner of General Land
LESSEE: Brigham Oil & Gas, L.P.
DATE: October 23, 2001
RECORDED: Volume 645, Page 170
Page 41 of 58
(w) LESSOR: Dr. Russell A. Matthes, et al.
LESSEE: Brigham Oil & Gas, L.P.
DATE: January 12, 2002
RECORDED: Volume 648, Page 603
In the event one or more of the above items is not cured or resolved
as set forth above, such failure shall not constitute an Event of Default.
Rather, Lender shall have the right to redetermine the Borrowing Base Amount at
the end of the above-provided 90 day cure period.
SECTION 12.18. PHASE I ENVIRONMENTAL ASSESSMENT. The Borrower agrees
that the Lender has the right at any time within ninety (90) days from the date
of this Agreement, in its sole discretion, to commission a Phase I environmental
assessment (from an environmental firm acceptable to Lender) covering the
property comprising the Borrower's interests in the Louisiana Delta Farms Well
No. 1 and Well No. 2 in Lafourche Parish, Louisiana. The Borrower further agrees
that it shall be responsible for the costs of said environmental assessment up
to $5,000.00.
ARTICLE XIII
NEGATIVE COVENANTS
In addition to the negative covenants contained in the Collateral
Documents, which covenants are hereby ratified and confirmed by the Borrower,
the Borrower covenants and agrees as follows:
SECTION 13.1. LIMITATIONS ON FUNDAMENTAL CHANGES. Without the prior
written consent of the Lender, the Borrower shall not form any Subsidiary that
does not execute a guaranty of the Indebtedness, nor shall the Borrower
consummate any transaction of merger or consolidation unless the Borrower is the
surviving entity, or liquidate or dissolve itself (or suffer any liquidation or
dissolution).
SECTION 13.2. DISPOSITION OF ASSETS. The Borrower shall not convey,
sell, lease, assign, transfer or otherwise dispose of, any of its property or
assets to which the Lender has included a value in the Borrowing Base Amount
(whether now owned or hereafter acquired) in excess of $500,000.00 in the
aggregate between any two scheduled semi-annual Borrowing Base Amount
redeterminations, without first obtaining the Lender's written consent, which
consent will not be withheld provided the Borrower pays in full such portion of
the Total Outstandings, if any, that exceeds the Borrowing Base Amount,
attributable to the proposed asset sale, as determined by Lender in its complete
and sole discretion based on its normal practices and standards for oil and gas
loans.
SECTION 13.3. REPURCHASE OF STOCK; RESTRICTED PAYMENTS. The Borrower
shall not (i) repurchase or redeem for cash any of its common or preferred stock
or (ii) pay any dividends or distributions, without the prior written consent of
the Lender; provided, however, that (a) the Borrower may pay dividends on its
existing Series B Convertible preferred stock and any
Page 42 of 58
additional shares of Series B Convertible preferred stock issued after the date
of this Agreement, so long as no Event of Default exists hereunder at the time
of such payment and/or results from such payment, (b) the Borrower may declare
and pay dividends consisting entirely of capital stock of the Borrower, (c) the
Borrower may make cash payments in lieu of fractional shares in an aggregate
amount not exceeding $100,000, and (d) the Borrower may declare and pay
distributions effecting "poison pill" rights plans provided that any securities
or rights so distributed have a nominal fair market value at the time of
declaration.
SECTION 13.4. ENCUMBRANCES; NEGATIVE PLEDGE. The Borrower shall not
create, incur, assume or permit to exist any Encumbrances on any of its property
now owned or hereafter acquired, except for the following (hereinafter referred
to as the "Permitted Encumbrances"):
(a) Encumbrances for taxes, assessments, or other governmental
charges not yet due or which are being contested in good
faith by appropriate action promptly initiated and
diligently conducted, if such reserves as shall be required
by GAAP shall have been made therefor;
(b) Encumbrances of landlords, vendors, carriers, warehousemen,
mechanics, laborers, materialmen and other Encumbrances
arising by law in the ordinary course of business for sums
either not yet due or being contested in good faith by
appropriate action promptly initiated and diligently
conducted, if such reserve as shall be required by GAAP
shall have been made therefor;
(c) Inchoate liens arising under ERISA to secure the contingent
liabilities, if any, permitted by this Agreement;
(d) Encumbrances created by the Collateral Documents and any
other Encumbrances in favor of the Lender to secure the
Indebtedness;
(e) Subject to Section 13.11. below, Encumbrances granted prior
to the date of this Agreement to secure Non-Recourse
Indebtedness, and/or Encumbrances granted after the date of
this Agreement to secure Non-Recourse Indebtedness;
(f) Encumbrances existing on the date hereof and set forth in
Schedule 13.4, provided that such Encumbrances shall secure
only those obligations which they secure on the date hereof;
(g) Pledges and deposits made in the ordinary course of business
in compliance with workmen's compensation, unemployment
insurance and other social security laws or regulations;
(h) Deposits to secure the performance of bids, trade contracts
(other than for Indebtedness), leases (other than capital
lease obligations), statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like
nature incurred in the ordinary course of business;
Page 43 of 58
(i) Zoning restrictions, easements, licenses, covenants,
conditions, rights-of-way, restrictions on use of real
property and other similar encumbrances incurred in the
ordinary course of business and minor irregularities of
title that, in the aggregate, are not substantial in amount
and do not materially detract from the value of the property
subject thereto or interfere with the ordinary conduct of
the business of the Borrower or any of its Subsidiaries;
(j) Deposits, encumbrances or pledges to secure payments of
workmen's compensation and other payments, public liability,
unemployment and other insurance, old-age pensions or other
social security obligations, or the performance of bids,
tenders, leases, contracts (other than contracts for the
payment of money), public or statutory obligations, surety,
stay or appeal bonds, or other similar obligations arising
in the ordinary course of business;
(k) Any Designated Title Exceptions which are incurred in the
ordinary course of business and would not materially
adversely affect the operations of the Borrower or otherwise
in the aggregate have a Material Adverse Effect;
(l) Any Encumbrance securing Purchase Money Debt, provided that,
(i) such security interest is incurred, and the Debt secured
thereby is created, within 180 days after the acquisition
(or completion of construction) of the property or assets
subject thereto, (ii) the Debt secured thereby does not
include any other Debt that is not from the same financing
source, (iii) such security interest do not apply to any
other property or assets of the Borrower or any Subsidiary
except any such property or assets which are the subject of
any Encumbrance securing Debt from such financing source,
and (iv) such Encumbrance does not affect any of the
Mortgaged Properties included in the determination of the
Borrowing Base Amount;
(m) Any Encumbrance existing on any property or asset (together
with any receivables, intangibles and proceeds related
thereto) prior to the acquisition thereof by the Borrower or
any Subsidiary, provided that (i) such Encumbrance is not
created in contemplation of or in connection with such
acquisition and (ii) such Encumbrance does not apply to any
other property or assets of the Borrower or any Subsidiary;
and provided, further, that (x) such Encumbrances do not
secure any Debt or other obligation not permitted under this
Agreement, and (y) such Encumbrances do not affect any of
the Mortgaged Properties included in the determination of
the Borrowing Base Amount;
(n) Encumbrances securing Purchase Money Debt and Capital Lease
Obligations in real property, improvements thereto or
equipment hereafter acquired (or, in the case of
improvements, constructed) by the Borrower or any Subsidiary
(together with any receivables, intangibles and proceeds
related thereto), provided that (i) such security interests
