Exhibit 10.75
CREDIT AGREEMENT
DATED AS OF
JULY 28, 2014
AMONG
BARON ENERGY, INC.,
AS PARENT,
BARON PRODUCTION LLC,
AS BORROWER,
PETRO CAPITAL ENERGY CREDIT, LLC
AS ADMINISTRATIVE AGENT,
AND
THE LENDERS PARTY HERETO
TABLE OF CONTENTS
PAGE
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ARTICLE I
DEFINITIONS AND ACCOUNTING MATTERS
Terms Defined Above.........................................................1
Certain Defined Terms.......................................................1
Terms Generally; Rules of Construction.....................................24
Accounting Terms and Determinations; GAAP..................................25
ARTICLE II
THE LOANS AND ORI'S
Commitments................................................................25
Loans and Borrowings.......................................................25
Requests for Borrowings....................................................26
Funding of Borrowings......................................................26
Defaulting Lenders.........................................................27
ORI's......................................................................28
ARTICLE III
PAYMENTS OF PRINCIPAL AND INTEREST; PREPAYMENTS; FEES
Repayment of Loans.........................................................29
Interest...................................................................29
Prepayments................................................................30
Fees.......................................................................31
ARTICLE IV
PAYMENTS; PRO RATA TREATMENT; SHARING OF SET-OFFS
Payments Generally; Pro Rata Treatment; Sharing of Set-offs................31
Presumption of Payment by the Borrower.....................................32
Disposition of Production Proceeds.........................................33
ARTICLE V
INCREASED COSTS; TAXES
Increased Costs............................................................33
Taxes......................................................................34
ARTICLE VI
CONDITIONS PRECEDENT
Effective Date.............................................................35
Each Loan..................................................................40
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ARTICLE VII
REPRESENTATIONS AND WARRANTIES
Organization; Powers.......................................................41
Authority; Enforceability..................................................41
Approvals; No Conflicts....................................................41
Financial Condition; No Material Adverse Change............................42
Litigation.................................................................43
Environmental Matters......................................................43
Compliance with the Laws and Agreements; No Defaults.......................44
Investment Company Act.....................................................44
Taxes......................................................................45
ERISA......................................................................45
Disclosure; No Material Misstatements......................................46
Insurance..................................................................46
Restriction on Liens.......................................................47
Subsidiaries...............................................................47
Location of Business and Offices...........................................47
Properties; Titles, Etc....................................................47
Maintenance of Properties..................................................48
Gas Imbalances, Prepayments................................................49
Marketing of Production....................................................49
Swap Agreements............................................................49
Use of Loans...............................................................49
Solvency...................................................................50
OFAC.......................................................................50
Projections................................................................51
Affiliate Transactions.....................................................51
Security Documents.........................................................51
Material Contracts; Operating Agreements...................................51
Acquisition Documents......................................................52
Location of Deposit and Securities Accounts; Etc...........................52
ARTICLE VIII
AFFIRMATIVE COVENANTS
Financial Statements; Other Information....................................52
Notices of Material Events.................................................56
iii
Existence; Conduct of Business.............................................56
Payment of Obligations.....................................................57
Performance of Obligations under Loan Documents............................57
Operation and Maintenance of Properties; Material Contracts................57
Insurance..................................................................58
Books and Records; Inspection Rights.......................................58
Compliance with Laws.......................................................59
Environmental Matters......................................................59
Further Assurances.........................................................60
Reserve Reports............................................................60
Title Information..........................................................61
Additional Collateral; Additional Guarantors...............................62
ERISA Compliance...........................................................63
Key Man Life Insurance.....................................................63
Observation Rights.........................................................63
Deposit Accounts; Etc......................................................64
Additional Equity Issuance.................................................64
Riggan Lease...............................................................64
ARTICLE IX
NEGATIVE COVENANTS
Financial Covenants........................................................64
Indebtedness...............................................................66
Liens......................................................................67
Restricted Payments........................................................68
Investments................................................................68
Nature of Business; International Operations...............................69
Proceeds of Notes..........................................................69
Limitation on Leases.......................................................69
ERISA Compliance...........................................................70
Sale or Discount of Receivables............................................70
Mergers, Etc...............................................................70
Sale of Properties.........................................................71
Environmental Matters......................................................71
Transactions with Affiliates...............................................71
Subsidiaries...............................................................71
iv
Negative Pledge Agreements; Dividend Restrictions..........................71
Gas Imbalances, Take-or-Pay or Other Prepayments...........................72
Swap Agreements............................................................72
Accounting Changes; Organization Documents; Material
Contracts; Operating Agreements............................................72
Marketing Activities.......................................................73
Well Drilling Costs........................................................73
ARTICLE X
EVENTS OF DEFAULT; REMEDIES
Events of Default..........................................................73
Remedies...................................................................75
ARTICLE XI
THE ADMINISTRATIVE AGENT
Appointment; Powers........................................................77
Duties and Obligations of Administrative Agent.............................77
Action by Administrative Agent.............................................78
Reliance by Administrative Agent...........................................78
Subagents..................................................................79
Resignation of Administrative Agent........................................79
Administrative Agent as Lender.............................................79
No Reliance................................................................80
Administrative Agent May File Proofs of Claim..............................80
Authority of Administrative Agent to Release Collateral and Liens..........81
Withholding Tax............................................................81
ARTICLE XII
MISCELLANEOUS
Notices....................................................................82
No Waivers; Amendments; Cumulative Remedies; Enforcement...................83
Expenses, Indemnity; Damage Waiver.........................................84
Successors and Assigns.....................................................87
Survival; Revival; Reinstatement...........................................90
Counterparts; Integration; Effectiveness; Etc..............................91
Severability...............................................................91
Right of Setoff............................................................91
GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS.................92
v
Headings...................................................................93
Confidentiality............................................................93
Interest Rate Limitation...................................................94
EXCULPATION PROVISIONS.....................................................95
No Third Party Beneficiaries...............................................95
USA Patriot Act Notice.....................................................96
Flood Insurance Provisions.................................................96
Advertising and Publicity..................................................96
ANNEXES, EXHIBITS AND SCHEDULES
Annex I Commitments
Exhibit A Form of Note
Exhibit B Form of Borrowing Request
Exhibit C Form of Compliance Certificate
Exhibit D Security Documents
Exhibit E Form of Assignment and Assumption
Schedule 1.01A Scheduled Capital Expenditures
Schedule 7.05 Litigation
Schedule 7.06 Environmental Matters
Schedule 7.12 Insurance
Schedule 7.14 Subsidiaries
Schedule 7.18 Gas Imbalances
Schedule 7.19 Marketing Contracts
Schedule 7.20 Swap Agreements
Schedule 7.25 Affiliate Transactions
Schedule 7.27 Material Contracts and Operating Agreements
Schedule 7.29 Deposit and Securities Accounts, Etc.
Schedule 8.07 Insurance
Schedule 9.05 Investments
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CREDIT AGREEMENT dated as of July 28, 2014, is among BARON PRODUCTION LLC,
a Texas limited liability company (the "Borrower"), BARON ENERGY, INC., a Nevada
corporation (the "Parent"), each of the Lenders from time to time party hereto,
and PETRO CAPITAL ENERGY CREDIT, LLC ("PCEC"), as administrative agent for the
Lenders (in such capacity, together with its successors in such capacity, the
"Administrative Agent").
R E C I T A L S
A. The Borrower has requested that the Lenders provide certain term loans
to the Borrower.
B. The Lenders have agreed to make such loans subject to the terms and
conditions of this Agreement.
C. In consideration of the mutual covenants and agreements herein contained
and of the loans and commitments hereinafter referred to, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING MATTERS
Section 1.01 Terms Defined Above. As used in this Agreement, each term
defined above has the meaning indicated above.
Section 1.02 Certain Defined Terms. As used in this Agreement, the
following terms have the meanings specified below:
"Acquisition" means the acquisition of certain Oil and Gas Properties and
other Property pursuant to the terms and conditions of the Acquisition
Documents.
"Acquisition Agreement" means the Purchase and Sale Agreement dated May 29,
2014, between Ricochet Energy, Inc., a Texas corporation, the other sellers
specified therein, and the Parent.
"Acquisition Documents" means (a) the Acquisition Agreement and all
schedules, exhibits and annexes thereto and all side letters and agreements
affecting the terms thereof or entered into in connection therewith, and (b) all
bills of sale, assignments, agreements, instruments and documents executed and
delivered in connection therewith.
"Acquisition Properties" means the Oil and Gas Properties and other
Properties acquired by the Borrower pursuant to the Acquisition Documents.
"Administrative Questionnaire" means an Administrative Questionnaire in a
form supplied by the Administrative Agent.
"Affiliate" means, with respect to a specified Person, another Person that
directly, or indirectly through one or more intermediaries, Controls or is
Controlled by or is under common Control with the Person specified.
"Aggregate Exposure" means with respect to any Lender at any time, an
amount equal to such Lender's Commitment then in effect or, if the Commitments
have been terminated or expired, the amount of such Lender's Loans then
outstanding.
"Aggregate Exposure Percentage" means with respect to any Lender at any
time, the ratio (expressed as a percentage) of such Lender's Aggregate Exposure
at such time to the Aggregate Exposure of all Lenders at such time.
"Agreement" means this Credit Agreement, as the same may from time to time
be amended, modified, supplemented or restated.
"Applicable Make Whole Percentage" means 0.50% (50 basis points).
"Applicable Percentage" means, as to any Lender, the percentage which such
Lender's Commitment then constitutes of the Commitments of all the Lenders (or,
after the Loans are made, the percentage which the outstanding principal amount
of such Lender's Loan then constitutes of the aggregate principal amount of
Loans of all the Lenders then outstanding). The initial Applicable Percentage of
each Lender is set forth opposite the name of such Lender on Annex I, or in the
Assignment and Assumption pursuant to which such Lender becomes a party hereto,
as applicable.
"Approved Petroleum Engineers" means (a) Cawley, Gillespie and Associates,
(b) Haas Petroleum Engineering Services, Inc., and (c) any other independent
petroleum engineers reasonably acceptable to the Administrative Agent.
"Asset Sale" means the sale, lease, conveyance, exchange or other
disposition of assets or property of any kind whatsoever, whether real, personal
or mixed and whether tangible or intangible, whether now owned or hereafter
acquired, of the Borrower or any Subsidiary other than (a) any single
transaction or series of related transactions that involves assets having a fair
market value of less than $50,000; (b) a transfer of assets between or among the
Borrower and its Subsidiaries that are Wholly-Owned Subsidiary Guarantors; (c)
the sale of Hydrocarbons as produced in the ordinary course of business; and (d)
any sale or other disposition of damaged, worn-out, obsolete or no longer useful
assets or properties.
"Assignment and Assumption" means an assignment and assumption entered into
by a Lender and an assignee (with the consent of any party whose consent is
required by Section 12.04(b)), and accepted by the Administrative Agent, in the
form of Exhibit E or any other form approved by the Administrative Agent.
"Availability Period" means the period from and including the Effective
Date to but excluding October 31, 2015.
"Blocked Account Agreement (DSR)" means the Blocked Account Agreement,
dated as of July 28, 2014, among PlainsCapital Bank, the Borrower and the
Administrative Agent with respect to the Debt Service Reserve Account.
"Board" means the Board of Governors of the Federal Reserve System of the
United States of America or any successor Governmental Authority.
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"BOE" means one barrel of oil equivalent, calculated by converting natural
gas to oil equivalent barrels at a ratio of six (6) Mcf of natural gas to one
barrel of oil.
"Borrower's Designated Account" means account number 1738421930 standing in
the name of the Borrower at Wells Fargo Bank, N.A..
"Borrowing" means any borrowing of Loans on the same date.
"Borrowing Date" means any Business Day specified by the Borrower in a
Borrowing Request as a date on which the Borrower requests the Lenders to make
Loans hereunder.
"Borrowing Request" means a request by the Borrower for a Borrowing in
accordance with Section 2.03.
"Business Day" means any day that is not a Saturday, Sunday or other day on
which commercial banks in Dallas, Texas are authorized or required by law to
remain closed.
"Called Principal" means, with respect to any prepayment of the Loans
pursuant to Section 3.03 (other than pursuant to Section 3.03(c)(iii)), the
principal amount of the Loans so prepaid, and in the event the Loans are
accelerated, or have become or have been declared to be immediately due and
payable pursuant to Section 10.02 or otherwise, or in respect of which a claim
has arisen in any proceeding under any Debtor Relief Law, as the context
requires, the principal amount of the Loans so accelerated, or that have been
declared, or have become, due and payable pursuant to Section 10.02, or as to
which a claim has arisen in any Insolvency Proceeding.
"Called Principal Determination Date" means, with respect to any prepayment
of the Loans pursuant to Section 3.03 (other than pursuant to Section
3.03(c)(iii)), the date of such prepayment, and in the case the Loans are
accelerated, or have become or are declared to be immediately due and payable
pursuant to Section 10.02 or otherwise, or in respect of which a claim has
arisen in any proceeding under any Debtor Relief Law, as the context requires,
the date of such acceleration, or the date that the Loans were declared or
became due and payable, or the date that such claim in a proceeding under a
Debtor Relief Law arose, as applicable.
"Called Principal Determination Period" means, as to any Called Principal
and related Projected Interest Payments, the period from the relevant Called
Principal Determination Date to and including the Maturity Date.
"Capital Expenditures" means for any period, with respect to any Person,
the aggregate of all expenditures by such Person and its Subsidiaries for the
acquisition or leasing (pursuant to a capital lease) of fixed or capital assets
or additions to equipment (including replacements, capitalized repairs and
improvements during such period) that should be capitalized under GAAP on a
consolidated balance sheet of such Person and its Subsidiaries.
"Capital Leases" means, in respect of any Person, all leases which shall
have been, or should have been, in accordance with GAAP, recorded as capital
leases on the balance sheet of the Person liable (whether contingent or
otherwise) for the payment of rent thereunder.
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"Cash Equivalents" "means, as at any date of determination, (i) marketable
securities (a) issued or directly and unconditionally guaranteed as to interest
and principal by the United States Government, or (b) issued by any agency of
the United States the obligations of which are backed by the full faith and
credit of the United States, in each case maturing within one year after such
date; (ii) marketable direct obligations issued by any state of the United
States of America or any political subdivision of any such state or any public
instrumentality thereof, in each case maturing within one year after such date
and having, at the time of the acquisition thereof, a rating of at least A-1
from S&P or at least P-1 from Moody's; (iii) commercial paper maturing no more
than one year from the date of creation thereof and having, at the time of the
acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from
Moody's; (iv) certificates of deposit or bankers' acceptances maturing within
one year after such date and issued or accepted by any Lender or by any
commercial bank organized under the laws of the United States of America or any
state thereof or the District of Columbia that (a) is at least "adequately
capitalized" (as defined in the regulations of its primary Federal banking
regulator), and (b) has Tier 1 capital (as defined in such regulations) of not
less than $250,000,000; and (v) shares of any money market mutual fund that (a)
has at least ninety five percent (95%) of its assets invested continuously in
the types of investments referred to in clauses (i) and (ii) above, (b) has net
assets of not less than $500,000,000, and (c) has the highest rating obtainable
from either S&P or Moody's.
"Certificate of Designation" means the Certificate of Designation of Series
A Convertible Preferred Shares of the Parent.
"Change of Control" means an event or series of events by which:
(a) the Permitted Investors shall cease to own and control legally and
beneficially (free and clear of all Liens), either directly or indirectly,
Equity Interests in the Parent representing more than 25% of the combined voting
power of all of Equity Interests entitled to vote for members of the board of
directors or equivalent governing body of the Parent on a fully-diluted basis
(and taking into account all such securities that the Permitted Investors and
PCEC and Affiliates of PCEC have the right to acquire pursuant to any option
right (as defined in clause (b) below)); or
(b) any "person" or "group" (as such terms are used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, but excluding any employee benefit
plan of such person or its subsidiaries, and any person or entity acting in its
capacity as trustee, agent or other fiduciary or administrator of any such plan)
other than the Permitted Investors becomes the "beneficial owner" (as defined in
Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a
person or group shall be deemed to have "beneficial ownership" of all securities
that such person or group has the right to acquire, whether such right is
exercisable immediately or only after the passage of time (such right, an
"option right")), directly or indirectly, of 25% or more of the equity
securities of the Parent entitled to vote for members of the board of directors
or equivalent governing body of the Parent on a fully-diluted basis (and taking
into account all such securities that such "person" or "group" has the right to
acquire pursuant to any option right); or
(c) any Person or two or more Persons acting in concert shall have acquired
by contract or otherwise, or shall have entered into a contract or arrangement
4
that, upon consummation thereof, will result in its or their acquisition of the
power to exercise, directly or indirectly, a controlling influence over the
management or policies of the Parent, or control over the equity securities of
the Parent entitled to vote for members of the board of directors or equivalent
governing body of the Parent on a fully-diluted basis (and taking into account
all such securities that such Person or Persons have the right to acquire
pursuant to any option right) representing 25% or more of the combined voting
power of such securities; or
(d) the Parent shall cease, directly or indirectly, to own and control
legally and beneficially all of the Equity Interests issued by the Borrower free
and clear of all Liens, other than Liens created pursuant to, or expressly
permitted by, the Security Documents).