secure Debt permitted by Section 13.5(l)(i), (ii) such
security interests are incurred, and the Debt secured
thereby is created, within 180 days after such acquisition
(or completion of construction), (iii) such security
Page 44 of 58
interests do not apply to any other property or assets of
the Borrower or any Subsidiary, and (iv) such security
interests do not affect any of the Mortgaged Properties
included in the determination of the Borrowing Base Amount;
(o) Encumbrances arising out of judgments or awards in respect
of which the Borrower shall in good faith be prosecuting an
appeal or proceedings for review and in respect of which it
shall have secured a subsisting stay of execution pending
such appeal or proceedings for review, provided the Borrower
shall have set aside on its books adequate reserves, in
accordance with GAAP, with respect to such judgment or
award;
(p) Encumbrances on the property or assets of any Person
existing at the time such Person becomes a Subsidiary of the
Borrower and not incurred as a result of (or in connection
with or in anticipation of) such Person's becoming a
Subsidiary of the Borrower, provided that such Encumbrances
do not extend to or cover any property or assets of the
Borrower or any of its Subsidiaries other than the property
or assets encumbered at the time such Person becomes a
Subsidiary of the Borrower, and provided, further, that (i)
such Encumbrances do not secure any Debt or other obligation
not permitted under this Agreement, and (ii) such
Encumbrances do not affect any of the Mortgaged Properties
included in the determination of the Borrowing Base Amount;
and
(q) Encumbrances securing Debt permitted to be incurred under
Section 13.5(j).
SECTION 13.5. DEBTS. The Borrower, without the prior written consent
of the Lender, will not incur, create, assume or in any manner become or be
liable in respect of any Debt, except for:
(a) The Indebtedness;
(b) Trade payables or operating and facility leases from time to
time incurred in the ordinary course of business;
(c) Non-Recourse Indebtedness not to exceed $25,000,000.00 at
any time outstanding;
(d) Taxes, assessments or other government charges which are not
yet due or are being contested in good faith by appropriate
action promptly initiated and diligently conducted, if such
reserve as shall be required by generally accepted
accounting principles shall have been made therefore;
(e) The indebtedness evidenced by the Subordinated Promissory
Notes and guaranties executed by any Subsidiary of the
Borrower guaranteeing payment thereof;
(f) Indebtedness existing as of the date of this Agreement as
set forth in Schedule 13.5;
Page 45 of 58
(g) Indebtedness arising under any performance bond, or letter
of credit obtained for similar purposes, or any
reimbursement obligations in respect thereof, entered into
in the ordinary course of business;
(h) Debt of the Borrower to any wholly owned Subsidiary of the
Borrower and Debt of any wholly owned Subsidiary of the
Borrower to the Borrower or any other wholly owned
Subsidiary of the Borrower;
(i) Contingent liability in the aggregate amount of
$5,000,000.00 representing the Guarantor's proportionate
share of costs and expenses to be incurred in the
performance of RMG's drilling program, as said drilling
program is described in Section 2.1 of the Purchase and Sale
Agreement dated June 29, 2001 between the Guarantor, as
Purchaser, and RMG, as Seller;
(j) Debt represented by Hedging Agreements permitted by this
Agreement;
(k) Guaranties by the Borrower of Debt of any Subsidiary and by
any Subsidiary of Debt of the Borrower or any other
Subsidiary; and
(l) Subject to a maximum aggregate principal amount at any time
outstanding not in excess of $1,000,000.00, the following:
(i) Purchase Money Debt and Capitalized Lease Obligations;
(ii) additional unsecured Debt; and (iii) Debt of any Person
that becomes a Subsidiary after the date hereof; provided,
that such Debt exists at the time such Person becomes a
Subsidiary and is not created in contemplation of or in
connection with such Person becoming a Subsidiary.
SECTION 13.6. INVESTMENTS, LOANS AND ADVANCES. The Borrower will not
make or permit to remain outstanding any loans or advances to or make
investments or acquire an equity interest in any Person, except for:
(a) Direct obligations of, or obligations the principal of and
interest on which are unconditionally guarantied by, the
United States of America (or by any agency thereof to the
extent such obligations are backed by the full faith and
credit of the United States of America), in each case
maturing within one year from the date of acquisition
thereof;
(b) Investments in commercial paper maturing within 270 days
from the date of acquisition thereof and having, at such
date of acquisition, the highest credit rating obtainable
from Standard & Poor's Ratings Service or from Moody's
Investors Service, Inc.;
(c) Investments in certificates of deposit, banker's
acceptances, repurchase agreements and time deposits
maturing within one year from the date of acquisition
thereof issued or guaranteed by or placed with, and money
market deposit accounts issued or offered by, any domestic
office of any commercial bank organized under the laws of
the United States of America or any State
Page 46 of 58
thereof that has a combined capital and surplus and
undivided profits of not less than $250,000.000;
(d) Shares of funds registered under the Investment Company Act
of 1940, as amended, that have assets of at least
$100,000,000 and invest only in obligations described in
clauses (a) through (c) above to the extent that such shares
are rated by Moody's Investors Service, Inc. or Standard &
Poor's Ratings Service in one of the two highest rating
categories assigned by such agency for shares of such
nature;
(e) Loans by the Borrower to the Guarantor and any other
Subsidiary of Borrower that is a guarantor of the
Indebtedness and/or capital contributions and/or investments
by the Borrower in the Guarantor and any other Subsidiary of
Borrower that is a guarantor of the Indebtedness;
(f) Loans or advances to employees in the ordinary course of
business in an aggregate amount to any single employee not
in excess of $75,000 (or, if and to the extent such loans or
advances shall be used by such employee for relocation
expenses, $100,000) and in an aggregate amount for all
employees of the Borrower and the Subsidiaries not in excess
of $500,000 at any one time outstanding;
(g) Trade credits and accounts arising in the ordinary course of
business;
(h) Investments made as a result of the receipt of non-cash
consideration from an asset sale that was made pursuant to
and in compliance with this Agreement;
(i) Investments made in any debtor of the Borrower as a result
of the receipt of stock, obligations or securities in
settlement of debts created in the ordinary course of
business and owing to the Borrower or any of its
Subsidiaries;
(j) Investments made pursuant to the requirements of farm-out,
farm-in, joint operating, joint venture or area of mutual
interest agreements, gathering systems, pipelines or other
similar or customary arrangements entered into in the
ordinary course of business (including, without limitation,
advances to operators under operating agreements entered
into by Borrower in the ordinary course of business)
(provided that any such single investment in excess of
$1,000,000 shall be approved by the Board of Directors of
the Borrower);
(k) Investments made in connection with the purchase, lease or
other acquisition of all or substantially all of the
business, property or assets of any Person, or capital stock
of any Person, or any division, line of business or business
unit of any Person (including, without limitation, (i) by
the merger or consolidation of such Person into the Borrower
or any of its Subsidiaries or by the merger of a Subsidiary
of the Borrower into such Person and (ii) the purchase of
proved reserves); and
Page 47 of 58
(l) Any other investments in any Person having an aggregate fair
market value (measured on the date each such investment was
made and without giving effect to subsequent changes in
value), when taken together with all other investments made
pursuant to this clause (l) not to exceed $1,000,000.
SECTION 13.7. OTHER AGREEMENTS. The Borrower will not enter into any
agreement containing any provision which would be violated or breached by the
performance of its obligations hereunder or under any instrument or document
delivered or to be delivered by it hereunder or in connection herewith; provided
that the Borrower may agree to the redemption or repurchase of its securities
upon a change of control or dissolution, winding-up or liquidation of, or the
merger or sale of substantially all the assets of, the Borrower (provided that
nothing in this Section 13.7 shall permit any action otherwise prohibited by
Sections 13.1 and 13.2 hereof.).
SECTION 13.8. TRANSACTIONS WITH AFFILIATES. Except as set forth on
Schedule 13.8 attached hereto, the Borrower shall not sell or transfer any
property or assets to, or purchase or acquire any property or assets from, or
otherwise engage in any other transactions with, any of its affiliates unless
such transaction is on terms that are no less favorable to the Borrower or such
Subsidiary, as the case may be, than those that could be obtained at the time of
such transaction on an arm's-length basis from a Person who is not an affiliate
and if such transaction involves an amount in excess of $500,000, such
transaction has been approved by a majority of the members of the Board of
Directors of the Borrower having no personal stake in such transaction;
provided, however, that this Section 13.8 (i) shall not apply to transactions
between a Subsidiary and the Borrower or any other Subsidiary, (ii) shall not
prohibit any person serving as an officer, director, employee or consultant of
the Borrower or any Subsidiary from (A) receiving reasonable compensation,
benefits or indemnification in connection with his or her services in such
capacity (except as otherwise included hereby), provided that any such
compensation, benefits or indemnification are approved by a majority of the
disinterested members of the Board of Directors of the Borrower or by the
Compensation Committee of the Borrower, (B) receiving advances for travel or
other business expenses made in the ordinary course of business or (C)
participating in any benefit or compensation plan; and (iii) shall not restrict
the Borrower from repaying to any director or its affiliates when due on its
scheduled maturity dates any indebtedness for borrowed money permitted to be
incurred in accordance with this Agreement.
SECTION 13.9. USE OF REVOLVING LOAN PROCEEDS. The Borrower shall not
use any Revolving Loan proceeds to finance investments in marketable securities.
SECTION 13.10. COMMODITY TRANSACTIONS. The Borrower shall not enter
into any speculative commodity transactions of any type or Hedging Agreement
relating to the sale of aggregate Hydrocarbons production in excess of
seventy-five percent (75%) of the total volume of such production projected in
the most recent independent engineering report delivered to the Lender pursuant
to Section 12.1(e) or as projected in the most recent internally prepared
engineering report delivered to the Lender pursuant to Section 12.1(g),
whichever is more recent, to come from the Borrower's proved developed producing
reserves during the term of such Hedging Agreement. Notwithstanding the
foregoing, the maximum duration of any permitted Hedging Agreement shall not
exceed twenty-four (24) months. In addition, if Borrower desires to enter into
Hedging Agreements affecting new wells, Borrower agrees to obtain the Lender's
Page 48 of 58
prior written consent to such Hedging Agreements, which consent shall not be
unreasonably withheld.
SECTION 13.11. INTENTIONALLY DELETED.
SECTION 13.12. PAYMENTS ON PERMITTED SUBORDINATED DEBT. The Borrower
and the Lender agree that the Borrower is permitted to pay the Subordinated
Promissory Notes pursuant to the terms of the Chase Purchase Agreement and the
Memorandum, and the Borrower agrees to observe all payment restrictions
applicable to the Subordinated Promissory Notes as set forth in the Chase
Purchase Agreement. Further, the Borrower agrees to exercise (to the maximum
extent permitted by the Chase Purchase Agreement) its right to defer 60% of the
interest accrued on the Subordinated Promissory Notes as provided by Section
3.3(a) of the Chase Purchase Agreement.
ARTICLE XIV
EVENTS OF DEFAULT
SECTION 14.1. EVENTS OF DEFAULT. The occurrence of any one or more of
the following shall constitute an Event of Default:
(a) DEFAULT UNDER THE INDEBTEDNESS. Should the Borrower default in the
payment of principal under the Indebtedness of the Borrower to the Lender, or
should the Borrower default in the payment of interest under the Indebtedness of
the Borrower to the Lender within ten (10) days after any such interest payment
is due.
(b) DEFAULT UNDER THIS AGREEMENT. Should the Borrower violate or fail
to comply fully with any of the terms and conditions of, or default under, this
Agreement, and such default not be cured within thirty (30) days of the
occurrence thereof (provided, however, that no cure period shall be available
for a default in the obligation to maintain insurance coverages required
hereby).
(c) DEFAULT UNDER OTHER AGREEMENTS. Should any event of default occur
or exist under any of the Related Documents or should the Borrower and/or the
Guarantor violate, or fail to comply fully with, any terms and conditions of any
of the Collateral Documents or Related Documents, and such default not be cured
within ten (10) days of the occurrence thereof.
(d) OTHER DEFAULTS IN FAVOR OF THE LENDER. Should the Borrower and/or
the Guarantor default under any other loan, extension of credit, security
agreement, or other obligation in favor of the Lender and fail to cure same in
accordance with any applicable cure periods.