"Change in Law" means (a) the adoption of any law, treaty, rule or
regulation after the date of this Agreement, (b) any change in any law, treaty,
rule or regulation or in the interpretation or application thereof by any
Governmental Authority after the date of this Agreement or (c) compliance by any
Lender (or, for purposes of Section 5.01(b)), by any lending office of such
Lender or by such Lender's holding company, if any) with any request, guideline
or directive (whether or not having the force of law) of any Governmental
Authority made or issued after the date of this Agreement; PROVIDED that
notwithstanding anything herein to the contrary, (i) the Dodd-Frank Wall Street
Reform and Consumer Protection Act and all requests, rules, guidelines,
requirements or directives thereunder or issued in connection therewith (whether
or not having the force of law) or in implementation thereof, and (ii) all
requests, rules, regulations, guidelines, interpretations, requirements,
interpretations and or directives promulgated by the Bank for International
Settlements, the Basel Committee on Banking Supervision (or any successor or
similar authority) or the United States or foreign regulatory authorities
(whether or not having the force of law), in each case pursuant to Basel III,
shall in each case be deemed to be a "Change in Law", regardless of the date
enacted, adopted, issued or implemented.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and any successor statute.
"Collateral" means all Property of the Loan Parties, now owned or hereafter
acquired, upon which a Lien is purported to be created by any Security Document.
"Collateral Addition Date" means any date or dates that Administrative
Agent requests that the Borrower cause all Oil and Gas Properties of the
Borrower and its Subsidiaries not subject to the Lien of the Security Documents
to become subject to such Lien.
"Commitment" means as to any Lender, the obligation of such Lender, if any,
to make Loans to the Borrower hereunder in a principal amount not to exceed the
amount set forth under the heading "Commitment" opposite such Lender's name on
the Annex I. The original aggregate amount of the Commitments is $5,000,000,
provided, however, that if, during the Availability Period, (a) the Borrower
obtains a valid assignment of the Riggan Lease from Ricochet Energy, Inc., (b)
grants to the Administrative Agent a perfected first priority lien on the Riggan
Lease, and (c) the Administrative Agent is satisfied with the Borrower's title
to the Riggan Lease, the aggregate amount of the Commitments shall be increased
by $150,000 and each Lender's Commitment shall be increased proportionately in
5
accordance with its then existing Applicable Percentage. In connection with any
such increase, the Administrative Agent may supplement Annex I hereto to reflect
such increase.
"Consolidated Current Assets" means, at any time, the total assets of the
Borrower and its Subsidiaries which would be shown as current assets on a
balance sheet of the Borrower and its Subsidiaries prepared in accordance with
GAAP at such time.
"Consolidated Current Liabilities" means, at any time, the total
liabilities of the Borrower and its Subsidiaries which would be shown as current
liabilities on a balance sheet of the Borrower and its Subsidiaries prepared in
accordance with GAAP at such time; but in any event excluding as current
liabilities current maturities of the principal of the Loans and the VPP (to the
extent that the VPP would otherwise be included within Consolidated Current
Liabilities).
"Consolidated Debt Ratio" means, as at the last day of any calendar month
and subject to the provisions of Section 1.04(b), the ratio of (a) an amount
equal to Consolidated Total Indebtedness on such day, to (b) Consolidated EBITDA
for the 12-month period then ended.
"Consolidated EBITDA" means, for any period and subject to the provisions
of Section 1.04(b), Consolidated Net Income for such period, without duplication
and to the extent reflected as a charge in the statement of such Consolidated
Net Income for such period, the sum of (a) income tax expense, (b) interest
expense, and (c) depreciation and amortization expense; provided, however, that
for purposes of determining the Consolidated Interest Coverage Ratio in Section
9.01(a) and the Consolidated Debt Ratio in Section 9.01(b), (i) on each of
October 31, 2014, November 30, 2014 and December 31, 2014, Consolidated EBITDA
shall be deemed equal to Consolidated EBITDA for the three month period ending
on such date multiplied by 4, (ii) on each of January 31, 2015, February 28,
2015 and March 31, 2015, Consolidated EBITDA shall be deemed equal to
Consolidated EBITDA for the six month period ending on such date multiplied by
2, (iii) on each of April 30, 2015, May 31, 2015 and June, 2015, Consolidated
EBITDA shall be deemed equal to Consolidated EBITDA for the nine month period
ending on such date multiplied by 4/3, and (iv) on the last day of each calendar
month after June 30, 2014, Consolidated EBITDA shall be equal to Consolidated
EBITDA for the twelve month period ending on such date.
"Consolidated Interest Coverage Ratio" means, for any period, the ratio of
(a) Consolidated EBITDA for such period to (b) Consolidated Interest Expense for
such period.
"Consolidated Interest Expense" means, for any period and subject to the
provisions of Section 1.04(b), total interest expense (including that
attributable to Capital Leases) of the Borrower and its Subsidiaries for such
period with respect to all outstanding Indebtedness of the Borrower and its
Subsidiaries.
"Consolidated Net Income" means, for any period and subject to the
provisions of Section 1.04(b), the consolidated net income (or loss) of the
Borrower and its Subsidiaries, determined on a consolidated basis in accordance
with GAAP; provided that there shall be excluded (a) the income (or deficit) of
any Person accrued prior to the date it becomes a Subsidiary of the Borrower or
is merged into or consolidated with the Borrower or any of its Subsidiaries, (b)
the income (or deficit) of any Person (other than a Subsidiary of the Borrower)
6
in which the Borrower or any of its Subsidiaries has an ownership interest,
except to the extent that any such income is actually received by the Borrower
or such Subsidiary in the form of cash dividends or similar cash distributions
and (c) the undistributed earnings of any Subsidiary of the Borrower to the
extent that the declaration or payment of dividends or similar distributions by
such Subsidiary is not at the time permitted by the terms of any Contractual
Obligation (other than under any Loan Document) or Requirement of Law applicable
to such Subsidiary.
"Consolidated Total Indebtedness" means, at any date and subject to the
provisions of Section 1.04(b), the aggregate principal amount of all
Indebtedness of the Borrower and its Subsidiaries at such date, determined on a
consolidated basis in accordance with GAAP.
"Contractual Obligation" means, as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of a Person, whether
through the ability to exercise voting power, by contract or otherwise. For the
purposes of this definition, and without limiting the generality of the
foregoing, any Person that owns directly or indirectly 10% or more of the Equity
Interests having ordinary voting power for the election of the directors or
other governing body of a Person (other than as a limited partner of such other
Person) will be deemed to "control" such other Person. "Controlling" and
"Controlled" have meanings correlative thereto.
"Debtor Relief Laws" means the Bankruptcy Code of the United States of
America, and all other liquidation, conservatorship, bankruptcy, assignment for
the benefit of creditors, moratorium, rearrangement, receivership, insolvency,
reorganization, or similar debtor relief Laws of the United States or other
applicable jurisdictions from time to time in effect.
"Debt Service Reserve Account" means the segregated account 3100050594
standing in the name of the Borrower at PlainsCapital Bank. The Administrative
Agent shall have sole dominion and control over the Debt Service Reserve Account
pursuant to documentation satisfactory in form and substance to the
Administrative Agent.
"Default" means any event or condition which constitutes an Event of
Default or which upon notice, lapse of time or both would, unless cured or
waived, become an Event of Default.
"Defaulting Lender" means, subject to Section 2.05, any Lender that (a) has
failed to (i) fund all or any portion of the Loans required to be funded by it
hereunder within two Business Days of the date such Loans were required to be
funded hereunder unless such Lender notifies the Administrative Agent and the
Borrower in writing that such failure is the result of such Lender's
determination that one or more conditions precedent to funding (each of which
conditions precedent, together with any applicable default, shall be
specifically identified in such writing) has not been satisfied, or (ii) pay to
the Administrative Agent or any other Lender any other amount required to be
paid by it hereunder within two Business Days of the date when due, (b) has
notified the Borrower or the Administrative Agent in writing that it does not
intend to comply with its funding obligations hereunder, or has made a public
statement to that effect (unless such writing or public statement relates to
7
such Lender's obligation to fund a Loan hereunder and states that such position
is based on such Lender's determination that a condition precedent to funding
(which condition precedent, together with any applicable default, shall be
specifically identified in such writing or public statement) cannot be
satisfied), (c) has failed, within three Business Days after written request by
the Administrative Agent or the Borrower, to confirm in writing to the
Administrative Agent and the Borrower that it will comply with its prospective
funding obligations hereunder (provided that such Lender shall cease to be a
Defaulting Lender pursuant to this clause (c) upon receipt of such written
confirmation by the Administrative Agent and the Borrower), or (d) has, or has a
direct or indirect parent company that has, (i) become the subject of a
proceeding under any Debtor Relief Law, or (ii) had appointed for it a receiver,
custodian, conservator, trustee, administrator, assignee for the benefit of
creditors or similar Person charged with reorganization or liquidation of its
business or assets, including the FDIC or any other state or federal regulatory
authority acting in such a capacity; PROVIDED that a Lender shall not be a
Defaulting Lender solely by virtue of the ownership or acquisition of any Equity
Interest in that Lender or any direct or indirect parent company thereof by a
Governmental Authority so long as such ownership interest does not result in or
provide such Lender with immunity from the jurisdiction of courts within the
United States or from the enforcement of judgments or writs of attachment on its
assets or permit such Lender (or such Governmental Authority) to reject,
repudiate, disavow or disaffirm any contracts or agreements made with such
Lender. Any determination by the Administrative Agent that a Lender is a
Defaulting Lender under clauses (a) through (d) above shall be conclusive and
binding absent manifest error, and such Lender shall be deemed to be a
Defaulting Lender (subject to Section 2.10) upon delivery of written notice of
such determination to the Borrower and each Lender.
"Default Rate" shall mean a rate of interest per annum equal to 17%.
"Disbursement Letter" has the meaning specified in Section 6.01(bb).
"Discounted Yield Value" means, with respect to Projected Interest Payments
on any Called Principal of the Loan, the amount obtained by discounting the
aggregate Projected Interest Payments that would accrue on such Called Principal
during the Called Principal Determination Period therefor at a discount factor
(applied on monthly basis for each calendar month during the Called Principal
Determination Period) equal to the Reinvestment Yield with respect to such
Projected Interest Payments.
"Disqualified Stock" means any Equity Interest that, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable) or upon the happening of any event, matures or is mandatorily
redeemable for any consideration other than other Equity Interests (which would
not constitute Disqualified Stock), pursuant to a sinking fund obligation or
otherwise, or is convertible or exchangeable for Indebtedness or redeemable for
any consideration other than other Equity Interests (which would not constitute
Disqualified Stock) at the option of the holder thereof, in whole or in part, on
or prior to the date that is one year after the earlier of (a) the Maturity Date
and (b) the date on which there are no Loans or other obligations hereunder
outstanding and all of the Commitments are terminated.
"dollars", "Dollars" or "$" refers to lawful money of the United States of
America.
8
"Effective Date" means the date on which the conditions specified in
Section 6.01 are satisfied (or waived in accordance with Section 12.02).
"ECF Percentage" means 50%.
"Environmental Laws" means any and all Requirements of Law pertaining in
any way to health, safety the environment, the preservation or reclamation of
natural resources, or the management, release or threatened release of any
hazardous substance, in effect in any and all jurisdictions in which the
Borrower or any Subsidiary is conducting or at any time has conducted business,
or where any Property of the Borrower or any Subsidiary is located, including
without limitation, the Oil Pollution Act of 1990 ("OPA"), as amended, the Clean
Air Act, as amended, the Comprehensive Environmental, Response, Compensation,
and Liability Act of 1980 ("CERCLA"), as amended, the Federal Water Pollution
Control Act, as amended, the Occupational Safety and Health Act of 1970, as
amended, the Resource Conservation and Recovery Act of 1976 ("RCRA"), as
amended, the Safe Drinking Water Act, as amended, the Toxic Substances Control
Act, as amended, the Superfund Amendments and Reauthorization Act of 1986, as
amended, the Hazardous Materials Transportation Act, as amended, and other
environmental conservation or protection Requirements of Law. The term "oil"
shall have the meaning specified in OPA, the terms "hazardous substance" and
"release" (or "threatened release") have the meanings specified in CERCLA, the
terms "solid waste" and "disposal" (or "disposed") have the meanings specified
in RCRA and the term "oil and gas waste" shall have the meaning specified in
Section 91.1011 of the Texas Natural Resources Code ("Section 91.1011");
provided, however, that (a) in the event either OPA, CERCLA, RCRA or Section
91.1011 is amended so as to broaden the meaning of any term defined thereby,
such broader meaning shall apply subsequent to the effective date of such
amendment and (b) to the extent the laws of the state or other jurisdiction in
which any Property of the Borrower or any Subsidiary is located establish a
meaning for "oil," "hazardous substance," "release," "solid waste," "disposal"
or "oil and gas waste" which is broader than that specified in either OPA,
CERCLA, RCRA or Section 91.1011, such broader meaning shall apply.
"Environmental Permit" means any permit, registration, license, approval,
consent, exemption, variance, or other authorization required under or issued
pursuant to applicable Environmental Laws.
"Equity Interests" means shares of capital stock, partnership interests,
membership interests in a limited liability company, beneficial interests in a
trust or other equity ownership interests in a Person, and any warrants, options
or other rights entitling the holder thereof to purchase or acquire any such
Equity Interest.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute.
"ERISA Affiliate" means each trade or business (whether or not
incorporated) which together with the Borrower or a Subsidiary would be deemed
to be a "single employer" within the meaning of section 4001(b)(1) of ERISA or
subsections (b), (c), (m) or (o) of section 414 of the Code.
9
"Event of Default" has the meaning assigned such term in Section 10.01.
"Excepted Liens" means: (a) Liens for Taxes, assessments or other
governmental charges or levies which are not delinquent or which are being
contested in good faith by appropriate action and for which adequate reserves
have been maintained in accordance with GAAP; (b) Liens in connection with
workers' compensation, unemployment insurance or other social security, old age
pension or public liability obligations which are not delinquent or which are
being contested in good faith by appropriate action and for which adequate
reserves have been maintained in accordance with GAAP; (c) statutory landlord's
liens, operators', vendors', carriers', warehousemen's, repairmen's, mechanics',
suppliers', workers', materialmen's, construction or other like Liens arising by
operation of law in the ordinary course of business or incident to the
exploration, development, operation and maintenance of Oil and Gas Properties
each of which is in respect of obligations that are not delinquent or which are
being contested in good faith by appropriate action and for which adequate
reserves have been maintained in accordance with GAAP; (d) contractual Liens
which arise in the ordinary course of business under operating agreements, joint
venture agreements, oil and gas partnership agreements, oil and gas leases,
farm-out agreements, division orders, contracts for the sale, transportation or
exchange of oil and natural gas, unitization and pooling declarations and
agreements, area of mutual interest agreements, overriding royalty agreements,
marketing agreements, processing agreements, net profits agreements, development
agreements, gas balancing or deferred production agreements, injection,
repressuring and recycling agreements, salt water or other disposal agreements,
seismic or other geophysical permits or agreements, and other agreements which
are usual and customary in the oil and gas business and are for claims which are
not delinquent or which are being contested in good faith by appropriate action
and for which adequate reserves have been maintained in accordance with GAAP,
provided that any such Lien referred to in this clause does not materially
impair the use of any material Property covered by such Lien for the purposes
for which such Property is held by the Borrower or any Subsidiary or materially
impair the value of such Property subject thereto; (e) Liens arising solely by
virtue of any statutory or common law provision relating to banker's liens,
rights of set-off or similar rights and remedies and burdening only deposit
accounts or other funds maintained with a creditor depository institution,
provided that no such deposit account is a dedicated cash collateral account or
is subject to restrictions against access by the depositor in excess of those
set forth by regulations promulgated by the Board and no such deposit account is
intended by Borrower or any of its Subsidiaries to provide collateral to the
depository institution; (f) easements, restrictions, servitudes, permits,
conditions, covenants, exceptions or reservations in any Property of the
Borrower or any Subsidiary for the purpose of roads, pipelines, transmission
lines, transportation lines, distribution lines for the removal of gas, oil,
coal or other minerals or timber, and other like purposes, or for the joint or
common use of real estate, rights of way, facilities and equipment, that do not
secure any monetary obligations and which in the aggregate do not materially
impair the use of any material Property for the purposes of which such Property
is held by the Borrower or any Subsidiary or materially impair the value of any
material Property subject thereto; (g) Liens on cash or securities pledged to
secure performance of tenders, surety and appeal bonds, government contracts,
performance and return of money bonds, bids, trade contracts, leases, statutory
obligations, regulatory obligations and other obligations of a like nature
incurred in the ordinary course of business and (h) judgment and attachment
Liens not giving rise to an Event of Default, provided that any appropriate
legal proceedings which may have been duly initiated for the review of such
judgment shall not have been finally terminated or the period within which such
10
proceeding may be initiated shall not have expired and no action to enforce such
Lien has been commenced; provided, further that Liens described in clauses (a)
through (e) shall remain "Excepted Liens" only for so long as no action to
enforce such Lien has been commenced and no intention to subordinate the first
priority Lien granted in favor of the Administrative Agent and the Lenders is to
be hereby implied or expressed by the permitted existence of such Excepted
Liens.