(e) DEFAULT IN FAVOR OF THIRD PARTIES. Should the Borrower or the
Guarantor (i) fail to pay Debt having a principal amount in excess of $100,000
in the aggregate (other than the amounts referred to in Section 14.1(a)), or any
interest or premium thereon, when due (or, if permitted by the terms of the
relevant document, within any applicable grace period), whether such Debt shall
become due by scheduled maturity, by required prepayment, by acceleration, by
demand or otherwise; or (ii) fail to perform any term, covenant or condition on
its part to be
Page 49 of 58
performed under any agreement or instrument evidencing, securing or relating to
Debt having a principal amount in excess of $100,000 in the aggregate, when
required to be performed, and such failure shall continue after the applicable
grace period, if any, specified in such agreement or instrument, if the effect
of such failure is to accelerate, or to permit the holder or holders of such
Debt to accelerate, the maturity of such Debt.
(f) INSOLVENCY. The following occurrences, in addition to the failure
or suspension of the Borrower, shall constitute an Event of Default hereunder:
(i) Filing by the Borrower and/or the Guarantor of a
voluntary petition or any answer seeking
reorganization, arrangement, readjustment of its
debts or for any other relief under any applicable
bankruptcy act or law, or under any other
insolvency act or law, now or hereafter existing,
or any action by the Borrower and/or the Guarantor
consenting to, approving of, or acquiescing in,
any such petition or proceeding; the application
by the Borrower and/or the Guarantor for, or the
appointment by consent or acquiescence of, a
receiver or trustee of the Borrower and/or the
Guarantor for all or a substantial part of the
property of the Borrower and/or the Guarantor; the
making by the Borrower and/or the Guarantor, of an
assignment for the benefit of creditors; the
inability of the Borrower and/or the Guarantor or
the admission by the Borrower and/or the Guarantor
in writing, of its inability to pay its debts as
they mature (the term "acquiescence" means the
failure to file a petition or motion in opposition
to such petition or proceeding or to vacate or
discharge any order, judgment or decree providing
for such appointment within sixty (60) days after
the appointment of a receiver or trustee); or
(ii) Filing of an involuntary petition against the
Borrower and/or the Guarantor in bankruptcy or
seeking reorganization, arrangement, readjustment
of its debts or for any other relief under any
applicable bankruptcy act or law, or under any
other insolvency act or law, now or hereafter
existing and such petition remains undismissed or
unanswered for a period of sixty (60) days from
such filing; or the insolvency appointment of a
receiver or trustee of the Borrower and/or the
Guarantor for all or a substantial part of the
property of the Borrower and/or the Guarantor and
such appointment remains unvacated or unopposed
for a period of sixty (60) days from such
appointment, execution or similar process against
any substantial part of the property of the
Borrower and/or the Guarantor and such warrant
remains unbonded or undismissed for a period of
sixty (60) days from notice to the Borrower or the
Guarantor of its issuance.
(g) DISSOLUTION PROCEEDINGS. Should proceedings for the dissolution or
appointment of a liquidator of the Borrower and/or the Guarantor be commenced.
(h) FALSE STATEMENTS. Should any representation or warranty of the
Borrower made by the Borrower to the Lender in this Agreement or any other Loan
Document or in any certificate or statement furnished thereunder prove to be
incorrect or misleading in any material respect when made or reaffirmed.
Page 50 of 58
Upon the occurrence of an Event of Default, the Commitment
will, at the option of the Lender, either terminate or be suspended (including
any obligation to make any further Revolving Loans), and, at the Lender's
option, the Revolving Note and all Indebtedness of the Borrower will become
immediately due and payable, all without notice of any kind to the Borrower,
except that in the case of type described in the "Insolvency" subsection above,
such acceleration shall be automatic and not optional. Nothing contained in this
Article 14 shall be construed to limit or amend in any way the Events of Default
enumerated in the Revolving Note or any other Loan Document, or any other
document executed in connection with the transaction contemplated herein.
Upon the occurrence and during the continuance of any Event of
Default, the Lender is hereby authorized at any time and from time to time,
without notice to Borrower or Guarantor (any such notice being expressly waived
by Borrower and Guarantor), to set-off and apply any and all deposits (general
or special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by any of the Lender to or for the credit or the
account of Borrower against any and all of the indebtedness of Borrower under
the Revolving Note and the Loan Documents, including this Agreement,
irrespective of whether or not the Lender shall have made any demand under the
Loan Documents, including this Agreement or the Revolving Note and although such
indebtedness may be unmatured. Any amount set-off by the Lender shall be applied
against the indebtedness owed the Lender by Borrower pursuant to this Agreement
and the Revolving Note. The Lender agrees promptly to notify Borrower after any
such setoff and application, provided that the failure to give such notice shall
not affect the validity of such set-off and application. The rights of the
Lender under this Section are in addition to other rights and remedies
(including, without limitation, other rights of set-off) which the Lender may
have.
SECTION 14.2. WAIVERS. Except as otherwise provided for in this
Agreement and by applicable law, the Borrower and the Guarantor waive to the
extent permitted by applicable law (i) presentment, demand and protest and
notice of presentment, dishonor, notice of intent to accelerate, notice of
acceleration, protest, default, nonpayment, maturity, release, compromise,
settlement, extension or renewal of any or all commercial paper, accounts,
contract rights, documents, instruments, chattel paper and guaranties at any
time held by the Lender on which the Borrower and the Guarantor may in any way
be liable and hereby ratify and confirm whatever the Lender may do in this
regard, (ii) all rights to notice and a hearing prior to the Lender's taking
possession or control of, or to the Lender's replevy, attachment or levy upon,
the Collateral or any bond or security which might be required by any court
prior to allowing the Lender to exercise any of its remedies, and (iii) the
benefit of all valuation, appraisal and exemption laws. The Borrower and the
Guarantor acknowledge that they have been advised by counsel of their choice
with respect to this Agreement, the other Collateral Documents, and the
transactions evidenced by this Agreement and other Collateral Documents.
Page 51 of 58
ARTICLE XV
MISCELLANEOUS
SECTION 15.1. NO WAIVER; MODIFICATION IN WRITING. No failure or delay
on the part of the Lender in exercising any right, power or remedy hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy hereunder. No amendment,
modification or waiver of any provision of this Agreement or of the Revolving
Note, nor consent to any departure by the Borrower therefrom, shall in any event
be effective unless the same shall be in writing signed by or on behalf of the
Lender and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given. No notice to or demand on
the Borrower in any case shall entitle the Borrower to any other or further
notice or demand in similar or other circumstances.
SECTION 15.2. ADDRESSES FOR NOTICES. All notices and communications
provided for hereunder shall be in writing and, shall be mailed, by certified
mail, return receipt requested, or delivered as set forth below unless any
person named below shall notify the others in writing of another address, in
which case notices and communications shall be mailed, by certified mail, return
receipt requested, or delivered to such other address.
If to the Lender
Hibernia National Bank
213 W. Vermilion Street
Lafayette, LA 70502
Attn: David Reid
If to the Borrower:
Carrizo Oil & Gas , Inc.
14701 St. Mary's Lane
Suite 800
Houston, TX 77079
Attn: Frank A. Wojtek
If to the Guarantor:
CCBM, Inc.
14701 St. Mary's Lane
Suite 800
Houston, TX 77079
Attn: Frank A. Wojtek
SECTION 15.3. FEES AND EXPENSES. The Borrower agrees to pay all
reasonable out of pocket fees, costs and expenses of the Lender in connection
with the preparation, execution and
Page 52 of 58
delivery of this Agreement, and all Related Documents to be executed in
connection herewith and subsequent modifications or amendments to any of the
foregoing, including without limitation, the reasonable fees and disbursements
of counsel to the Lender, and to pay all costs and expenses of the Lender in
connection with the enforcement of this Agreement, the Revolving Note or the
other Related Documents, including reasonable legal fees and disbursements
arising in connection therewith. The Borrower also agrees to pay, and to save
the Lender harmless from any delay in paying stamp and other similar taxes, if
any, which may be payable or determined to be payable in connection with the
execution and delivery of this Agreement, the Revolving Note, the other Related
Documents, or any modification thereof.
SECTION 15.4. SECURITY INTEREST AND RIGHT OF SET-OFF. The Lender shall
have a continuing security interest in, as well as the right to set-off the
obligations of the Borrower hereunder against, all funds which the Borrower may
maintain on deposit with the Bank (with the exception of funds deposited in the
Borrower's accounts in trust for third parties or funds deposited in pension
accounts, IRA's, Keogh accounts and All Saver Certificates), and the Lender
shall have a lien upon and a security interest in all property of the Borrower
in the Lender's possession or control which shall secure the Indebtedness of the
Borrower to the Lender under this Agreement and the Revolving Note.
SECTION 15.5. WAIVER OF MARSHALING. The Borrower and the Guarantor
shall not at any time hereafter assert any right under any law pertaining to
marshaling (whether of assets or liens) and the Borrower and the Guarantor
expressly agree that the Lender may execute or foreclose upon the Collateral in
such order and manner as the Lender, in its sole discretion, deems appropriate.
SECTION 15.6. GOVERNING LAW. This Agreement and the Revolving Note
shall be deemed to be contracts made under the laws of the State of Louisiana
and for all purposes shall be governed by and construed in accordance with the
laws of said State.
SECTION 15.7. CONSENT TO LOAN PARTICIPATION. The Borrower and the
Guarantor agree and consent to any Lender's sale or transfer, whether now or
later, of one or more participation interests in the Indebtedness of the
Borrower arising pursuant to this Agreement to one or more purchasers, whether
related or unrelated to the Lender. The Lender may provide, subject to the
confidentiality requirements of Section 15.14, to any one or more purchasers, or
potential purchasers, any information or knowledge such Lender may have about
the Borrower, the Guarantor or about any other matter relating to such
Indebtedness. The Borrower and the Guarantor also agree that the purchasers of
any such participation interest will be considered as the absolute owners of
such interests in such Indebtedness. In addition, any sale of a participation
interest in the Indebtedness prior to the occurrence of an Event of Default will
require the Borrower's consent, which consent shall not be unreasonably
withheld.
SECTION 15.8. CONSENT TO SYNDICATION. The Borrower and the Guarantor
understand and acknowledge that the Lender may syndicate the Loans to one or
more other lending institutions. The Borrower and the Guarantor consent, subject
to the confidentiality requirements of Section 15.14 below, to the Lender's
distribution to interested lending institutions of all financial information and
other data in Lender's possession concerning Borrower and the Guarantor,
including data prepared by or for Borrower and the Guarantor, so that the
interested lending
Page 53 of 58
institution(s) may evaluate the Loans and the Collateral. The Lender will
provide notice to the Borrower of the lending institutions that are distributed
financial data concerning Borrower and the Guarantor. The Borrower and the
Guarantor agree to enter into an amendment or restatement of this Agreement and
any of the Related Documents in order to facilitate such syndication; provided,
however, any syndication prior to the occurrence of an Event of Default will
require the Borrower's consent, which consent shall not be unreasonably
withheld. In addition, the Lender is expressly authorized to seek additional
lending institutions to become a lender hereunder to fund any increase to the
Borrowing Base Amount.
SECTION 15.9. INDEMNITY.
(a) Subject to the limitations set forth in Section 12.6 as to matters
addressed therein, the Borrower and the Guarantor agree to indemnify and hold
harmless the Lender and its officers, employees, agents, attorneys and
representatives (singularly, an "Indemnified Party", and collectively, the
"Indemnified Parties") from and against any loss, cost, liability, damage or
expense (including the reasonable fees and out-of-pocket expenses of counsel to
the Lender, including all local counsel hired by such counsel) ("Claim")
incurred by the Lender in investigating or preparing for, defending against, or
providing evidence, producing documents or taking any other action in respect of
any commenced or threatened litigation, administrative proceeding or
investigation under any federal securities law, federal or state environmental
law, or any other statute of any jurisdiction, or any regulation, or at common
law or otherwise, which is alleged to arise out of or is based upon any acts,
practices or omissions or alleged acts, practices or omissions of Borrower and
the Guarantor, or its or their agents or arises in connection with the duties,
obligations or performance of the Indemnified Parties in negotiating, preparing,
executing, accepting, keeping, completing, countersigning, issuing, selling,
delivering, releasing, assigning, handling, certifying, processing or receiving
or taking any other action with respect to the Loan Documents and all documents,
items and materials contemplated thereby even if any of the foregoing arises out
of an Indemnified Party's ordinary negligence. The indemnity set forth herein
shall be in addition to any other obligations or liabilities of Borrower and the
Guarantor to the Lender hereunder or at common law or otherwise, and shall
survive any termination of this Agreement, the expiration of the Revolving Loans
and the payment of all indebtedness of Borrower to the Lender hereunder and
under the Revolving Note, provided that Borrower and the Guarantor shall have no
obligation under this Section to the Indemnified Parties with respect to any of
the foregoing arising out of the gross negligence or willful misconduct of the
Indemnified Parties. If any Claim is asserted against any Indemnified Party, the
Indemnified Party shall endeavor to notify Borrower and the Guarantor of such
Claim (but failure to do so shall not affect the indemnification herein made
except to the extent of the actual harm caused by such failure). The Indemnified
Party shall have the right to employ, at Borrower's expense, counsel of the
Indemnified Parties' choosing and to control the defense of the Claim. The
Borrower or Guarantor may at its/their own expense also participate in the
defense of any Claim. Each Indemnified Party may employ separate counsel in
connection with any Claim to the extent such Indemnified Party believes it
reasonably prudent to protect such Indemnified Party. THE PARTIES INTEND FOR THE
PROVISIONS OF THIS SECTION TO APPLY TO AND PROTECT EACH INDEMNIFIED PARTY FROM
THE CONSEQUENCES OF ANY LIABILITY INCLUDING STRICT LIABILITY IMPOSED OR
THREATENED TO BE IMPOSED ON INDEMNIFIED PARTY AS WELL AS FROM THE
Page 54 of 58
CONSEQUENCES OF ITS OWN NEGLIGENCE, WHETHER OR NOT THAT NEGLIGENCE IS THE SOLE,
CONTRIBUTING, OR CONCURRING CAUSE OF ANY CLAIM.