"Excess Cash Flow" means, for any calendar month, Consolidated Net Income
for such month plus depreciation and amortization expense of the Borrower and
its Subsidiaries for such month, plus reasonable cash reserves for pending field
work determined in good faith by the Borrower, minus Scheduled Capital
Expenditures of the Borrower and its Subsidiaries for such month. For purposes
of this definition, "Scheduled Capital Expenditures" means scheduled Capital
Expenditures of the Borrower and its Subsidiaries set forth on Schedule 1.01A.
"Excluded Taxes" means, with respect to the Administrative Agent, any
Lender, or any other recipient of any payment to be made by or on account of any
obligation of the Borrower or any Guarantor hereunder or under any other Loan
Document, (a) income or franchise taxes imposed on (or measured by) its net
income by the United States of America or such other jurisdiction under the laws
of which such recipient is organized or in which its principal office is located
or, in the case of any Lender, in which its applicable lending office is
located, (b) any branch profits taxes imposed by the United States of America or
any similar tax imposed by any other jurisdiction in which the Borrower or any
Guarantor is located and (c) any U.S. federal withholding Taxes imposed under
FATCA.
"FAS 133" means Statement of Financial Accounting Standard 133 (and any
statements replacing, modifying or superseding such statement) adopted by the
Financial Accounting Standards Board.
"FATCA" means Sections 1471 through 1474 of the Code, as of the date of
this Agreement (or any amended or successor version that is substantively
comparable and not materially more onerous to comply with), any current or
future regulations or official interpretations thereof and any agreements
entered into pursuant to Section 1471(b)(1) of the Code.
"FDIC" means the Federal Deposit Insurance Corporation, or any successor
thereto.
"Financial Officer" means, for any Person, any president or vice president,
the chief executive officer, the chief financial officer, principal accounting
officer, treasurer or controller of such Person. Unless otherwise specified, all
references herein to a Financial Officer means a Financial Officer of the
Borrower.
"Financial Statements" means the financial statement or statements of the
Parent and its Subsidiaries referred to in Section 7.04(a).
"GAAP" means generally accepted accounting principles in the United States
of America as in effect from time to time subject to the terms and conditions
set forth in Section 1.04.
11
"Governmental Authority" means the government of the United States of
America, any other nation or any political subdivision thereof, whether state or
local, and any agency, authority, instrumentality, regulatory body, court,
central bank or other entity exercising executive, legislative, judicial,
taxing, regulatory or administrative powers or functions of or pertaining to
government over the Borrower, any Subsidiary, any of their Properties, the
Administrative Agent, or any Lender.
"Guarantee Obligation" as to any Person (the "guaranteeing person"), any
obligation, including a reimbursement, counterindemnity or similar obligation,
of the guaranteeing Person that guarantees or in effect guarantees, or which is
given to induce the creation of a separate obligation by another Person
(including any bank under any letter of credit) that guarantees or in effect
guarantees, any Indebtedness, leases, dividends or other obligations (the
"primary obligations") of any other third Person (the "primary obligor") in any
manner, whether directly or indirectly, including any obligation of the
guaranteeing person, whether or not contingent, (i) to purchase any such primary
obligation or any property constituting direct or indirect security therefor,
(ii) to advance or supply funds (1) for the purchase or payment of any such
primary obligation or (2) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (iii) to purchase property, securities or services primarily
for the purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor to make payment of such primary obligation or
(iv) otherwise to assure or hold harmless the owner of any such primary
obligation against loss in respect thereof; provided, however, that the term
Guarantee Obligation shall not include endorsements of instruments for deposit
or collection in the ordinary course of business. The amount of any Guarantee
Obligation of any guaranteeing person shall be deemed to be the lower of (a) an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Guarantee Obligation is made and (b) the maximum amount
for which such guaranteeing person may be liable pursuant to the terms of the
instrument embodying such Guarantee Obligation, unless such primary obligation
and the maximum amount for which such guaranteeing person may be liable are not
stated or determinable, in which case the amount of such Guarantee Obligation
shall be such guaranteeing person's maximum reasonably anticipated liability in
respect thereof as determined by the Borrower in good faith.
"Guarantors" means the Parent and each Subsidiary that guarantees the
Obligations pursuant to Section 8.14(b).
"Guaranty Agreement" means that certain Guaranty and Collateral Agreement
among the Borrower and its Subsidiaries and Administrative Agent pursuant to
which the Guarantors (other than the Parent) have guaranteed the payment and
performance of the Obligations
"Hazardous Material" means any substance regulated or as to which liability
might arise under any applicable Environmental Law and including, without
limitation: (a) any chemical, compound, material, product, byproduct, substance
or waste defined as or included in the definition or meaning of "hazardous
substance," "hazardous material," "hazardous waste," "solid waste," "toxic
waste," "extremely hazardous substance," "toxic substance," "contaminant,"
"pollutant," or words of similar meaning or import found in any applicable
Environmental Law; (b) petroleum hydrocarbons, petroleum products, petroleum
substances, natural gas, oil, oil and gas waste, crude oil, and any components,
12
fractions, or derivatives thereof; and (c) radioactive materials, asbestos
containing materials, polychlorinated biphenyls, or radon.
"Highest Lawful Rate" means, with respect to each Lender, the maximum
nonusurious interest rate, if any, that at any time or from time to time may be
contracted for, taken, reserved, charged or received on the Notes or on other
Obligations under laws applicable to such Lender which are presently in effect
or, to the extent allowed by law, under such laws which may hereafter be in
effect and which allow a higher maximum nonusurious interest rate than
applicable laws allow as of the date hereof.
"Hydrocarbon Interests" means all rights, titles, interests and estates now
or hereafter acquired in and to oil and gas leases, oil, gas and mineral leases,
or other liquid or gaseous hydrocarbon leases, mineral fee interests, overriding
royalty and royalty interests, net profit interests and production payment
interests, including any reserved or residual interests therein or thereto, of
whatever nature.
"Hydrocarbons" means oil, gas, casinghead gas, drip gasoline, natural
gasoline, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and
all products refined or separated therefrom.
"Indebtedness" means, for any Person, the sum of the following (without
duplication): (a) all obligations of such Person for borrowed money or evidenced
by bonds, bankers' acceptances, debentures, notes or other similar instruments;
(b) all obligations of such Person (whether contingent or otherwise) in respect
of letters of credit, surety or other bonds and similar instruments; (c) all
accounts payable and all accrued expenses, liabilities or other obligations of
such Person to pay the deferred purchase price of Property or services,
including earnout obligations; (d) all obligations under Capital Leases; (e) all
Synthetic Lease Obligations; (f) all Indebtedness (as defined in the other
clauses of this definition) of others secured by (or for which the holder of
such Indebtedness has an existing right, contingent or otherwise, to be secured
by) a Lien on any Property of such Person, whether or not such Indebtedness is
assumed by such Person; (g) all Guarantee Obligations of such Person in respect
of Indebtedness (as defined in the other clauses of this definition); (h) all
obligations to deliver commodities, goods or services, including, without
limitation, Hydrocarbons, in consideration of one or more advance payments,
other than gas balancing arrangements in the ordinary course of business; (i)
all obligations to pay for goods or services even if such goods or services are
not actually received or utilized by such Person (other than firm transportation
or storage, or drilling contracts); (j) any Indebtedness of a partnership for
which such Person is liable either by agreement, by operation of law or by a
governmental requirement but only to the extent of such liability; (k) all
Disqualified Stock issued by such Person, valued, as of the date of
determination, at the greater of (i) the maximum aggregate amount that would be
payable upon maturity, redemption, repayment or repurchase thereof (or of
Disqualified Stock or Indebtedness into which such Disqualified Stock is
convertible or exchangeable) and (ii) the maximum liquidation preference of such
Disqualified Stock; and (l) all obligations of such Person in respect of Swap
Agreements, valued at the Swap Termination Value thereof. The Indebtedness of
any Person shall include all obligations of such Person of the character
described above to the extent such Person remains legally liable in respect
thereof notwithstanding that any such obligation is not included as a liability
of such Person under GAAP.
13
"Indemnified Taxes" means (a) Taxes, other than Excluded Taxes, imposed on
or with respect to any payment made by or on account of any obligation of any
Loan Party under any Loan Document and (b) to the extent not otherwise described
in (a), Other Taxes.
"Indemnitee" has the meaning assigned such term in Section 12.03(b).
"Information" has the meaning assigned such term in Section 12.11.
"Initial Reserve Report" means the report of the Borrower with respect to
certain Oil and Gas Properties of the Borrower and its Subsidiaries prepared by
Cawley, Gillespie and Associates as of January 31, 2014.
"Interest Payment Date" means (a) the last day of each calendar month to
occur while any principal of this Note is outstanding, commencing on August 31,
2014, and (b) the Maturity Date.
"Investment" means, for any Person: (a) the acquisition (whether for cash,
Property, services or securities or otherwise) of Equity Interests of any other
Person or any agreement to make any such acquisition (including, without
limitation, any "short sale" or any sale of any securities at a time when such
securities are not owned by the Person entering into such short sale); (b) the
making of any deposit with, or advance, loan or capital contribution to, the
assumption of Indebtedness of, the purchase or other acquisition of any other
Indebtedness of or equity participation or interest in, or other extension of
credit to, any other Person (including the purchase of Property from another
Person subject to an understanding or agreement, contingent or otherwise, to
resell such Property to such Person, but excluding any such advance, loan or
extension of credit having a term not exceeding ninety (90) days representing
the purchase price of inventory, material, equipment or supplies sold by such
Person in the ordinary course of business); (c) the purchase or acquisition (in
one or a series of transactions) of Property of another Person that constitutes
a business unit or all or a substantial part of the business of, such Person, or
(d) the entering into of any guarantee of, or other contingent obligation
(including the deposit of any Equity Interests to be sold) with respect to,
Indebtedness or other liability of any other Person and (without duplication)
any amount committed to be advanced, lent or extended to such Person. For
purposes of covenant compliance, the amount of any Investment shall be the
amount actually invested, without adjustment for subsequent increases or
decreases in the value of such Investment
"Lenders" means the Persons listed on Annex I and any Person that shall
have become a party hereto pursuant to an Assignment and Assumption, other than
any such Person that ceases to be a party hereto pursuant to an Assignment and
Assumption.
"Lien" means 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 the common law, statute or contract, and whether such obligation or
claim is fixed or contingent, and including but not limited to (a) the lien or
security interest arising from a mortgage, encumbrance, pledge, security
agreement, conditional sale or trust receipt or a lease, consignment or bailment
for security purposes or (b) production payments and the like payable out of Oil
and Gas Properties. The term "Lien" shall include easements, restrictions,
servitudes, permits, conditions, covenants, exceptions or reservations. For the
14
purposes of this Agreement, the Borrower and the Subsidiaries shall be deemed to
be the owner of any Property which it has acquired or holds subject to a
conditional sale agreement, or leases under a financing lease or other
arrangement pursuant to which title to the Property has been retained by or
vested in some other Person in a transaction intended to create a financing.
"Loans" has the meaning specified in Section 2.01.
"Loan Documents" means this Agreement, the Notes, the Security Documents,
the ORI Conveyances, the Warrant Agreement, and the Warrant.
"Loan Parties" means the Parent, the Borrower and each Subsidiary of the
Borrower that is a party to a Loan Document.
"Make-Whole Premium" means, with respect to any Called Principal of the
Loan, an amount equal to the Discounted Yield Value thereon for the Called
Principal Determination Period.
"Material Adverse Effect" means a material adverse change in, or material
adverse effect on (a) the business, operations, Property, prospects or condition
(financial or otherwise) of the Borrower and the Guarantors, taken as a whole,
(b) the ability of the Borrower and the Guarantors to perform any of their
obligations under any Loan Document, (c) the validity or enforceability of any
Loan Document or (d) the rights and remedies of or benefits available to the
Administrative Agent, any other Agent or any Lender under any Loan Document.
"Material Contract" means, with respect to any Person, (a) each contract to
which such Person is a party involving aggregate consideration payable to or by
such Person of $50,000 or more in any year or otherwise material to the
business, condition (financial or otherwise), operations, performance,
properties or prospects of such Person, and (b) the Acquisition Documents.
"Material Indebtedness" means Indebtedness (other than the Loans), or
obligations in respect of one or more Swap Agreements, of any one or more of the
Parent, the Borrower and the Subsidiaries in an aggregate principal amount
exceeding $100,000. For purposes of determining Material Indebtedness, the
"principal amount" of the obligations of the Parent, the Borrower or any
Subsidiary in respect of any Swap Agreement at any time shall be the Swap
Termination Value owed by the Borrower or any Subsidiary, as applicable.
"Maturity Date" means July 31, 2016; provided, however, that if such date
is not a Business Day, the Maturity Date shall be the next preceding Business
Day.
"Mcf" means one thousand cubic feet.
"Moody's" means Moody's Investors Service, Inc. and any successor thereto
that is a nationally recognized rating agency.
15
"Mortgaged Properties" means any Oil and Gas Properties owned by the
Borrower or any Guarantor which is subject to the Liens existing and to exist
under the terms of the Security Documents.
"Net Cash Proceeds" means (a) in connection with any Asset Sale or any
Recovery Event, the proceeds thereof in the form of cash and Cash Equivalents
(including any such proceeds received by way of deferred payment of principal
pursuant to a note or installment receivable or purchase price adjustment
receivable or otherwise, but only as and when received) of such Asset Sale or
Recovery Event, net of attorneys' fees, accountants' fees, investment banking
fees, amounts required to be applied to the repayment of Indebtedness secured by
a Lien expressly permitted hereunder on any asset that is the subject of such
Asset Sale or Recovery Event (other than any Lien pursuant to a Security
Document) and other customary fees and expenses actually incurred in connection
therewith and net of taxes paid or reasonably estimated to be payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements) and (b) in connection with any
issuance or sale of Equity Interests or any incurrence of Indebtedness, the cash
proceeds received from such issuance or incurrence, net of attorneys' fees,
investment banking fees, accountants' fees, underwriting discounts and
commissions and other customary fees and expenses actually incurred in
connection therewith.
"Non-Defaulting Lender" means, at any time, each Lender that is not a
Defaulting Lender at such time.
"Notes" means the promissory notes of the Borrower described in Section
2.02(d) and being substantially in the form of Exhibit A, together with all
amendments, modifications, replacements, extensions and rearrangements thereof.
"Newton Note" means the Consolidated Combined and Restated Secured
Promissory Note dated April 23, 2014, between the Parent and Newton Energy,
Inc., a California corporation, in the original principal amount of $785,108.47.
"Obligations" means all advances to, and debts, liabilities, obligations,
covenants and duties of, any Loan Party arising under any Loan Document or
otherwise with respect to any Loan, in each case whether direct or indirect
(including those acquired by assumption), absolute or contingent, due or to
become due, now existing or hereafter arising and including interest and fees
and Make-Whole Premium that accrue or arise after the commencement by or against
any Loan Party or any Affiliate thereof of any proceeding under any Debtor
Relief Laws naming such Person as the debtor in such proceeding, regardless of
whether such interest, fees and Make-Whole Premium are allowed claims in such
proceeding.
"OFAC" means the U.S. Department of the Treasury's Office of Foreign Assets
Control.
"Oil and Gas Properties" means (a) Hydrocarbon Interests; (b) the
Properties now or hereafter pooled or unitized with Hydrocarbon Interests; (c)
all presently existing or future unitization, pooling agreements and
declarations of pooled units and the units created thereby (including without
limitation all units created under orders, regulations and rules of any
Governmental Authority) which may affect all or any portion of the Hydrocarbon
16
Interests; (d) all operating agreements, contracts and other agreements,
including production sharing contracts and agreements, which relate to any of
the Hydrocarbon Interests or the production, sale, purchase, exchange or
processing of Hydrocarbons from or attributable to such Hydrocarbon Interests;
(e) all Hydrocarbons in and under and which may be produced and saved or
attributable to the Hydrocarbon Interests, including all oil in tanks, and all
rents, issues, profits, proceeds, products, revenues and other incomes from or
attributable to the Hydrocarbon Interests; (f) all tenements, hereditaments,
appurtenances and Properties in any manner appertaining, belonging, affixed or
incidental to the Hydrocarbon Interests and (g) all Properties, rights, titles,
interests and estates described or referred to above, including any and all
Property, real or personal, now owned or hereinafter acquired and situated upon,
used, held for use or useful in connection with the operating, working or
development of any of such Hydrocarbon Interests or Property (excluding drilling
rigs, automotive equipment, rental equipment or other personal Property which
may be on such premises for the purpose of drilling a well or for other similar
temporary uses) and including any and all oil wells, gas wells, injection wells
or other wells, structures, fuel separators, liquid extraction plants, plant
compressors, pumps, pumping units, field gathering systems, tanks and tank
batteries, fixtures, valves, fittings, machinery and parts, engines, boilers,
meters, apparatus, equipment, appliances, tools, implements, cables, wires,
towers, casing, tubing and rods, surface leases, rights-of-way, easements and
servitudes together with all additions, substitutions, replacements, accessions
and attachments to any and all of the foregoing. References in this Agreement to
Oil and Gas Properties of the Borrower and its Subsidiaries include the
Acquisition Properties.
"Operating Agreements" means operating agreements or joint operating
agreements among or between the Borrower or any Subsidiary and other working
interest owners.
"Organization Documents" means, (a) with respect to any corporation, the
certificate or articles of incorporation, the bylaws and any certificate of
designation (or equivalent or comparable constitutive documents with respect to
any non-U.S. jurisdiction); (b) with respect to any limited liability company,
the certificate or articles of formation or organization and operating
agreement; and (c) with respect to any partnership, joint venture, trust or
other form of business entity, the partnership, joint venture or other
applicable agreement of formation or organization and any agreement, instrument,
filing or notice with respect thereto filed in connection with its formation or
organization with the applicable Governmental Authority in the jurisdiction of
its formation or organization and, if applicable, any certificate or articles of
formation or organization of such entity.
"ORI" means the limited term overriding royalty interests to be conveyed
from the Borrower to the Administrative Agent, for the pro rata benefit of the
Lenders, pursuant to an ORI Conveyance.
"ORI Conveyance" means each ORI conveyance by and between Borrower and or a
Subsidiary, as grantor, and Administrative Agent, as grantee, for the benefit of
the Lenders, required under Section 2.06 of this Agreement. Each ORI Conveyance
shall be in form and substance satisfactory to the Administrative Agent.
"Other Taxes" means any and all present or future stamp or documentary
taxes or any other excise or Property taxes, charges or similar levies arising
17
from any payment made hereunder or from the execution, delivery or enforcement
of, or otherwise with respect to, this Agreement and any other Loan Document;
provided that, for the avoidance of doubt, "Other Taxes" shall not include
Excluded Taxes
"Paid in Full" means (i) the irrevocable and indefeasible payment in full
in cash of all principal, interest (including interest accruing during the
pendency of an insolvency or liquidation proceeding, regardless of whether
allowed or allowable in such insolvency or liquidation proceeding) and
Make-Whole Premium, if any, on all Loans outstanding under the Credit Agreement,
(ii) the payment in full in cash or posting of cash collateral in respect of all
other Obligations or amounts that are outstanding under the Credit Agreement and
the other Loan Documents, and (iii) the termination of all Commitments under the
Credit Agreement.
"Parent" has the meaning specified in the preamble of this Agreement.
"Parent Guaranty" has the meaning specified on Exhibit D.
"Parent Pledge Agreement" has the meaning specified on Exhibit D.
"Participant" has the meaning set forth in Section 12.04(c)(i).
"Participant Register" has the meaning specified in Section 12.04(c)(iii).
"PCEC Sub 1" means PCEC Sub 1, LLC, a Texas limited liability company.
"Permitted Investors" means (a) Ronnie L. Steinocher and Lisa Hamilton, and
(b) PCEC and its Affiliates.
"Person" means any natural person, corporation, limited liability company,
trust, joint venture, association, company, partnership, Governmental Authority
or other entity.
"Plan" means any employee pension benefit plan, as defined in section 3(2)
of ERISA, which (a) is currently or hereafter sponsored, maintained or
contributed to by the Borrower, a Subsidiary or an ERISA Affiliate or (b) was at
any time during the six calendar years preceding the date hereof, sponsored,
maintained or contributed to by the Borrower or a Subsidiary or an ERISA
Affiliate.
"Pro Forma Balance Sheet" has the meaning specified in Section 7.04(b).
"Projected Interest Payments" means, as to any Called Principal of the
Loans, the aggregate amount of interest that would accrue during the Called
Principal Determination Period therefor assuming that (x) such interest would
accrue on each day during such Called Principal Determination Period at the rate
of 12% per annum, and (y) such Called Principal remained outstanding in full
during the entire Called Principal Determination Period.
"Projections" has the meaning specified in Section 7.24.
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"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible, including, without
limitation, cash, securities, accounts and contract rights.
"Recovery Event" means any settlement of or payment in respect of any
property or casualty insurance claim or any condemnation proceeding relating to
any asset of the Borrower or any Subsidiary.
"Redemption" means with respect to any Indebtedness, the repurchase,
redemption, prepayment, repayment, defeasance or any other acquisition or
retirement for value (or the segregation of funds with respect to any of the
foregoing) of such Indebtedness. "Redeem" has the correlative meaning thereto.
"Register" has the meaning assigned such term in Section 12.04(b)(iv).
"Registration Rights Agreement" means the Registration Rights Agreement,
dated as of the Effective Date, among the Parent, the Administrative Agent and
PCEC.
"Regulation D" means Regulation D of the Board, as the same may be amended,
supplemented or replaced from time to time.
"Reinvestment Deferred Amount" means with respect to any Reinvestment
Event, the aggregate Net Cash Proceeds received by the Borrower or any
Subsidiary in connection therewith that are not applied to prepay Loans pursuant
to Section 3.03(c)(ii) as a result of the delivery of a Reinvestment Notice.
"Reinvestment Event" means any Recovery Event in respect of which the
Borrower has delivered a Reinvestment Notice.
"Reinvestment Notice" means a written notice executed by a Responsible
Officer of the Borrower stating that no Event of Default has occurred and is
continuing and that the Borrower (directly or indirectly through a Subsidiary)
intends and expects to use all or a specified portion of the Net Cash Proceeds
of a Recovery Event to acquire or repair assets useful in its business.
"Reinvestment Prepayment Amount" means with respect to any Reinvestment
Event, the Reinvestment Deferred Amount relating thereto less any amount
expended prior to the relevant Reinvestment Prepayment Date to acquire or repair
assets useful in the Borrower's business.
"Reinvestment Prepayment Date" means with respect to any Reinvestment
Event, the earlier of (a) the date occurring 90 days after such Reinvestment
Event and (b) the date on which the Borrower shall have determined not to, or
shall have otherwise ceased to, acquire or repair assets useful in the
Borrower's business with all or any portion of the relevant Reinvestment
Deferred Amount.
"Reinvestment Yield" means, with respect to Projected Interest Payments on
any Called Principal, the sum of the (x) Applicable Make Whole Percentage plus
(y) the One Month LIBO Rate. For purposes of this definition, "One Month LIBO
Rate" means the rate per annum equal to the rate of interest published on the
Effective Date in the Money Rates section of THE WALL STREET JOURNAL under the
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caption "London interbank offered rate" or "Libor Rate" for Dollars for a period
of one month.
"Related Parties" means, with respect to any specified Person, such
Person's Affiliates and the respective directors, officers, employees, agents
and advisors (including attorneys, accountants and experts) of such Person and
such Person's Affiliates.
"Release" means any depositing, spilling, leaking, pumping, pouring,
placing, emitting, discarding, abandoning, emptying, discharging, migrating,
injecting, escaping, leaching, dumping, or disposing.
"Remedial Work" has the meaning assigned such term in Section 8.10(a).
"Required Lenders" means, at any time, the holders of at least 66-?% of (a)
the Commitments then in effect and (b) if the Commitments have terminated or
expired, the aggregate unpaid principal amount of the Loans then outstanding;
provided that the portion of the Commitments or Loans held by any Defaulting
Lender shall be excluded for purposes of making a determination of Required
Lenders.
"Requirement of Law" means, as to any Person, the Organization Documents of
such Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
"Reserve Report" means the Initial Reserve Report and a report, in form and
substance reasonably satisfactory to the Administrative Agent, setting forth, as
of each August 1 or February 1 the oil and gas reserves located in the United
States attributable to the Oil and Gas Properties of the Borrower and the
Subsidiaries, together with a projection of the rate of production and future
net income, taxes, operating expenses and capital expenditures with respect
thereto as of such date, based upon the economic assumptions consistent with the
Administrative Agent's lending requirements at the time.
"Responsible Officer" means, as to any Person, the Chief Executive Officer,
the President, any Financial Officer or any Vice President of such Person.
Unless otherwise specified, all references to a Responsible Officer herein shall
mean a Responsible Officer of the Borrower.
"Restricted Payment" means any dividend or other distribution (whether in
cash, securities or other Property) with respect to any Equity Interests in the
Borrower or any of its Subsidiaries, or any payment (whether in cash, securities
or other Property), including any sinking fund or similar deposit, on account of
the purchase, redemption, retirement, acquisition, cancellation or termination
of any such Equity Interests in the Borrower or any of its Subsidiaries or any
option, warrant or other right to acquire any such Equity Interests in the
Borrower or any of its Subsidiaries.
"Riggan Lease" means the Oil and Gas Lease entered into on August 18, 2010,
between James Riggan, Yvonne Riggan, the other lessors party thereto and
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Ricochet Energy, Inc., as to which a Memorandum of Oil and Gas Lease is recorded
Volume 79, Page 460 of the Official Records of Frio County, Texas.
"Sanctioned Country" means a country subject to a sanctions program
identified on the list maintained by OFAC and available at
http://www.treasury.gov/resource-center/sanctions/Programs/Pages/Programs.aspx,
or as otherwise published from time to time.
"Sanctioned Person" means (a) a Person named on the list of "Specially
Designated Nationals and Blocked Persons" maintained by OFAC available at
http://www.treasury.gov/resource-center/sanctions/SDN-List/Pages/default.aspx,
or as otherwise published from time to time, or (b) (i) an agency of the
government of a Sanctioned Country, (ii) an organization controlled by a
Sanctioned Country, or (iii) a person resident in a Sanctioned Country, to the
extent subject to a sanctions program administered by the U.S. Department of the
Treasury's Office of Foreign Assets Control.
"S&P" means Standard & Poor's Ratings Group, a division of The McGraw Hill
Corporation, and any successor thereto.
"SEC" means the Securities and Exchange Commission or any successor
Governmental Authority.
"Secured Parties" means, collectively, the Administrative Agent, the
Lenders, each co-agent or sub-agent appointed by the Administrative Agent from
time to time pursuant to Section 11.05, and the other Persons the Obligations
owing to which are or are purported to be secured by the Collateral under the
terms of the Security Documents.
"Security Documents" means the Guaranty Agreement, Parent Guaranty, Blocked
Account Agreement (DSR), Parent Pledge Agreement, mortgages, deeds of trust and
other agreements, instruments or certificates described or referred to in
Exhibit D, and any and all other agreements, instruments, consents or
certificates now or hereafter executed and delivered by the Borrower or any
other Person as security for the payment or performance of the Obligations, the
Notes, and/or this Agreement, as such agreements may be amended, modified,
supplemented or restated from time to time.
"Series A Convertible Preferred Stock" means the Series A Convertible
Preferred Stock of the Parent, par value $0.001 per share.
"Solvent" when used with respect to any Person, means that, as of any date
of determination, (a) the amount of the "present fair saleable value" of the
assets of such Person will, as of such date, exceed the amount of all
"liabilities of such Person, contingent or otherwise", as of such date, as such
quoted terms are determined in accordance with applicable federal and state laws
governing determinations of the insolvency of debtors, (b) the present fair
saleable value of the assets of such Person will, as of such date, be greater
than the amount that will be required to pay the liability of such Person on its
debts as such debts become absolute and matured, (c) such Person will not have,
as of such date, an unreasonably small amount of capital with which to conduct
its business, and (d) such Person will be able to pay its debts as they mature.
For purposes of this definition, (i) "debt" means liability on a "claim", and
(ii) "claim" means any (x) right to payment, whether or not such a right is
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reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
unmatured, disputed, undisputed, legal, equitable, secured or unsecured or (y)
right to an equitable remedy for breach of performance if such breach gives rise
to a right to payment, whether or not such right to an equitable remedy is
reduced to judgment, fixed, contingent, matured or unmatured, disputed,
undisputed, secured or unsecured.
"Subsidiary" means: (a) any Person of which at least a majority of the
outstanding Equity Interests having by the terms thereof ordinary voting power
to elect a majority of the board of directors, manager or other governing body
of such Person (irrespective of whether or not at the time Equity Interests of
any other class or classes of such Person shall have or might have voting power
by reason of the happening of any contingency) is at the time directly or
indirectly owned or controlled by the Borrower and/or one or more of its
Subsidiaries and (b) any partnership of which the Borrower or any of its
Subsidiaries is a general partner. Unless otherwise indicated herein, each
reference to the term "Subsidiary" shall mean a Subsidiary of the Borrower.
"Subsidiary Guarantor" means each Subsidiary of the Borrower.
"Swap Agreement" means any agreement with respect to any swap, forward,
future or derivative transaction or option or similar agreement, whether
exchange traded, "over-the-counter" or otherwise, involving, or settled by
reference to, one or more interest rates, currencies, commodities, equity or
debt instruments or securities, or economic, financial or pricing indices or
measures of economic, financial or pricing risk or value or any similar
transaction or any combination of these transactions; provided that no phantom
stock or similar plan providing for payments only on account of services
provided by current or former directors, officers, employees or consultants of
the Borrower or the Subsidiaries shall be a Swap Agreement.
"Swap Termination Value" means, in respect of any one or more Swap
Agreements, after taking into account the effect of any legally enforceable
netting agreement relating to such Swap Agreements, (a) for any date on or after
the date such Swap Agreements have been closed out and termination value(s)
determined in accordance therewith, such termination value(s) and (b) for any
date prior to the date referenced in clause (a), the amount(s) determined as the
mark-to-market value(s) for such Swap Agreements, as determined by the
counterparties to such Swap Agreements.
"Synthetic Lease Obligation" means the monetary obligation of a Person
under (a) a so-called synthetic, off-balance sheet or tax retention lease, or
(b) an agreement for the use or possession of property (including sale and
leaseback transactions), in each case, creating obligations that do not appear
on the balance sheet of such Person but which, upon the application of any
Debtor Relief Laws to such Person, would be characterized as the indebtedness of
such Person (without regard to accounting treatment).
"Taxes" means all present or future taxes, levies, imposts, duties,
deductions, withholdings (including backup withholding), assessments, fees or
other charges imposed by any Governmental Authority, including any interest,
additions to tax or penalties applicable thereto.
"Total G&A Expense" means, for any period, normal and customary expenses
and costs satisfactory to Administrative Agent, paid in cash, that in accordance
22
with GAAP are classified as general and administrative costs, including
consulting fees, salary, bonuses, employee benefits, rent, supplies, travel and
entertainment, insurance, accounting, legal, engineering and broker related
fees, required to manage the affairs of the Loan Parties; provided, that, to the
extent any of the foregoing are capitalized, they shall be included in the
definition of Total G&A Expense.
"Transactions" means the collective reference to:
(a) with respect to the Borrower, the execution, delivery and performance
by the Borrower of this Agreement and each other Loan Document to which it is a
party, the borrowing of Loans, and the use of the proceeds thereof, and the
grant of Liens by the Borrower on Mortgaged Properties and other Properties
pursuant to the Security Documents;
(b) with respect to each Guarantor, the execution, delivery and performance
by such Guarantor of each Loan Document to which it is a party, the guaranteeing
of the Obligations and such Guarantor's grant of the security interests and
provision of collateral under the Security Documents, and the grant of Liens by
such Guarantor on Mortgaged Properties and other Properties pursuant to the
Security Documents;
(c) the consummation of the Acquisition and the other transactions
contemplated by the Acquisition Documents;
(d) the issuance by the Parent of the Warrants to the Administrative Agent,
for the benefit of the Lenders, pursuant to the Warrant Agreement;
(e) the sale of the VPP by the Borrower to PCEC Sub 1 pursuant to, and the
consummation of the other transactions contemplated by, the VPP Documents;
(f) the assignment by the Parent of the Shaffer leases to the Borrower; and
(g) the payment of the fees and expenses incurred in connection with the
consummation of the foregoing.
"U.S. Person" means any Person that is a "United States Person" as defined
in Section 7701(a)(30) of the Code.
"VPP" means the Production Payment (as defined in the VPP Conveyance).
"VPP Conveyance" means the Conveyance of Term Overriding Royalty Interest
dated the date hereof, from the Borrower, as grantor, to PCEC Sub 1, as grantee.
"VPP Documents" means (a) the VPP Purchase Agreement, (b) the VPP
Conveyance, (c) the VPP Production and Marketing Agreement, (d) the VPP
Mortgage, and (e) all assignments, agreements, instruments and documents
executed and delivered in connection therewith.
"VPP Mortgage" means the Mortgage (as defined in the VPP Conveyance).
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"VPP Production and Marketing Agreement" means the Production and Marketing
Agreement dated the date hereof between the Borrower and PCEC Sub 1.
"VPP Purchase Agreement" means the Purchase and Sale Agreement dated the
date hereof between the Borrower, as seller, and PCEC Sub 1, as buyer.
"Warrant Agreement" means that certain Warrant Agreement dated as of the
date hereof between the Parent and the Administrative Agent, as the same may be
amended, restated, modified or supplemented from time to time.
"Warrants" means all warrants to purchase common shares of the Parent under
the Warrant Agreement.
"Wholly-Owned Subsidiary" means any Subsidiary of the Borrower of which all
of the outstanding Equity Interests (other than any directors' qualifying shares
mandated by Requirement of Law), on a fully-diluted basis, are owned by the
Borrower or one or more of the Wholly-Owned Subsidiaries or are owned by the
Borrower and one or more of the Wholly-Owned Subsidiaries.
"Wholly Owned Subsidiary Guarantor" means any Subsidiary Guarantor that is
a Wholly-Owned Subsidiary of the Borrower.