(b) No Indemnified Party may settle any claim to be indemnified
without the consent of the indemnitor, such consent not to be unreasonably
withheld; provided, that the indemnitor may not reasonably withhold consent to
any settlement that an Indemnified Party proposes, if the indemnitor does not
have the financial ability to pay all its obligations outstanding and asserted
against the indemnitor at that time, including, without limitation, the maximum
potential claims pending or to the knowledge of the indemnitee threatened
against the Indemnified Party to be indemnified pursuant to this Section 15.9.
SECTION 15.10. MAXIMUM INTEREST RATE. Regardless of any provisions
contained in this Agreement or in any other documents and instruments referred
to herein, the Lender shall never be deemed to have contracted for or be
entitled to receive, collect or apply as interest on the Revolving Note any
amount in excess of the Maximum Rate, and in the event Lender ever receives,
collects or applies as interest any such excess, of if an acceleration of the
maturity of the Revolving Note or if any prepayment by Borrower results in
Borrower having paid any interest in excess of the Maximum Rate, such amount
which would be excessive interest shall be applied to the reduction of the
unpaid principal balance of the Revolving Note for which such excess was
received, collected or applied, and, if the principal balance of the Revolving
Note is paid in full, any remaining excess shall forthwith be paid to Borrower.
All sums paid or agreed to be paid to the Lender for the use, forbearance or
detention of the indebtedness evidenced by the Revolving Note and/or this
Agreement shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full term of such indebtedness
until payment in full so that the rate or amount of interest on account of such
indebtedness does not exceed the Maximum Rate. In determining whether or not the
interest paid or payable under any specific contingency exceeds the Maximum Rate
of interest permitted by law, Borrower and the Lender shall, to the maximum
extent permitted under applicable law, (i) characterize any non-principal
payment as an expense, fee or premium, rather than as interest; and (ii) exclude
voluntary prepayments and the effect thereof; and (iii) compare the total amount
of interest contracted for, charged or received with the total amount of
interest which could be contracted for, charged or received throughout the
entire contemplated term of the Revolving Note at the Maximum Rate.
SECTION 15.11. WAIVER OF JURY TRIAL; SUBMISSION TO JURISDICTION.
(a) THE BORROWER, THE GUARANTOR, AND THE LENDER HEREBY WAIVE TRIAL BY
JURY IN ANY ACTION OR PROCEEDING TO WHICH THE BORROWER, THE GUARANTOR, AND THE
LENDER MAY BE PARTIES, ARISING OUT OF OR IN ANY WAY PERTAINING TO (i) THE
REVOLVING NOTE, (ii) THIS AGREEMENT, (iii) THE COLLATERAL DOCUMENTS OR (iv) THE
COLLATERAL. IT IS AGREED AND UNDERSTOOD THAT THIS WAIVER CONSTITUTES A WAIVER OF
TRIAL BY JURY OF ALL CLAIMS AGAINST ALL PARTIES TO SUCH ACTIONS OR PROCEEDINGS,
INCLUDING CLAIMS AGAINST PARTIES WHO ARE NOT PARTIES TO THIS AGREEMENT. THIS
WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY THE BORROWER, THE
GUARANTOR, AND THE LENDER, AND THE BORROWER AND THE LENDER HEREBY REPRESENT THAT
NO REPRESENTATIONS
Page 55 of 58
OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF
TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT. THE BORROWER, THE
GUARANTOR, AND THE LENDER EACH FURTHER REPRESENT THAT IT HAS BEEN REPRESENTED IN
THE SIGNING OF THIS AGREEMENT AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT
LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE
OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.
(b) THE BORROWER AND THE GUARANTOR HEREBY IRREVOCABLY CONSENT TO THE
JURISDICTION OF THE STATE COURTS OF LOUISIANA AND THE FEDERAL COURTS IN
LOUISIANA AND AGREES THAT ANY ACTION OR PROCEEDING ARISING OUT OF OR BROUGHT TO
ENFORCE THE PROVISIONS OF THE REVOLVING NOTE, THIS AGREEMENT AND/OR THE
COLLATERAL DOCUMENTS MAY BE BROUGHT IN ANY COURT HAVING SUBJECT MATTER
JURISDICTION.
SECTION 15.12. SEVERABILITY. If a court of competent jurisdiction
finds any provision of this Agreement to be invalid or unenforceable as to any
person or circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances. If feasible, any such
offending provision shall be deemed to be modified to be within the limits of
enforceability or validity; however, if the offending provision cannot be so
modified, it shall be stricken and all other provisions of this Agreement in all
other respects shall remain valid and enforceable.
SECTION 15.13. HEADINGS. Article and Section headings used in this
Agreement are for convenience only and shall not affect the construction of this
Agreement.
SECTION 15.14. CONFIDENTIALITY. For the purposes of this Section
15.14, "CONFIDENTIAL INFORMATION" means information delivered to Lender by or on
behalf of the Borrower or any Subsidiary in connection with the transactions
contemplated by or otherwise pursuant to this Agreement (including, without
limitation, any information regarding the transactions contemplated hereby
provided prior to the date of this Agreement), provided that such term does not
include information that (a) was publicly known or otherwise known to Lender
prior to the time of such disclosure, (b) subsequently becomes publicly known
through no act or omission by Lender or any Person acting on its behalf, or (c)
otherwise becomes known to Lender other than through disclosure by the Borrower
or any Subsidiary. Lender will maintain the confidentiality of such Confidential
Information in accordance with Lender's standard procedures to protect
confidential information of third parties delivered to Lender, provided that
Lender may deliver or disclose Confidential Information to (i) its directors,
officers, employees, agents, attorneys and affiliates, (ii) its financial
advisors and other professional advisors who are made aware of the confidential
nature of such information, (iii) any other holder of the Note, (iv) any Person
to which Lenders sells or offers to sell the Notes or any part thereof or any
participation therein (if such Person has agreed in writing prior to its receipt
of such Confidential Information to be bound by the provisions of this Section
15.14), (v) any federal or state regulatory authority having jurisdiction over
Lender, (vi) the National Association of Insurance Commissioners or any similar
organization, or any nationally recognized rating agency that requires access to
Page 56 of 58
information about its investment portfolio, or (vii) any other Person to which
such delivery or disclosure may be necessary or appropriate (w) to effect
compliance with any law, rule, regulation or order applicable to Lender, (x) in
response to any subpoena or other legal process, (y) in connection with any
litigation to which Lender is a party or an Event of Default has occurred and is
continuing, to the extent Lender may reasonably determine such delivery and
disclosure to be necessary or appropriate in the enforcement or the protection
of the rights and remedies under this Agreement and the other Loan Documents.