Section 1.03 Terms Generally; Rules of Construction. The definitions of
terms herein shall apply equally to the singular and plural forms of the terms
defined. Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. The words "include",
"includes" and "including" shall be deemed to be followed by the phrase "without
limitation". The word "will" shall be construed to have the same meaning and
effect as the word "shall". Unless the context requires otherwise (a) any
definition of or reference to any agreement, instrument or other document herein
shall be construed as referring to such agreement, instrument or other document
as from time to time amended, supplemented or otherwise modified (subject to any
restrictions on such amendments, supplements or modifications set forth in the
Loan Documents), (b) any reference herein to any law shall be construed as
referring to such law as amended, modified, codified or reenacted, in whole or
in part, and in effect from time to time, (c) any reference herein to any Person
shall be construed to include such Person's successors and assigns (subject to
the restrictions contained in the Loan Documents), (d) the words "herein",
"hereof" and "hereunder", and words of similar import, shall be construed to
refer to this Agreement in its entirety and not to any particular provision
hereof, (e) with respect to the determination of any time period, the word
"from" means "from and including" and the word "to" means "to and including" and
(f) any reference herein to Articles, Sections, Annexes, Exhibits and Schedules
shall be construed to refer to Articles and Sections of, and Annexes, Exhibits
and Schedules to, this Agreement. No provision of this Agreement or any other
Loan Document shall be interpreted or construed against any Person solely
because such Person or its legal representative drafted such provision.
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Section 1.04 Accounting Terms and Determinations; GAAP. (a) Unless
otherwise specified herein, all accounting terms used herein shall be
interpreted, all determinations with respect to accounting matters hereunder
shall be made, and all financial statements and certificates and reports as to
financial matters required to be furnished to the Administrative Agent or the
Lenders hereunder shall be prepared, in accordance with GAAP, applied on a basis
consistent with the Financial Statements except for changes in which Borrower's
independent certified public accountants concur and which are disclosed to
Administrative Agent on the next date on which financial statements are required
to be delivered to the Lenders pursuant to Section 8.01(a); provided that,
unless the Borrower and the Required Lenders shall otherwise agree in writing,
no such change shall modify or affect the manner in which compliance with the
covenants contained herein is computed such that all such computations shall be
conducted utilizing financial information presented consistently with prior
periods.
(b) Notwithstanding anything to the contrary under GAAP, (i) no portion of
the VPP shall be treated as interest expense in calculating (x) Consolidated
EBITDA, or (y) the Consolidated Interest Coverage Ratio in Section 9.01(a), (ii)
no portion of the VPP shall be included in Consolidated Total Indebtedness in
calculating the Consolidated Debt Ratio in Section 9.01(b), and (iii) neither
the production allocated to the VPP, nor the proceeds from the sale of the VPP
pursuant to the VPP Purchase and Sale Agreement, shall be included in the
calculation of Consolidated EBITDA and Consolidated Net Income.
ARTICLE II
THE LOANS AND ORI'S
Section 2.01 Commitments. Subject to the terms and conditions hereof, each
Lender severally agrees to make one or more term loans (the "Loans") to the
Borrower from time to time during the Availability Period in an aggregate
principal amount not to exceed the amount of the Commitment of such Lender.
Amounts prepaid or repaid on account of the Loans may not be reborrowed.
Section 2.02 Loans and Borrowings.
(a) Borrowings; Several Obligations. Each Loan shall be made by the Lenders
ratably in accordance with their respective Commitments. The failure of any
Lender to make any Loan required to be made by it shall not relieve any other
Lender of its obligations hereunder; provided that the Commitments are several
and no Lender shall be responsible for any other Lender's failure to make Loans
as required.
(b) Notes. The Loans made by each Lender shall be evidenced by a single
promissory note of the Borrower in substantially the form of Exhibit A, dated,
in the case of (i) any Lender party hereto as of the date of this Agreement, as
of the date of this Agreement or (ii) any Lender that becomes a party hereto
pursuant to an Assignment and Assumption, as of the effective date of the
Assignment and Assumption, payable to such Lender and its registered assigns in
a principal amount equal to its Commitment or, if its Commitment has expired or
terminated, in the amount of its outstanding Loans on such date, and otherwise
duly completed. The date, amount, and interest rate of each Loan made by each
Lender, and all payments made on account of the principal thereof, shall be
recorded by such Lender on its books for its Note, and, prior to any transfer,
25
may be endorsed by such Lender on a schedule attached to such Note or any
continuation thereof or on any separate record maintained by such Lender.
Failure to make any such notation or to attach a schedule shall not affect any
Lender's or the Borrower's rights or obligations in respect of such Loans or
affect the validity of such transfer by any Lender of its Note. The accounts or
records maintained by the Administrative Agent and each Lender shall be
conclusive absent manifest error of the amount of the Loans made by the Lenders
to the Borrower and the interest and payments thereon.
Section 2.03 Requests for Borrowings. The Borrower may borrow under the
Commitments during the Availability Period on any Business Day, provided that
the Borrower shall give the Administrative Agent irrevocable notice pursuant to
a Borrowing Request (which notice must be received by the Administrative Agent
prior to 10:00 a.m. (Dallas, Texas time), at least ten (10) Business Days prior
to the requested Borrowing Date) specifying (i) the amount of the Loans to be
Borrowed, (ii) the requested Borrowing Date, and (iii) the purpose of the Loans
in reasonable detail. Each Borrowing under the Commitments shall be in an amount
equal not less than $250,000 (or, if the then aggregate unused Commitments are
less than $250,000, such lesser amount). Promptly following receipt of a
Borrowing Request in accordance with this Section 2.03, the Administrative Agent
shall advise each Lender of the details thereof and of the amount of such
Lender's Loan to be made as part of the requested Borrowing. No more than four
Borrowings may be requested under this Agreement. The aggregate principal amount
of the Loans borrowed on the Effective Date shall not exceed $3,000,000.
Section 2.04 Funding of Borrowings.
(a) Funding by Lenders. Each Lender shall make each Loan to be made by it
hereunder on the Borrowing Date thereof by wire transfer of immediately
available funds by 1:00 p.m., Dallas, Texas time, to the account of the
Administrative Agent most recently designated by it for such purpose by notice
to the Lenders. The Administrative Agent will make such Loans available to the
Borrower by, at the discretion of the Administrative Agent, (i) transferring
immediately available funds equal to the amount of such Loan to the Borrower's
Designated Account, or (ii) wire transfer of such funds in accordance with
instructions provided to (and reasonably acceptable to) the Administrative Agent
by the Borrower; provided that the Administrative Agent may deduct from proceeds
of the Loans made on the Effective Date all fees, costs and expenses (including
attorneys' fees) that are payable by the Borrower under the Loan Documents and
the amount required to fund the Debt Service Reserve Account in accordance with
Section 3.02(d). Nothing herein shall be deemed to obligate any Lender to obtain
the funds for its Loans in any particular place or manner or to constitute a
representation by any Lender that it has obtained or will obtain the funds for
its Loans in any particular place or manner.
(b) Presumption of Funding by the Lenders. Unless the Administrative Agent
shall have received notice from a Lender prior to the proposed date of any
Borrowing that such Lender will not make available to the Administrative Agent
such Lender's share of such Borrowing, the Administrative Agent may assume that
such Lender has made such share available on such date in accordance with
Section 2.04(a) and may, in reliance upon such assumption, make available to the
Borrower a corresponding amount. In such event, if a Lender has not in fact made
its share of the applicable Borrowing available to the Administrative Agent,
26
then the applicable Lender and the Borrower severally agree to pay to the
Administrative Agent forthwith on demand such corresponding amount with interest
thereon, for each day from and including the date such amount is made available
to the Borrower to but excluding the date of payment to the Administrative
Agent, at (i) in the case of such Lender, the interest rate then payable on the
Notes pursuant to this Agreement or (ii) in the case of the Borrower, the
interest rate then payable on the Notes pursuant to this Agreement. If such
Lender pays such amount to the Administrative Agent, then such amount shall
constitute such Lender's Loan included in such Borrowing.
Section 2.05 Defaulting Lenders.
(a) Defaulting Lender Adjustments. Notwithstanding anything to the contrary
contained in this Agreement, if any Lender becomes a Defaulting Lender, then,
until such time as such Lender is no longer a Defaulting Lender, to the extent
permitted by Requirement of Law:
(i) Waivers and Amendments. Such Defaulting Lender's right to approve or
disapprove any amendment, waiver or consent with respect to this Agreement shall
be restricted as set forth in the definition of Required Lenders.
(ii) Reallocation of Payments. Any payment of principal, interest, fees or
other amounts received by the Administrative Agent for the account of such
Defaulting Lender (whether voluntary or mandatory, at maturity, pursuant to
ARTICLE X or otherwise, or received by the Administrative Agent from a
Defaulting Lender pursuant to Section 12.08), shall be applied at such time or
times as may be determined by the Administrative Agent (or, in the case of the
second clause below, as requested by the Borrower) as follows: first, to the
payment of any amounts owing by that Defaulting Lender to the Administrative
Agent hereunder; second, as the Borrower may request (so long as no Default or
Event of Default exists), to the funding of any Loan in respect of which such
Defaulting Lender has failed to fund its portion thereof as required by this
Agreement, as determined by the Administrative Agent; third, if so determined by
the Administrative Agent and the Borrower, to be held in a non-interest bearing
deposit account and released in order to satisfy obligations of such Defaulting
Lender to fund its Loan under this Agreement; fourth, to the payment of any
amounts owing to the Lenders as a result of any judgment of a court of competent
jurisdiction obtained by any Lender against such Defaulting Lender as a result
of that Defaulting Lender's breach of its obligations under this Agreement;
fifth, so long as no Default or Event of Default exists, to the payment of any
amounts owing to the Borrower as a result of any judgment of a court of
competent jurisdiction obtained by the Borrower against that Defaulting Lender
as a result of that Defaulting Lender's breach of its obligations under this
Agreement; and sixth, to such Defaulting Lender or as otherwise directed by a
court of competent jurisdiction. Any payments, prepayments or other amounts paid
or payable to a Defaulting Lender that are applied (or held) to pay amounts owed
by a Defaulting Lender shall be deemed paid to and redirected by that Defaulting
Lender, and each Lender irrevocably consents hereto.
(b) Defaulting Lender Cure. If the Borrower and the Administrative Agent
agree in writing in their sole discretion that a Lender is no longer a
Defaulting Lender, the Administrative Agent will so notify the parties hereto,
whereupon as of the effective date specified in such notice and subject to any
conditions set forth therein, that Lender will, to the extent applicable,
27
purchase at par that portion of outstanding Loans of the other Lenders or take
such other actions as the Administrative Agent may determine to be necessary to
cause the Loans to be held on a pro rata basis by the Lenders in accordance with
their Applicable Percentages, whereupon such Lender will cease to be a
Defaulting Lender; provided that no adjustments will be made retroactively with
respect to fees accrued or payments made by or on behalf of the Borrower while
that Lender was a Defaulting Lender; and provided, further, that except to the
extent otherwise expressly agreed by the affected parties, no change hereunder
from Defaulting Lender to Lender will constitute a waiver or release of any
claim of any party hereunder arising from that Lender's having been a Defaulting
Lender.
Section 2.06 ORI's(a) . As partial consideration for the respective
Commitment of each Lender, so long as any of the Obligations are outstanding
(other than customary indemnity obligations with respect to which no amounts are
currently due), the Borrower agrees to, and shall cause each Subsidiary to,
convey to Administrative Agent for the pro-rata benefit of the Lenders a 2.0%
ORI (based on 100% of the working interest) in each well of the Borrower or any
Subsidiary now existing or completed or recompleted after the Effective Date..
Each ORI shall terminate at 11:59 p.m., Central time, on July 31, 2017, provided
that if at any time before such time and date an Event of Default shall occur
and be continuing for a period in excess of 60 days, the term of each ORI shall
automatically be extended to 11:59 p.m., Central time, on July 31, 2018 and the
Borrower shall promptly execute and deliver such documents as may be requested
by the Administrative Agent to evidence such extension.
Once the Obligations have been Paid in Full, Borrower shall have no further
obligation to grant or convey, and neither the Administrative Agent nor any
Lender shall be entitled to, any further conveyance of ORI, other than as may
have been conveyed hereunder on or prior to the date of such repayment.
ARTICLE III
PAYMENTS OF PRINCIPAL AND INTEREST; PREPAYMENTS; FEES
Section 3.01 Repayment of Loans. The Borrower hereby unconditionally
promises to pay to the Administrative Agent for the account of each Lender the
then unpaid principal amount of each Loan on the Maturity Date.
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Section 3.02 Interest.
(a) Interest Rate. Subject to the provisions of Section 3.02(b), the Loans
shall bear interest at a per annum rate equal to 12%.
(b) Default Rate. (i) If any amount of principal of the Loans is not paid
when due (without regard to any applicable grace periods), whether at stated
maturity, by acceleration or otherwise, such amount shall thereafter bear
interest at a rate per annum at all times equal to the Default Rate to the
fullest extent permitted by applicable law.
(ii) If any amount (other than principal of the Loans) payable by the
Borrower under any Loan Document is not paid when due (without regard to any
applicable grace periods), whether at stated maturity, by acceleration or
otherwise, then such amount shall thereafter bear interest at a rate per annum
at all times equal to the Default Rate to the fullest extent permitted by
applicable law.
(iii) Upon the request of the Administrative Agent (which request may apply
retroactively from the date that the applicable Event of Default first
occurred), while any Event of Default exists, the Borrower shall pay interest on
the principal amount of all outstanding Obligations hereunder at a rate per
annum at all times equal to the Default Rate to the fullest extent permitted by
applicable law.
(c) Interest Payment Dates. Accrued interest on each Loan shall be payable
in arrears on each Interest Payment Date for such Loan and on the Maturity Date;
provided that interest accrued pursuant to Section 3.02(b) shall be payable from
time to time on demand. The Borrower hereby irrevocably authorizes the
Administrative Agent to, and the may, at any time and from time to time, without
notice to the Borrower, withdraw and apply funds from the Debt Service Reserve
Account to pay any principal of and/or interest on the Loans that is then due
and payable (including on each Interest Payment Date).
(d) Interest Rate Computations. All interest hereunder shall be computed on
the basis of a year of 360 days, unless such computation would exceed the
Highest Lawful Rate, in which case interest shall be computed on the basis of a
year of 365 days (or 366 days in a leap year).
(e) Debt Service Reserve Account. The Borrower shall establish and
maintain, at the Borrower' expense, the Debt Service Reserve Account with
PlainsCapital Bank. Pursuant to the Blocked Account Agreement (DSR) and the
other Loan Documents, the Administrative Agent shall have at all times sole
dominion and control over the Debt Service Reserve Account. Contemporaneously
with the funding of the Loans on the Effective Date, the Borrower shall deposit
into the Debt Service Reserve Account proceeds of the Loans in the amount of
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$150,000. With respect to the Debt Service Reserve Account, the Administrative
Agent shall receive copies of the Borrower's monthly bank account statements and
such other supporting information as shall from time to time be requested by the
Administrative Agent and, if available, internet access to information regarding
such account. As security for the Obligations, the Borrower hereby grants to the
Administrative Agent, for the benefit of the Secured Parties, a first priority
security interest in the Debt Service Reserve Account and all funds from time to
time on deposit in the Debt Service Reserve Account. Once the Stewart1-H well
achieves for a continuous period of 30 calendar days a minimum average daily
gross production of 175 BOE calculated as gross barrels of oil and Mcf of
natural gas converted at a ratio of 6 Mcf of natural gas per barrel, all funds
on deposit in the Debt Service Reserve Account shall be released to the Borrower
if no Default shall have occurred and be continuing.
Section 3.03 Prepayments.
(a) Optional Prepayments. The Borrower shall have the right at any time and
from time to time to prepay the Loans in whole or in part, subject to prior
notice in accordance with Section 3.03(b).
(b) Notice and Terms of Optional Prepayment. The Borrower shall notify the
Administrative Agent in writing of any prepayment hereunder, not later than
12:00 noon, Dallas, Texas time, ten (10) Business Days before the date of
prepayment. Each such notice shall be irrevocable and shall specify the
prepayment date and the principal amount of the Loans or portion thereof to be
prepaid. Promptly following receipt of any such notice relating to a Borrowing,
the Administrative Agent shall advise the Lenders of the contents thereof. Each
partial prepayment of the Loans shall be shall be in a principal amount of
$500,000 or a whole multiple of $50,000 in excess thereof or, in each case, if
less, the entire principal amount of the Loans then outstanding. Each prepayment
of the Loans shall be applied ratably to the Loans.
(c) Mandatory Prepayments. (i) If any Equity Interests (excluding (x) any
issuance of Series A Convertible Preferred Stock in exchange for Indebtedess,
(y) any Equity Interests issued pursuant to Section 8.19, and (z) any Warrant
Shares (as defined in the Warrant) issued pursuant to the Warrant) or
Indebtedness (excluding any Indebtedness incurred in accordance with Section
9.02) shall be issued or incurred by the Parent or any of its Subsidiaries, an
amount equal to 100% of the Net Cash Proceeds thereof shall be applied on the
date of such issuance or incurrence toward the prepayment of the Loans.