Each holder of the Note or an interest therein, by its acceptance of the Note or
an interest therein, will be deemed to have agreed to be bound by and to be
entitled to the benefits of this Section 15.14 as though it were a party to this
Agreement.
(The remainder of this page was intentionally left blank.)
Page 57 of 58
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
BORROWER:
CARRIZO OIL & GAS, INC.
A TEXAS CORPORATION
By:
------------------------------------------
Name: Frank Wojtek
Title: Vice President and Chief Financial
Officer
GUARANTOR:
CCBM, INC.
A DELAWARE CORPORATION
By:
------------------------------------------
Name: Frank Wojtek
Title: Vice President and Chief Financial
Officer
LENDER:
HIBERNIA NATIONAL BANK
By:
------------------------------------------
Name: David R. Reid
Title: Senior Vice President
Page 58 of 58
EXHIBIT A
COMPLIANCE CERTIFICATE
-----------------------------
Date
Mr. David Reid
Senior Vice President
Hibernia National Bank
P. O. Box 3847
Lafayette, LA 70502
Dear Mr. Reid:
This Compliance Certificate is submitted pursuant to the requirements
of that certain Credit Agreement (the "Credit Agreement") dated May 24, 2002, by
and among Carrizo Oil & Gas, Inc. (the "Borrower"), CCBM, Inc. (the
"Guarantor"), and Hibernia National Bank (the "Lender").
Under the appropriate paragraphs of the Credit Agreement, we certify
that, to the best of our knowledge and belief, no condition, event, or act
which, with or without notice or lapse of time or both, would constitute an
event of default under the terms of the Credit Agreement, has occurred during
the 3 month period ending ______________________ (the "Reporting Period"). Also,
to the best of our knowledge, the Borrower has complied with all provisions of
the Credit Agreement.
Additionally, the Borrower submits the following financial information
for the Reporting Period in accordance with the financial covenants and ratios
contained in the Credit Agreement.
I. MINIMUM CURRENT RATIO
<Table>
Total Consolidated Current Assets (including the available portion
under the Borrowing Base Amount, but excluding the effects, if
any, of Hedging Agreements, pursuant to SFAS No. 13)........................ $
----------------------
Total Consolidated Current Liabilities (excluding principal
amounts due under the Commitment) .......................................... $
----------------------
Current Ratio.................................................................. to
-------------- ---------------
MINIMUM CURRENT RATIO REQUIRED................................................. 1.0 TO 1.0
------ -------
</Table>
1
II. MINIMUM CONSOLIDATED TANGIBLE NET WORTH
<Table>
(a) Consolidated Shareholders' Equity (GAAP Basis).................................$
--------------------------
(b) Less Intangible Assets (net of depreciation and amortization).................($ )
--------------------------
(c) Actual Consolidated Tangible Net Worth (a minus b).............................$
==========================
(d) Required Base Amount...........................................................$ 56,000,000.00
(e) + Plus 100% of any increase in shareholders' equity (GAAP basis)
resulting from sale of common and preferred stock
subsequent to 3-31-02..........................................................$
--------------------------
(f) + Plus 50% of net earnings (excluding losses) occurring subsequent
to 3-31-02.....................................................................$
--------------------------
(g) Add back the cumulative after-tax amount of ceiling test
write downs incurred pursuant to Reg. SX4.10 of
the SEC subsequent to 12-31-01.................................................$
--------------------------
Required Consolidated Tangible Net Worth (d), plus (e) and (f) and (g).....................$
==========================
</Table>
III. MINIMUM QUARTERLY DEBT SERVICE COVERAGE RATIO(1)
<Table>
(a) Consolidated EBITDA for the Reporting Period...................................$
--------------------------
(b) Less Amount of EBITDA related to assets pledged to
secure Non-Recourse Indebtedness..............................................($ )
--------------------------
(c) Difference (a-b)...............................................................$
--------------------------
(d) Less permitted cash dividends paid during the Reporting Period.................$
--------------------------
(e) Adjusted EBITDA-Difference (c) minus (d).......................................$
==========================
(f) Required principal and interest paid in cash on Indebtedness
during the Reporting Period....................................................$
--------------------------
(g) Principal and interest paid in cash on Debt (other than the
Indebtedness) during the Reporting Period......................................$
--------------------------
(h) Positive difference, if any, of (x) principal and interest paid in
cash on Non-Recourse Indebtedness during the Reporting
Period ..............................................(x) $
--------------
minus (y) positive EBITDA related to assets pledged to secure
Non-Recourse Indebtedness during the Reporting
Period...............................................(y) $ ....$
--------------- --------------------------
(i) Adjusted Debt Service-Sum of (f) + (g) + (h)...................................$
==========================
Ratio (e) / (i)............................................................................ to
----------- ----------
MINIMUM QUARTERLY DEBT SERVICE COVERAGE RATIO REQUIRED..................................... 1.25 TO 1.0
---- ---
Signature Page for Compliance Certificate.
</Table>
- ----------
(1) For purposes of this covenant, the non-cash effects, if any, of
Hedging Agreements pursuant to SFAS No. 133 will not be included,
nor will the effect, if any, of ceiling test write-downs pursuant to
Reg. SX4.10 of the SEC.
Sincerely,
CARRIZO OIL & GAS, INC.
By:
-----------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
2
EXHIBIT "B"
REQUEST FOR ADVANCE
TO: Hibernia National Bank
ATTN: Mr. David Reid
RE: Credit Agreement dated as of May 24, 2002
among Carrizo Oil & Gas, Inc., CCBM, Inc.,
and Hibernia National Bank (the "Credit
Agreement")
Pursuant to the Credit Agreement, Carrizo Oil & Gas, Inc. (the
"Borrower") hereby requests an Advance on the Commitment. Said Advance shall be
in the amount of $__________________. The borrowing date is ______________. The
Advance shall be a: Base Rate Loan ____ or a Eurodollar Loan _____. (If
Eurodollar Loan please state requested Interest Period ______________ months).
The Borrower certifies that as of the date hereof: (a) the Borrower
and the Guarantor are in compliance with all conditions and requirements of the
Credit Agreement; and (b) no condition, event, or act exists which, with or
without notice or lapse of time or both, would constitute an Event of Default
under the Credit Agreement.