(ii) If on any date any the Borrower or any of its Subsidiaries shall
receive Net Cash Proceeds from any Asset Sale or Recovery Event then, except in
the case of a Recovery Event where the Borrower has delivered a Reinvestment
Notice to the Administrative Agent, such Net Cash Proceeds shall be applied on
such date toward the prepayment of the Loans; provided that on each Reinvestment
Prepayment Date with respect to a Recovery Event, an amount equal to the
Reinvestment Prepayment Amount with respect to the relevant Reinvestment Event
shall be applied toward the prepayment of the Loans.
(iii) If, for any calendar month of the Borrower commencing with the
calendar month ending on January 31, 2015, there shall be Excess Cash Flow, the
Borrower shall, on the relevant Excess Cash Flow Application Date, apply the ECF
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Percentage of such Excess Cash Flow toward the prepayment of the Loans. Each
such prepayment and commitment reduction shall be made on a date (an "Excess
Cash Flow Application Date") no later than five (5) Business Days after the
earlier of (i) the date on which the financial statements of the Borrower
referred to in Section 8.01(d), for the calendar month with respect to which
such prepayment is made, are required to be delivered to the Administrative
Agent and the Lenders and (ii) the date such financial statements are actually
delivered.
(iv) The application of any prepayment pursuant to Section 3.03 shall be
accompanied by accrued interest to the date of such prepayment on the amount
prepaid.
(d) Make-Whole Premium. The Make-Whole Premium (if any) shall be due and
payable with respect to any Called Principal on the Called Principal
Determination Date for such Called Principal.
Section 3.04 Fees.
(a) Commitment Fee. As consideration for the Commitments, the Borrower
agrees to pay to the Administrative Agent, for the account of each Lender, on
the Effective Date a commitment fee in the aggregate amount of $100,000.
ARTICLE IV
PAYMENTS; PRO RATA TREATMENT; SHARING OF SET-OFFS
Section 4.01 Payments Generally; Pro Rata Treatment; Sharing of Set-offs.
(a) Payments by the Borrower. The Borrower shall make each payment required
to be made by it hereunder (whether of principal, interest, fees, or otherwise)
prior to 12:00 noon, Dallas, Texas time, on the date when due, in immediately
available funds, without defense, deduction, recoupment, set-off or
counterclaim. Fees, once paid, shall be fully earned and shall not be refundable
under any circumstances absent manifest error. Any amounts received after such
time on any date may, in the discretion of the Administrative Agent, be deemed
to have been received on the next succeeding Business Day for purposes of
calculating interest thereon. All such payments shall be made to the
Administrative Agent at its offices specified in Section 12.01, except that
payments pursuant to ARTICLE V and Section 12.03 shall be made directly to the
Persons entitled thereto. The Administrative Agent shall distribute any such
payments received by it for the account of any other Person to the appropriate
recipient promptly following receipt thereof. If any payment hereunder shall be
due on a day that is not a Business Day, the date for payment shall be extended
to the next succeeding Business Day, and, in the case of any payment accruing
interest, interest thereon shall be payable for the period of such extension.
All payments hereunder shall be made in dollars.
(b) Application of Insufficient Payments. If at any time insufficient funds
are received by and available to the Administrative Agent to pay fully all
amounts of principal, interest and fees then due hereunder, such funds shall be
applied (i) first, towards payment of interest and fees then due hereunder,
ratably among the parties entitled thereto in accordance with the amounts of
interest and fees then due to such parties, and (ii) second, towards payment of
principal then due hereunder, ratably among the parties entitled thereto in
accordance with the amounts of principal then due to such parties.
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(c) Sharing of Payments by Lenders. If any Lender shall, by exercising any
right of set-off or counterclaim or otherwise, obtain payment in respect of any
principal of or interest on any of its Loans resulting in such Lender receiving
payment of a greater proportion of the aggregate amount of its Loans and accrued
interest thereon than the proportion received by any other Lender, then the
Lender receiving such greater proportion shall purchase (for cash at face value)
participations in the Loans of other Lenders to the extent necessary so that the
benefit of all such payments shall be shared by the Lenders ratably in
accordance with the aggregate amount of principal of and accrued interest on
their respective Loans; provided that (i) if any such participations are
purchased and all or any portion of the payment giving rise thereto is
recovered, such participations shall be rescinded and the purchase price
restored to the extent of such recovery, without interest, and (ii) the
provisions of this Section 4.01(c) shall not be construed to apply to any
payment made by the Borrower pursuant to and in accordance with the express
terms of this Agreement or any payment obtained by a Lender as consideration for
the assignment of or sale of a participation in any of its Loans to any assignee
or participant, other than to the Borrower or any Subsidiary or Affiliate
thereof (as to which the provisions of this Section 4.01(c) shall apply). The
Borrower consents to the foregoing and agrees, to the extent it may effectively
do so under Requirement of Law, that any Lender acquiring a participation
pursuant to the foregoing arrangements may exercise against the Borrower rights
of set-off and counterclaim with respect to such participation as fully as if
such Lender were a direct creditor of the Borrower in the amount of such
participation.
Section 4.02 Presumption of Payment by the Borrower. Unless the
Administrative Agent shall have received notice from the Borrower prior to the
date on which any payment is due to the Administrative Agent for the account of
the Lenders that the Borrower will not make such payment, the Administrative
Agent may assume that the Borrower has made such payment on such date in
accordance herewith and may, in reliance upon such assumption, distribute to the
Lenders the amount due. In such event, if the Borrower has not in fact made such
payment, then each of the Lenders severally agrees to repay to the
Administrative Agent forthwith on demand the amount so distributed to such
Lender with interest thereon, for each day from and including the date such
amount is distributed to it to but excluding the date of payment to the
Administrative Agent, at the interest rate then payable on the Notes pursuant to
this Agreement.
Section 4.03 Disposition of Production Proceeds. The Security Documents
contain an assignment by the Borrower and/or the Guarantors unto and in favor of
the Administrative Agent for the benefit of the Lenders of all of the Borrower's
or each Guarantor's interest in and to production and all proceeds attributable
thereto which may be produced from or allocated to the Mortgaged Property. The
Security Documents further provide in general for the application of such
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proceeds to the satisfaction of the Obligations and other obligations described
therein and secured thereby. Notwithstanding the assignment contained in such
Security Documents, until the occurrence of an Event of Default, (a) the
Administrative Agent and the Lenders agree that they will neither notify the
purchaser or purchasers of such production nor take any other action to cause
such proceeds to be remitted to the Administrative Agent or the Lenders, but the
Lenders will instead permit such proceeds to be paid to the Borrower and the
Subsidiaries and (b) the Lenders hereby authorize the Administrative Agent to
take such actions as may be necessary to cause such proceeds to be paid to the
Borrower and/or such Subsidiaries.
ARTICLE V
INCREASED COSTS; TAXES
Section 5.01 Increased Costs.
(a) Capital Requirements. If any Lender determines that any Change in Law
regarding capital requirements or liquidity has or would have the effect of
reducing the rate of return on such Lender's capital or liquidity or on the
capital or liquidity of such Lender's holding company, if any, as a consequence
of this Agreement or the Loans made by such Lender to a level below that which
such Lender or such Lender's holding company could have achieved but for such
Change in Law (taking into consideration such Lender's policies and the policies
of such Lender's holding company with respect to capital adequacy or liquidity),
then from time to time the Borrower will pay to such Lender such additional
amount or amounts as will compensate such Lender or such Lender's holding
company for any such reduction suffered.
(b) Certificates. A certificate of a Lender setting forth the amount or
amounts necessary to compensate such Lender or its holding company, as the case
may be, as specified in Section 5.01(a) or (b) shall be delivered to the
Borrower and shall be conclusive absent manifest error. The Borrower shall pay
such Lender the amount shown as due on any such certificate within 10 days after
receipt thereof.
(c) Effect of Failure or Delay in Requesting Compensation. Failure or delay
on the part of any Lender to demand compensation pursuant to this Section 5.01
shall not constitute a waiver of such right to demand such compensation;
provided that the Borrower shall not be required to compensate a Lender pursuant
to this Section 5.01 for any increased costs or reductions incurred more than
365 days prior to the date that such Lender, notifies the Borrower of the Change
in Law giving rise to such increased costs or reductions and of such Lender's
intention to claim compensation therefor; provided further that, if the Change
in Law giving rise to such increased costs or reductions is retroactive, then
the 365-day period referred to above shall be extended to include the period of
retroactive effect thereof.
Section 5.02 Taxes.
(a) Payments Free of Taxes. Any and all payments by or on account of any
obligation of the Borrower or any Guarantor under any Loan Document shall be
made free and clear of and without deduction for any Indemnified Taxes or Other
Taxes; provided that if the Borrower or any Guarantor shall be required to
deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum
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payable shall be increased as necessary so that after making all required
deductions (including deductions applicable to additional sums payable under
this Section 5.02(a)), the Administrative Agent and each Lender (as the case may
be) receives an amount equal to the sum it would have received had no such
deductions been made, (ii) the Borrower or such Guarantor shall make such
deductions and (iii) the Borrower or such Guarantor shall pay the full amount
deducted to the relevant Governmental Authority in accordance with Requirement
of Law.
(b) Payment of Other Taxes by the Loan Parties. The Borrower and the other
Loan Parties shall pay any Other Taxes to the relevant Governmental Authority in
accordance with Requirement of Law.
(c) Indemnification by the Loan Parties. THE BORROWER AND EACH OF THE OTHER
LOAN PARTIES SHALL INDEMNIFY THE ADMINISTRATIVE AGENT AND EACH LENDER, WITHIN 10
DAYS AFTER WRITTEN DEMAND THEREFOR, FOR THE FULL AMOUNT OF ANY INDEMNIFIED TAXES
OR OTHER TAXES PAID BY THE ADMINISTRATIVE AGENT OR SUCH LENDER, AS THE CASE MAY
BE, ON OR WITH RESPECT TO ANY PAYMENT BY OR ON ACCOUNT OF ANY OBLIGATION OF THE
BORROWER HEREUNDER (INCLUDING INDEMNIFIED TAXES OR OTHER TAXES IMPOSED OR
ASSERTED ON OR ATTRIBUTABLE TO AMOUNTS PAYABLE UNDER THIS SECTION 5.02) AND ANY
PENALTIES, INTEREST AND REASONABLE EXPENSES ARISING THEREFROM OR WITH RESPECT
THERETO. A written demand under this Section 5.02(c) shall include a certificate
of the Administrative Agent or a Lender specifying the amount and calculation of
such payment or liability under this Section 5.02 shall be delivered to the
Borrower and shall be conclusive absent manifest error.
(d) Evidence of Payments. As soon as practicable after any payment of
Indemnified Taxes or Other Taxes by the Borrower or a Guarantor to a
Governmental Authority, the Borrower shall deliver to the Administrative Agent
the original or a certified copy of a receipt issued by such Governmental
Authority evidencing such payment, a copy of the return reporting such payment
or other evidence of such payment reasonably satisfactory to the Administrative
Agent.
(e) Survival. Each Loan Party's obligations under this Section 5.02 shall
survive the resignation or replacement of the Administrative Agent or any
assignment of rights by, or the replacement of, a Lender, the termination of the
Commitments and the repayment, satisfaction or discharge of all obligations
under any Loan Document.
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ARTICLE VI
CONDITIONS PRECEDENT
Section 6.01 Effective Date. The obligations of the Lenders to make Loans
hereunder shall not become effective until the date on which each of the
following conditions is satisfied (or waived in accordance with Section 12.02):
(a) Expenses. The Administrative Agent and the Lenders shall have received
all costs, fees, expenses and other amounts due and payable on or prior to the
Effective Date, including, to the extent invoiced, reimbursement or payment of
all costs, fees, expenses and other amounts required to be reimbursed or paid by
the Borrower hereunder.
(b) Closing Certificates. The Administrative Agent shall have received a
certificate of a Responsible Officer of the Borrower and each Guarantor setting
forth (i) resolutions of its board of directors, board of managers or other
appropriate governing body, with respect to the authorization of the Borrower or
such Guarantor to execute and deliver the Loan Documents to which it is a party
and to enter into the transactions contemplated in those documents, (ii) the
officers of the Borrower or such Guarantor (A) who are authorized to sign the
Loan Documents to which the Borrower or such Guarantor is a party and (B) who
will, until replaced by another officer or officers duly authorized for that
purpose, act as its representative for the purposes of signing documents and
giving notices and other communications in connection with this Agreement and
the transactions contemplated hereby, (iii) specimen signatures of such
authorized officers, and (iv) the Organization Documents of the Borrower and
such Guarantor, certified as being true and complete as of the date of such
certificate. The Administrative Agent and the Lenders may conclusively rely on
each such certificate until the Administrative Agent receives notice in writing
from the Borrower or such Guarantor to the contrary.
(c) Certificates of Good Standing, Etc. The Administrative Agent shall have
received certificates of the appropriate State agencies with respect to the
existence, qualification and good standing of the Borrower and each Guarantor.
(d) Compliance Certificate. The Administrative Agent shall have received a
compliance certificate which shall be substantially in the form of Exhibit C,
duly and properly executed by a Responsible Officer of the Borrower and dated as
of the Effective Date.
(e) Credit Agreement. The Administrative Agent shall have received from
each party hereto counterparts (in such number as may be requested by the
Administrative Agent) of this Agreement signed on behalf of such party.
(f) Security Documents. The Administrative Agent shall have received from
each party thereto duly executed counterparts (in such number as may be
requested by the Administrative Agent) of the Security Documents on Exhibit D.
In connection with the execution and delivery of the Security Documents, the
Administrative Agent shall:
(i) be reasonably satisfied that the Security Documents create first
priority, perfected Liens (subject only to Excepted Liens identified in clauses
(a) to (d) and (f) of the definition thereof, but subject to the provisos at the
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end of such definition) on all Property of the Borrower and its Subsidiaries;
and
(ii) have received certificates, together with undated, blank stock powers
for each such certificate, representing all of the issued and outstanding Equity
Interests of each of the Guarantors.
(g) Notes. The Administrative Agent shall have received duly executed Notes
payable to each Lender and its registered assigns in a principal amount equal to
its Commitment dated as of the date hereof.
(h) Warrants and Warrant Purchase Agreement. The Administrative Agent shall
have received (i) counterparts (in such number as may be requested by the
Administrative Agent) of the Warrant Agreement, duly executed by the Parent, and
(ii) the Warrant duly executed by the Parent.
(i) Certificate of Designation. The Administrative Agent shall have
received evidence that the Parent shall have filed the Certificate of
Designation with the Secretary of State of the State of Nevada,
(j) Legal Opinions. The Administrative Agent shall have received an opinion
of Stewart & Bonnet, LLP, special Texas counsel to the Loan Parties, an opinion
of Lionel Sawyer & Collins, special Nevada counsel to the Parent, and Corporate
Legal, LLC, special counsel to the Parent, each in a form and of substance
reasonably satisfactory to the Administrative Agent.
(k) Insurance. The Administrative Agent shall have received satisfactory
evidence that the Borrower is carrying insurance in accordance with Section
7.12.
(l) Consents. The Administrative Agent shall have received a certificate of
a Responsible Officer of the Borrower certifying that the Borrower has received
all consents and approvals required by Section 7.03.
(m) Financial Statements; Pro Forma Balance Sheet; Projections; Initial
Reserve Report. The Administrative Agent shall have received the financial
statements referred to in Section 7.04(a), the Pro Forma Balance Sheet, the
Projections, and the Initial Reserve Report accompanied by a certificate
covering the matters described in Section 8.01(j).
(n) Lien Searches. The Administrative Agent shall have received appropriate
UCC and Tax Lien search certificates reflecting no prior Liens encumbering (i)
the Properties of the Borrower and the Subsidiaries, or (ii) the Acquisition
Properties (other than Liens permitted by Section 9.03).
(o) Indebtedness. The Administrative Agent shall be satisfied that after
the making of the initial Loans hereunder and giving effect to the Transactions,
the Borrower shall not have any outstanding Indebtedness other than Obligations
arising under the Loan Documents and other Indebtedness permitted by Section
9.02.
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(p) Title to Oil and Gas Properties. The Administrative Agent shall be
reasonably satisfied with the status of title to the Oil and Gas Properties
evaluated in the Initial Reserve Report and the Acquisition Properties and that
the Borrower owns at a minimum a 74% net revenue interest, on an 8/8ths working
interest basis, in the foregoing Properties.
(q) Environmental Condition of Oil and Gas Properties. The Administrative
Agent shall be satisfied with the environmental condition of the Oil and Gas
Properties of the Borrower and its Subsidiaries.
(r) Acquisition Certificate. Administrative Agent shall have received (i) a
certificate of a Responsible Officer of Borrower certifying: (A) that Borrower
is concurrently consummating the Acquisition in accordance with the terms of the
Acquisition Documents (with all of the conditions precedent thereto having been
satisfied by the parties thereto) and acquiring substantially all of the
Acquisition Properties contemplated by the Acquisition Documents; (B) as to the
final purchase price for the Acquisition Properties after giving effect to all
adjustments as of the closing date contemplated by the Acquisition Documents and
specifying, by category, the amount of such adjustment; (C) that attached
thereto is a true and complete list of the Acquisition Properties which have
been excluded from the Acquisition pursuant to the terms of the Acquisition
Documents, specifying with respect thereto the basis of exclusion as (1) title
defect, (2) environmental defect; (3) preferential purchase right and/or
consent, or (4) casualty loss; (D) that attached thereto is a true and complete
list of all Acquisition Properties for which any seller has elected to cure a
title defect, (E) that attached thereto is a true and complete list of all
Acquisition Properties for which any seller has elected to remediate an adverse
environmental condition, and (F) that attached thereto is a true and complete
list of all Acquisition Properties which are currently pending final decision by
a third party regarding purchase of such property in accordance with any
preferential right and/or consent; (ii) a true and complete executed copy of
each of the Acquisition Documents; (iii) original counterparts or copies,
certified as true and complete, of the assignments, deeds and leases for all of
the Acquisition Properties; and (iv) such other related documents and
information as Administrative Agent shall have reasonably requested.
(s) Shaffer Leases. The Administrative Agent shall have received evidence
that the Shaffer leases have been assigned by the Parent to the Borrower free
and clear of any Liens pursuant to assignments satisfactory in form and
substance to the Administrative Agent.
(t) Due Diligence. The Administrative Agent shall be satisfied with its due
diligence review of the Parent, the Borrower and the Subsidiaries and their
respective Properties, including, without limitation, with respect to (i)
engineering, (ii) operations, (iii) title to Oil and Gas Properties of the
Borrower and its subsidiaries, (iv) environmental matters, (v) outstanding
liabilities, (vi) Taxes and (vii) all agreements relating to the Oil and Gas
Properties of the Borrower and its Subsidiaries, including operating agreements,
marketing agreements, transportation agreements and processing agreements. The
Administrative Agent shall be satisfied with the potential plugging and
abandonment liabilities associated with the Oil and Gas Properties of the
Borrower and its Subsidiaries, including the bonding or collateralization
obligations of the Borrower and its Subsidiaries associated therewith. The
Administrative Agent shall be satisfied with the results of complete background
checks on certain members of management and Affiliates of the Borrower.
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(u) Governmental Approvals. Each Loan Party shall have obtained all
governmental and regulatory authorizations and all consents of other Persons, in
each case that are necessary or advisable in connection with the Transactions
and each of the foregoing shall be in full force and effect and in form and
substance satisfactory to Administrative Agent. All applicable waiting periods
shall have expired without any action being taken or threatened by any competent
authority which would restrain, prevent or otherwise impose adverse conditions
on the Transactions or the financing thereof and no action, request for stay,
petition for review or rehearing, reconsideration, or appeal with respect to any
of the foregoing shall be pending, and the time for any applicable agency to
take action to set aside its consent on its own motion shall have expired.
(v) Litigation. There shall not exist any action, suit, investigation,
litigation or proceeding or other legal or regulatory developments, pending or
threatened in any court or before any arbitrator or Governmental Authority that,
in the opinion of Administrative Agent, singly or in the aggregate, materially
impairs any of the Transactions, or that could reasonably be expected to have a
Material Adverse Effect.
(w) Capital Contribution. The Administrative Agent shall have received
evidence that the Parent shall have contributed cash in the amount of $500,000
to the equity capital of the Borrower to fund a portion of the Acquisition and
related expenses.
(x) VPP. The Administrative Agent shall have received evidence satisfactory
to it that the transactions contemplated by the VPP Purchase Agreement will
close on the Effective Date concurrently with the other Transactions.
(y) Series A Convertible Preferred Stock; Post- Closing Matters. The
Administrative Agent shall have (i) received evidence satisfactory to it that
certain holders of Indebtedness of the Parent, to the extent required by the
Administrative Agent, have (A) executed and delivered letters of intent with the
Parent to exchange such Indebtedness for Series A Convertible Preferred Stock,
and (B) executed consents whereby such holders have consented to the
Transactions, and (ii) received a post-closing letter agreement ( executed by
the Borrower and the Parent that addresses the foregoing and other post-closing
matters. The foregoing letters of intent, consents and letter agreement must be
satisfactory in form and substance to the Administrative Agent.
(z) Blocked Account Agreement (DSR). The Administrative shall have received
the Blocked Account Agreement (DSR), duly executed and delivered by the Borrower
and PlainsCapital Bank, and the Administrative Agent shall have received
satisfactory evidence that the Borrower shall have deposited $150,000 in
immediately available funds in the Debt Service Reserve Account.
(aa) Consent of Sellers. The Administrative Agent shall have a received a
consent duly executed and delivered by the sellers under the Acquisition
Agreement to the security interest in the Acquisition Agreement created pursuant
to the Security Documents, which consent shall be satisfactory in form and
substance to the Administrative Agent.
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(bb) Disbursement Letter. The Agent shall have received a disbursement
letter (the "Disbursement Letter") executed by the Borrower with respect to the
disbursement of the proceeds of the Loans to be made on the Effective Date,
which disbursement letter shall be satisfactory in form and substance to the
Administrative Agent.
(cc) No Material Adverse Change. Since April 30, 2014, no event,
circumstance or change shall have occurred that has caused or evidences, either
in any case or in the aggregate, a Material Adverse Effect.
(dd) Accounts Payable. The Administrative Agent shall have received
evidence that as of the Effective Date all accounts payable of the Borrower and
its Subsidiaries have been paid in full (excluding those that have been
outstanding for less than 60 days from the original invoice date);
(ee) Employment Agreements. The Administrative Agent shall have received
copies of employment agreements between the Parent and Ronnie L. Steinocher and
Lisa Hamilton, certified by the Parent, and such employment agreements shall be
satisfactory in form and substance to the Administrative Agent
(ff) Total G&A Expense Budget. The Administrative Agent shall have received
a monthly Total G&A Expense budget for the Borrower and its Subsidiaries from
the Effective Date through July 31, 2016, certified by the Borrower, that is
satisfactory to the Administrative Agent.
(gg) Newton Note; Payoff Letter. The Administrative Agent shall have
received (i) a payoff letter executed by Newton Energy, Inc. and the Parent with
respect to the Newton Note, and (ii) releases of all Liens securing the Newton
Note executed by Newton Energy, Inc. and in recordable form, which payoff letter
and Lien releases shall be satisfactory in form and substance to the
Administrative Agent.
(hh) Lien Releases. The Administrative Agent shall have received evidence
satisfactory to it that all Liens on the Acquisition Properties and other
Properties of the Borrower and its Subsidiaries (if any) (other than Excepted
Liens identified in clauses (a) to (d), and (f) of the definition thereof)
associated with any Indebtedness have been released or terminated, subject only
to the filing of applicable terminations, releases or assignments.
(ii) ORI Conveyance. The Administrative Agent shall have received an ORI
Conveyance for the existing wells of the Borrower, duly executed by the Borrower
and in recordable form.
(jj) Assignments of Overriding Royalty Interests. The Administrative Agent
shall have received copies of the Assignments of Overriding Royalty Interests
executed by the Borrower in favor of Frank M. Saldana and Overton Capital Corp.,
which shall be satisfactory to the Administrative Agent and certified by the
Borrower.
(kk) Other Documents. The Administrative Agent shall have received such
other documents as the Administrative Agent or special counsel to the
Administrative Agent may reasonably request.
39
Each Lender, by delivering its signature page to this Agreement and funding
a Loan on the Effective Date, shall be deemed to have acknowledged receipt of,
and consented to and approved, each Loan Document and each other document
required to be approved by the Required Lenders or Lenders, as applicable on the
Effective Date. The Administrative Agent shall notify the Borrower and the
Lenders of the Effective Date, and such notice shall be conclusive and binding.
Notwithstanding the foregoing, the obligations of each Lender to make its
initial Loan on the Effective Date shall not become effective unless each of the
foregoing conditions is satisfied (or waived pursuant to Section 12.02) at or
prior to 2:00 p.m., Dallas, Texas time, on July 31, 2014 (and, in the event such
conditions are not so satisfied or waived, the Commitments shall terminate at
such time).
Section 6.02 Each Loan. The obligation of each Lender to make a Loan on any
Borrowing Date (including the initial Loans) is subject to the satisfaction of
the following conditions:
(a) At the time of and immediately after giving effect to such Borrowing,
no Default or Event of Default shall have occurred and be continuing.
(b) At the time of and immediately after giving effect to such Borrowing,
no event, development or circumstance has occurred or shall then exist that has
resulted in, or could reasonably be expected to have, a Material Adverse Effect.
(c) The representations and warranties of the Borrower and the Guarantors
set forth in this Agreement and in the other Loan Documents shall be true and
correct in all material respects (except to the extent such representations and
warranties are qualified by materiality) on and as of the date of such
Borrowing, except to the extent any such representations and warranties are
expressly limited to an earlier date, in which case, on and as of the date of
such Borrowing such representations and warranties shall continue to be true and
correct as of such specified earlier date.
(d) The making of such Loan would not conflict with, or cause any Lender to
violate or exceed, any applicable Requirement of Law, and no Change in Law shall
have occurred, and no litigation shall be pending or threatened, which does or,
with respect to any threatened litigation, seeks to, enjoin, prohibit or
restrain, the making or repayment of any Loan, or the consummation of the
Transactions contemplated by this Agreement or any other Loan Document.
(e) The receipt by the Administrative Agent of a Borrowing Request in
accordance with Section 2.03.
Each request for a Borrowing shall be deemed to constitute a representation
and warranty by the Borrower and the Parent on the date thereof as to the
matters specified in Section 6.02(a) through (c).
40
ARTICLE VII
REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter into this
Agreement and to make the Loans, the Parent and the Borrower jointly and
severally represent and warrant to the Administrative Agent and the Lenders
that:
Section 7.01 Organization; Powers. The Parent and each of its Subsidiaries
is duly organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, have all requisite power and authority, and
have all governmental licenses, authorizations, consents and approvals
necessary, to own its assets and to carry on its business as now conducted, and
is qualified to do business in, and is in good standing in, every jurisdiction
where such qualification is required, except where failure to have such power,
authority, licenses, authorizations, consents, approvals and qualifications
could not reasonably be expected to have a Material Adverse Effect.
Section 7.02 Authority; Enforceability. The Transactions are within the
Borrower's and each Guarantor's organizational powers and have been duly
authorized by all necessary organizational action (including, without
limitation, any action required to be taken by any class of directors of the
Parent, the Borrower or any other Person, whether interested or disinterested,
in order to ensure the due authorization of the Transactions). Each Loan
Document to which the Borrower and each Guarantor is a party has been duly
executed and delivered by the Borrower and each Guarantor that is a party
thereto and constitutes a legal, valid and binding obligation of the Borrower
and each such Guarantor, as applicable, enforceable in accordance with its
terms, subject to applicable Debtor Relief Laws and subject to general
principles of equity, regardless of whether considered in a proceeding in equity
or at law.
Section 7.03 Approvals; No Conflicts. The Transactions (a) do not require
any consent or approval of, registration or filing with, or any other action by,
any Governmental Authority or any other third Person (including shareholders or
any class of directors, whether interested or disinterested, of the Parent, the
Borrower or any other Person), nor is any such consent, approval, registration,
filing or other action necessary for the validity or enforceability of any Loan
Document or the consummation of the Transactions, except such as have been
obtained or made and are in full force and effect other than (i) the recording
and filing of the Security Documents and the ORI Conveyance as required by this
Agreement, (ii) those third party approvals or consents which, if not made or
obtained, would not cause a Default hereunder, could not reasonably be expected
to have a Material Adverse Effect or do not have an adverse effect on the
enforceability of the Loan Documents or any of the Transactions and (iii) those
consents, approvals or filings that are customarily obtained after the closing
of an acquisition of Oil and Gas Properties, (b) will not violate any
Requirement of Law or any of the Organization Documents of any Loan Party or any
Subsidiary of any Loan Party or any order of any Governmental Authority, (c)
will not violate or result in a default under any indenture, agreement or other
instrument binding upon the any Loan Party or any Subsidiary of any Loan Party
or any of their respective Properties, or give rise to a right thereunder to
require any payment to be made by any Loan Party or such Subsidiary, and (d)
will not result in the creation or imposition of any Lien on any Property of any
Loan Party (other than the Liens created by the Loan Documents).
41
Section 7.04 Financial Condition; No Material Adverse Change.
(a) The Borrower has heretofore furnished to the Lenders the Parent's
consolidated balance sheet and statements of income, stockholders equity and
cash flows (1) as of and for the fiscal year ended December 31, 2011, reported
on by GBH CPAs, independent public accountants, (2) as of and for the fiscal
years ended July 31, 2012 and July 31, 2013, prepared internally by the Parent,
and (3) as of and for the fiscal quarter and the portion of the fiscal year
ended April 30, 2014, certified by the Parent's chief executive officer. Such
financial statements present fairly, in all material respects, the financial
position and results of operations and cash flows of the Parent and its
Subsidiaries as of such dates and for such periods in accordance with GAAP,
subject to year-end audit adjustments and the absence of footnotes in the case
of the unaudited quarterly financial statements.
(b) The unaudited pro forma consolidated balance sheet of the Borrower and
its consolidated Subsidiaries as at July 31, 2014, (including the notes thereto)
(the "Pro Forma Balance Sheet"), copies of which have heretofore been furnished
to each Lender, has been prepared giving effect (as if such events had occurred
on such date) to (i) the consummation of the Transactions on the Effective Date
and the use of proceeds thereof, and (ii) the payment of fees and expenses in
connection with the foregoing. The Pro Forma Balance Sheet has been prepared
based on the best information available to the Borrower as of the date of
delivery thereof, and presents fairly on a pro forma basis the estimated
financial position of Borrower and its consolidated Subsidiaries as at July 31,
2014, assuming that the events specified in the preceding sentence had actually
occurred at such date.
(c) Since April 30, 2014, (i) there has been no event, development or
circumstance that has had or could reasonably be expected to have a Material
Adverse Effect and (ii) the business of the Parent and its Subsidiaries has been
conducted only in the ordinary course, in all material respects, consistent with
past business practices.
(d) Neither the Parent nor any of its Subsidiaries has on the date hereof
any material Indebtedness (including Disqualified Stock) or any contingent
liabilities, off-balance sheet liabilities or partnerships, liabilities for
taxes, unusual forward or long-term commitments or unrealized or anticipated
losses from any unfavorable commitments that are, in the aggregate, material to
the balance sheet and statements of income, stockholders equity and cash flows
of the Parent and its Subsidiaries on a consolidated basis and are not reflected
in the Financial Statements.
Section 7.05 Litigation. There are no actions, suits, investigations or
proceedings by or before any arbitrator or Governmental Authority pending
against or, to the knowledge of the Borrower, threatened against or affecting
any Loan Party or any of its Subsidiaries (collectively, "Litigation") (i) not
fully covered by insurance (except for normal deductibles) as to which there is
a reasonable possibility of an adverse determination that, if adversely
determined, could reasonably be expected, individually or in the aggregate, to
result in a Material Adverse Effect, or (ii) that involve any Loan Document or
any of the Transactions. Except as set forth on Schedule 7.05, there is no
Litigation pending or, to the Borrower's knowledge, threatened, that seeks
damages in excess of $50,000 or injunctive relief against, or alleges criminal
misconduct of, any Loan Party or any Subsidiary or any Affiliate thereof.
42
Section 7.06 Environmental Matters. Except for such matters that,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect:
(a) the Borrower and the Subsidiaries and each of their respective
Properties and operations thereon are, and within all applicable statute of
limitation periods have been, in compliance with all applicable Environmental
Laws;
(b) the Borrower and the Subsidiaries have obtained all Environmental
Permits required for their respective operations and each of their Properties,
with all such Environmental Permits being currently in full force and effect,
and neither the Borrower nor the Subsidiaries has received any written notice or
otherwise has knowledge that any such existing Environmental Permit will be
revoked or that any application for any new Environmental Permit or renewal of
any existing Environmental Permit will be protested or denied;
(c) there are no claims, demands, suits, orders, inquiries, or proceedings
concerning any violation of, or any liability (including as a potentially
responsible party) under, any applicable Environmental Laws that is pending or
threatened against the Borrower or the Subsidiaries or any of their respective
Properties or as a result of any operations at the Properties;
(d) none of the Properties contain or have contained any: (i) underground
storage tanks; (ii) asbestos-containing materials; (iii) landfills or dumps;
(iv) hazardous waste management units as defined pursuant to RCRA or any
comparable state law; or (v) sites on or nominated for the National Priority
List promulgated pursuant to CERCLA or any state remedial priority list
promulgated or published pursuant to any comparable state law;
(e) there has been no Release or threatened Release, of Hazardous Materials
at, on, under or from any of Borrower's or the Subsidiaries' Properties, there
are no investigations, remediations, abatements, removals, or monitorings of
Hazardous Materials required under applicable Environmental Laws at such
Properties and none of such Properties are adversely affected by any Release or
threatened Release of a Hazardous Material originating or emanating from any
other real property;
(f) neither the Borrower nor the Subsidiaries has received any written
notice asserting an alleged liability or obligation under any applicable
Environmental Laws with respect to the investigation, remediation, abatement,
removal, or monitoring of any Hazardous Materials at, under, or Released or
threatened to be Released from any real properties offsite the Borrower's or the
Subsidiaries' Properties and there are no conditions or circumstances that would
reasonably be expected to result in the receipt of such written notice.