CARRIZO OIL & GAS, INC.,
a Texas corporation
By:
-----------------------------------
Name:
-------------------------------
Title:
----------------------------
1
EXHIBIT "C"
REVOLVING NOTE
$30,000,000.00 May 24, 2002
FOR VALUE RECEIVED, the undersigned CARRIZO OIL & GAS, INC., a Texas
corporation (hereinafter referred to as the "Borrower") hereby unconditionally
promises to pay to the order of HIBERNIA NATIONAL BANK (the "Lender") at 313
Carondelet Street, New Orleans, Louisiana 70130, the principal sum of THIRTY
MILLION AND NO/100 DOLLARS ($30,000,000.00), in lawful money of the United
States of America together with interest from the date funds are made available
to the Borrower hereunder until paid at the rates specified in the Credit
Agreement (as hereinafter defined). All payments of principal and interest due
hereunder are payable at the office of Lender at 313 Carondelet Street, New
Orleans, Louisiana 70130, or at such other address as Lender shall designate in
writing to Borrower.
The principal and all accrued interest on this Note shall be due and
payable in accordance with the terms and provisions of the Credit Agreement.
This Note is executed pursuant to that certain Credit Agreement
dated of even date herewith among Borrower, CCBM, Inc., and Lender (the "Credit
Agreement"). Reference is made to the Credit Agreement and the Loan Documents
(as that term is defined in the Credit Agreement) for a statement of prepayment,
rights and obligations of Borrower, for a statement of the terms and conditions
under which the due date of this Note may be accelerated and for statements
regarding other matters affecting this Note (including without limitation the
obligations of the holder hereof to advance funds hereunder, principal and
interest payment due dates, voluntary and mandatory prepayments, exercise of
rights and remedies, payment of attorneys' fees, court costs and other costs of
collection and certain waivers by Borrower and others now or hereafter obligated
for payment of any sums due hereunder). Upon the occurrence of an Event of
Default, as that term is defined in the Credit Agreement and Loan Documents, the
holder hereof (i) may declare forthwith to be entirely and immediately due and
payable the principal balance hereof and the interest accrued hereon, and (ii)
shall have all rights and remedies of the Lender under the Credit Agreement and
Loan Documents. This Note may be prepaid in accordance with the terms and
provisions of the Credit Agreement. Reference is made to the Credit Agreement
for provisions concerning the applicable procedures for Advances under this
Note. NOTWITHSTANDING ANYTHING HEREIN CONTAINED TO THE CONTRARY, THE MAXIMUM
AGGREGATE AMOUNT OF ALL ADVANCES AT ANY TIME OUTSTANDING UNDER THIS NOTE (AND
LENDER'S OBLIGATION TO ADVANCE HEREUNDER) SHALL NOT EXCEED THE BORROWER BASE
AMOUNT (AS DEFINED IN THE CREDIT AGREEMENT) THEN IN EFFECT. Unless otherwise
defined herein, each capitalized term used herein shall have the same meaning
set forth in the Credit Agreement.
1
If Lender declares this Note to be in default, Lender has the right
prospectively (immediately following any applicable cure period) to adjust and
fix the simple interest rate under this Note until this Note is paid in full, as
follows: the fixed default interest rate shall be equal to twenty-one (21%)
percent per annum, or three (3%) percent per annum in excess of the interest
rate under this Note at the time of default, whichever is greater.
Notwithstanding the foregoing, the holder hereof shall never be entitled to
receive, collect or apply, as interest on this Note, any amount in excess of the
Maximum Rate (as such term is defined in the Credit Agreement), and, if the
holder hereof ever receives, collects, or applies as interest, any such amount
which would be excessive interest, it shall be deemed a partial prepayment of
principal and treated hereunder as such; and, if the indebtedness evidenced
hereby is paid in full, any remaining excess shall forthwith be paid to
Borrower. In determining whether or not the interest paid or payable, under any
specific contingency, exceeds the Maximum Rate, Borrower and the holder hereof
shall, to the maximum extent permitted under applicable law (i) characterize any
non-principal payment as an expense, fee or premium rather than as interest,
(ii) exclude voluntary prepayments and the effects thereof, and (iii) spread the
total amount of interest throughout the entire contemplated term of the
obligations evidenced by this Note and/or referred to in the Credit Agreement so
that the interest rate is uniform throughout the entire term of this Note;
provided that, if this Note is paid and performed in full prior to the end of
the full contemplated term thereof; and if the interest received for the actual
period of existence thereof exceeds the Maximum Rate, the holder hereof shall
refund to Borrower the amount of such excess or credit the amount of such excess
against the indebtedness evidenced hereby, and, in such event, the holder hereof
shall not be subject to any penalties provided by any laws for contracting for,
charging, taking, reserving or receiving interest in excess of the Maximum Rate.
If any payment of principal or interest on this Note shall become
due on a day other than a Business Day (as such term is defined in the Credit
Agreement), such payment shall be made on the next succeeding Business Day and
such extension of time shall in such case be included in computing interest in
connection with such payment.
If this Note is placed in the hands of an attorney for collection,
or if it is collected through any legal proceeding at law or in equity or in
bankruptcy, receivership or other court proceedings, Borrower agree to pay all
reasonable costs of collection, including, but not limited to, court costs and
reasonable attorneys' fees.
Borrower and each surety, endorser, guarantor and other party ever
liable for payment of any sums of money payable on this Note, jointly and
severally waive presentment and demand for payment, notice of intention to
accelerate the maturity, protest, notice of protest and nonpayment, as to this
Note and as to each and all installments hereof, and agree that their liability
under this Note shall be joint, several and solidary, and shall not be affected
by any renewal or extension in the time of payment hereof, or in any
indulgences, or by any release or change in any security for the payment of this
Note, and hereby consent to any and all renewals, extensions, indulgences,
releases or changes.
Borrower represents and warrants to Lender that loans evidenced by
this Note were entered into primarily for commercial or business purposes as
provided in La. R. S. 9:3509.
2
As security for the prompt and punctual payment of this Note,
Borrower collaterally assigns and pledges to Lender any rights which Borrower
may have to funds which Borrower maintains on deposit with Lender (with the
exception of funds deposited in tax-deferred accounts), and agrees that Lender
may, upon occurrence of an Event of Default under the Credit Agreement and the
expiration of any applicable grace period allowed to cure the Event of Default,
apply such funds on deposit with Lender against the unpaid balance of this Note.
This Note shall be governed by and construed in accordance with the
applicable laws of the State of Louisiana.
THIS WRITTEN NOTE, THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS
SET FORTH THE ENTIRE AGREEMENT OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER
HEREOF AND SUPERSEDE ALL PRIOR WRITTEN AND ORAL UNDERSTANDINGS BETWEEN THE
BORROWER AND THE LENDER AND ANY OTHER PARTIES WITH RESPECT TO THE MATTERS HEREIN
SET FORTH.
EXECUTED as of the date and year first above written.
CARRIZO OIL & GAS, INC.
a Texas corporation
By:
--------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
3