(g) there has been no exposure of any Person or property to any Hazardous
Materials as a result of or in connection with the operations and businesses of
any of the Borrower's or the Subsidiaries' Properties that would reasonably be
expected to form the basis for a claim for damages or compensation and there are
no conditions or circumstances that would reasonably be expected to result in
the receipt of notice regarding such exposure; and
(h) the Borrower and the Subsidiaries have provided to Lenders complete and
correct copies of all environmental site assessment reports, investigations,
studies, analyses, and correspondence on environmental matters (including
matters relating to any alleged non-compliance with or liability under
43
Environmental Laws) that are in any of the Borrower's or the Subsidiaries'
possession or control and relating to their respective Properties or operations
thereon.
Section 7.07 Compliance with the Laws and Agreements; No Defaults.
(a) Each of the Borrower and each Guarantor is in compliance with all
Requirements of Law applicable to it or its Property and all agreements and
other instruments binding upon it or its Property, and possesses all licenses,
permits, franchises, exemptions, approvals and other governmental authorizations
necessary for the ownership of its Property and the conduct of its business,
except where the failure to do so, individually or in the aggregate, could not
reasonably be expected to result in a Material Adverse Effect.
(b) Neither the Borrower nor any Guarantor is in default nor has any event
or circumstance occurred which, but for the expiration of any applicable grace
period or the giving of notice, or both, would constitute a default or would
require the Borrower or any Guarantor to Redeem or make any offer to Redeem
under any indenture, note, credit agreement or instrument pursuant to which any
Material Indebtedness is outstanding or by which the Borrower or any Guarantor
or any of their Properties is bound.
(c) No Default has occurred and is continuing.
Section 7.08 Investment Company Act. Neither the Borrower nor any
Subsidiary nor the Parent is an "investment company" or a company "controlled"
by an "investment company," within the meaning of, or subject to regulation
under, the Investment Company Act of 1940, as amended. No Loan Party is subject
to regulation under any Requirement of Law (other than Regulation X of the
Board) that limits its ability to incur Indebtedness.
Section 7.09 Taxes. Each of the Borrower and the Guarantors has timely
filed or caused to be filed all Tax returns and reports required to have been
filed and has paid or caused to be paid all Taxes required to have been paid by
it, except (a) Taxes that are being contested in good faith by appropriate
proceedings and for which the Borrower or such Guarantor, as applicable, has set
aside on its books adequate reserves in accordance with GAAP or (b) to the
extent that the failure to do so could not reasonably be expected to result in a
Material Adverse Effect. The charges, accruals and reserves on the books of the
Borrower and the Guarantors in respect of Taxes and other governmental charges
are, in the reasonable opinion of the Borrower, adequate. No Tax Lien has been
filed and, to the knowledge of the Borrower, no claim is being asserted with
respect to any such Tax or other such governmental charge.
Section 7.10 ERISA. Except for such matters that, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect:
(a) The Borrower, the Subsidiaries and each ERISA Affiliate have complied
in all material respects with ERISA and, where applicable, the Code regarding
each Plan.
(b) Each Plan is, and has been, maintained in substantial compliance with
its terms, ERISA and, where applicable, the Code.
44
(c) No act, omission or transaction has occurred which could result in
imposition on the Borrower, any Subsidiary or any ERISA Affiliate (whether
directly or indirectly) of (i) either a civil penalty assessed pursuant to
subsections (c), (i) or (l) of section 502 of ERISA or a tax imposed pursuant to
Chapter 43 of Subtitle D of the Code or (ii) breach of fiduciary duty liability
damages under section 409 of ERISA with civil penalty or tax could reasonably be
expected to result in a Material Adverse Effect.
(d) Full payment when due has been made of all amounts which the Borrower,
the Subsidiaries or any ERISA Affiliate is required under the terms of each Plan
or Requirement of Law to have paid as contributions to such Plan as of the date
hereof.
(e) Neither the Borrower, the Subsidiaries nor any ERISA Affiliate
sponsors, maintains, or contributes to an employee welfare benefit plan, as
defined in section 3(1) of ERISA, including, without limitation, any such plan
maintained to provide benefits to former employees of such entities, that may
not be terminated by the Borrower, a Subsidiary or any ERISA Affiliate in its
sole discretion at any time without any material liability.
(f) Neither the Borrower, the Subsidiaries nor any ERISA Affiliate
sponsors, maintains or contributes to, or has at any time in the six-year period
preceding the date hereof sponsored, maintained or contributed to, any employee
pension plan, as defined in section 3(2) of ERISA, that is subject to Title IV
of ERISA, section 302 of ERISA or section 412 of the Code.
Section 7.11 Disclosure; No Material Misstatements. The Borrower has
disclosed to the Administrative Agent and the Lenders all agreements,
instruments and corporate or other restrictions to which each Loan Party or any
of its Subsidiaries is subject that, individually or in the aggregate, could
reasonably be expected to result in a Material Adverse Effect. None of the
45
reports, financial statements, certificates or other written information
furnished by or on behalf of any Loan Party or any of its Subsidiaries to the
Administrative Agent or any Lender or any of their Affiliates in connection with
the negotiation of this Agreement or any other Loan Document or delivered
hereunder or under any other Loan Document (as modified or supplemented by other
information so furnished) contains any material misstatement of fact or omits to
state any material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; provided that,
with respect to projected financial information, the Borrower represents only
that such information was prepared in good faith based upon assumptions believed
to be reasonable at the time. There is no fact known to the Borrower or any
other Loan Party which could reasonably be expected to have a Material Adverse
Effect or in the future is reasonably likely to have a Material Adverse Effect
and which has not been set forth in this Agreement or the Loan Documents or the
other documents, certificates and statements furnished to the Administrative
Agent or the Lenders by or on behalf of the any Loan Party or any of its
Subsidiaries prior to, or on, the date hereof in connection with the
Transactions. As of the date hereof, the representations and warranties
contained in the Acquisition Documents and the VPP Documents are true and
correct in all material respects There are no statements or conclusions in any
Reserve Report which are based upon or include misleading information or fail to
take into account material information regarding the matters reported therein,
it being understood that projections concerning volumes attributable to the Oil
and Gas Properties and production and cost estimates contained in each Reserve
Report are necessarily based upon professional opinions, estimates and
projections and that the Loan Parties do not warrant that such opinions,
estimates and projections will ultimately prove to have been accurate.
Section 7.12 Insurance. The Borrower has, and has caused all of the
Subsidiaries to have, (a) all insurance policies sufficient for the compliance
by each of them with all Requirements of Law and all material agreements and (b)
insurance coverage in at least amounts and against such risk (including, without
limitation, public liability) that are usually insured against by companies
similarly situated and engaged in the same or a similar business for the assets
and operations of the Borrower and the Subsidiaries. The Administrative Agent
and the Lenders have been named as additional insureds in respect of such
liability insurance policies and the Administrative Agent has been named as loss
payee with respect to Property loss insurance. Schedule 7.12 sets forth as of
the Effective Date a complete and accurate list of all policies of insurance
maintained by the Borrower and its Subsidiaries, showing with respect to each
such policy the type of insurance, the coverage amount, the carrier, and the
duration of coverage. All premiums with respect to such policies of insurance
have been fully paid. As of the Effective Date, no Recovery Event has occurred.
Section 7.13 Restriction on Liens. Neither the Borrower nor any of the
Subsidiaries is a party to any agreement or arrangement (other than Capital
Leases or purchase money obligations creating Liens permitted by Section
9.03(c), but then only on the Property subject of such Capital Lease or purchase
46
money obligation), or subject to any order, judgment, writ or decree, which
either restricts or purports to restrict its ability to grant Liens to the
Administrative Agent and the Lenders on or in respect of their Properties to
secure the Obligations and the Loan Documents.
Section 7.14 Subsidiaries. Except as set forth on Schedule 7.14 or as
disclosed in writing to the Administrative Agent (which shall promptly furnish a
copy to the Lenders), which shall be a supplement to Schedule 7.14, the Borrower
has no Subsidiaries. Each Subsidiary identified in Schedule 7.14 is a
Wholly-Owned Subsidiary.
Section 7.15 Location of Business and Offices. The Borrower's jurisdiction
of organization is the State of Texas; the name of the Borrower as listed in the
public records of its jurisdiction of organization is Baron Production LLC; and
the organizational identification number of the Borrower in its jurisdiction of
organization is 801793395 (or, in each case, as set forth in a notice delivered
to the Administrative Agent pursuant to Section 8.01(m) in accordance with
Section 12.01). The Borrower's principal place of business and chief executive
offices are located at the address specified in Section 12.01 (or as set forth
in a notice delivered pursuant to Section 8.01(m) and Section 12.01(c)). Each
Subsidiary's jurisdiction of organization, name as listed in the public records
of its jurisdiction of organization, organizational identification number in its
jurisdiction of organization, and the location of its principal place of
business and chief executive office is stated on Schedule 7.14 (or as set forth
in a notice delivered pursuant to Section 8.01(m)).
Section 7.16 Properties; Titles, Etc.
(a) Each of the Borrower and the Subsidiaries, as applicable, has good and
defensible title to their respective Oil and Gas Properties (including the
Acquisition Properties) and good title to all its personal Properties, in each
case, free and clear of all Liens except Liens permitted by Section 9.03. After
giving full effect to the Excepted Liens, the Borrower or the Subsidiary
specified as the owner owns the net interests in production attributable to the
Hydrocarbon Interests as reflected in the most recently delivered Reserve
Report, and the ownership of such Properties shall not obligate the Borrower or
such Subsidiary to bear the costs and expenses relating to the maintenance,
development and operations of each such Property in an amount in excess of the
working interest of each Property set forth in the most recently delivered
Reserve Report that is not offset by a corresponding proportionate increase in
the Borrower's or such Subsidiary's net revenue interest in such Property.
(b) All leases and agreements necessary for the conduct of the business of
the Borrower and the Subsidiaries are valid and subsisting, in full force and
effect, and there exists no default or event or circumstance which with the
giving of notice or the passage of time or both would give rise to a default
under any such lease or leases.
(c) The rights and Properties presently owned, leased or licensed by the
Borrower and the Subsidiaries including, without limitation, all easements and
rights of way, include all rights and Properties necessary to permit the
47
Borrower and the Subsidiaries to conduct their business in all material respects
in the same manner as its business has been conducted prior to the date hereof.
(d) All of the Properties of the Borrower and the Subsidiaries which are
reasonably necessary for the operation of their businesses are in good working
condition and are maintained in accordance with prudent business standards.
(e) The Borrower and each Subsidiary owns, or is licensed to use, all
trademarks, trade names, copyrights, patents and other intellectual Property
material to its business, and the use thereof by the Borrower and such
Subsidiary does not infringe upon the rights of any other Person, except for any
such infringements that, individually or in the aggregate, could not reasonably
be expected to result in a Material Adverse Effect. The Borrower and the
Subsidiaries either own or have valid licenses or other rights to use all
databases, geological data, geophysical data, engineering data, seismic data,
maps, interpretations and other technical information used in their businesses
as presently conducted, subject to the limitations contained in the agreements
governing the use of the same, which limitations are customary for companies
engaged in the business of the exploration and production of Hydrocarbons.
Section 7.17 Maintenance of Properties. The Oil and Gas Properties (and
Properties unitized therewith) of the Borrower and the Subsidiaries have been
maintained, operated and developed in a good and workmanlike manner and in
conformity with all Requirements of Law and in conformity with the provisions of
all leases, subleases or other contracts comprising a part of the Hydrocarbon
Interests and other contracts and agreements forming a part of the Oil and Gas
Properties of the Borrower and the Subsidiaries. Specifically in connection with
the foregoing, (i) no Oil and Gas Property of the Borrower or any Subsidiary is
subject to having allowable production reduced below the full and regular
allowable (including the maximum permissible tolerance) because of any
overproduction (whether or not the same was permissible at the time) and (ii)
none of the wells comprising a part of the Oil and Gas Properties (or Properties
unitized therewith) of the Borrower or any Subsidiary is deviated from the
vertical more than the maximum permitted by Requirements of Law, and such wells
are, in fact, bottomed under and are producing from, and the well bores are
wholly within, the Oil and Gas Properties (or in the case of wells located on
Properties unitized therewith, such unitized Properties) of the Borrower or such
Subsidiary. All pipelines, wells, gas processing plants, platforms and other
material improvements, fixtures and equipment owned in whole or in part by the
Borrower or any of its Subsidiaries that are necessary to conduct normal
operations are being maintained in a state adequate to conduct normal
operations, and with respect to such of the foregoing which are operated by the
Borrower or any of its Subsidiaries, in a manner consistent with the Borrower's
or its Subsidiaries' past practices.
Section 7.18 Gas Imbalances, Prepayments. Except as set forth on Schedule
7.18 or on the most recent certificate delivered pursuant to Section 8.12(b), on
a net basis there are no gas imbalances, take or pay or other prepayments which
would require the Borrower or any of the Subsidiaries to deliver Hydrocarbons
produced from the Oil and Gas Properties at some future time without then or
thereafter receiving full payment therefor.
48
Section 7.19 Marketing of Production. Except for contracts listed and in
effect on the date hereof on Schedule 7.19, and thereafter either disclosed in
writing to the Administrative Agent or included in the most recently delivered
Reserve Report (with respect to all of which contracts the Borrower represents
that it or the Subsidiaries are receiving a price for all production sold
thereunder which is computed substantially in accordance with the terms of the
relevant contract and are not having deliveries curtailed substantially below
the subject Property's delivery capacity), no agreements exist which are not
cancelable on 60 days' notice or less without penalty or detriment for the sale
of production from the Borrower's or the Subsidiaries' Hydrocarbons (including,
without limitation, calls on or other rights to purchase, production, whether or
not the same are currently being exercised) that (a) pertain to the sale of
production at a fixed price and (b) have a maturity or expiry date of longer
than six (6) months from the date hereof.
Section 7.20 Swap Agreements. Schedule 7.20, as of the date hereof, and
after the date hereof, each report required to be delivered by the Borrower
pursuant to Section 8.01(e), sets forth, a true and complete list of all Swap
Agreements of the Borrower and each Subsidiary, the material terms thereof
(including the type, term, effective date, termination date and notional amounts
or volumes), the net mark to market value thereof, all credit support agreements
relating thereto (including any margin required or supplied) and the
counterparty to each such agreement.
Section 7.21 Use of Loans. (a) The proceeds of the Loans borrowed on the
Effective Date shall be used by the Borrower to:
(i) finance a portion of the Acquisition;
(ii) pay Transaction fees and expenses;
(iii) fund the Debt Service Reserve Account in accordance with Section
3.02(d); and
(iv) provide funding for general corporate purposes,
in each case under this paragraph (a) in accordance with the Disbursement
Letter.
(b) The proceeds of the Loans borrowed after the Effective Date shall be
used by the Borrower to:
(i) finance the drilling of the Petty 1H PUD Well pursuant to a budget
approved by the Administrative Agent; and
(ii) finance other Capital Expenditures approved in writing by the
Administrative Agent.
(c) The Borrower and the Subsidiaries are not engaged principally, or as
one of its or their important activities, in the business of extending credit
for the purpose, whether immediate, incidental or ultimate, of buying or
carrying margin stock (within the meaning of Regulation T, U or X of the Board).
No part of the proceeds of any Loan will be used for any purpose which violates
the provisions of Regulations T, U or X of the Board.
49
Section 7.22 Solvency. After giving effect to the Transactions, (a) the
aggregate assets (after giving effect to amounts that could reasonably be
received by reason of indemnity, offset, insurance or any similar arrangement),
at a fair valuation, of the Borrower and the Guarantors, taken as a whole, will
exceed the aggregate Indebtedness of the Borrower and the Guarantors on a
consolidated basis, as the Indebtedness becomes absolute and matures, (b) each
of the Borrower and the Guarantors will not have incurred or intended to incur,
and will not believe that it will incur, Indebtedness beyond its ability to pay
such Indebtedness (after taking into account the timing and amounts of cash to
be received by each of the Borrower and the Guarantors and the amounts to be
payable on or in respect of its liabilities, and giving effect to amounts that
could reasonably be received by reason of indemnity, offset, insurance or any
similar arrangement) as such Indebtedness becomes absolute and matures and (c)
each of the Borrower and the Guarantors will not have (and will have no reason
to believe that it will have thereafter) unreasonably small capital for the
conduct of its business.
Section 7.23 OFAC. Neither the Borrower nor any of its Subsidiaries (i) is
an "enemy" or an "ally of the enemy" within the meaning of section 2 of the
Trading with the Enemy Act of the United States (50 U.S.C. App. ss.ss. 1 et
seq.), as amended, (ii) is in violation of (A) the Trading with the Enemy Act,
as amended, (B) any of the foreign assets control regulations of the United
States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any
enabling legislation or executive order relating thereto or (C) the PATRIOT Act,
(iii) is a Sanctioned Person, (ii) has more than 10% of its assets in Sanctioned
Countries, or (iii) derives more than 10% of its operating income from
investments in, or transactions with Sanctioned Persons or Sanctioned Countries.
No part of the proceeds of any extension of credit hereunder will be used
directly or indirectly to fund any operations in, finance any investments or
activities in or make any payments to, a Sanctioned Person or a Sanctioned
Country.
Section 7.24 Projections. On and as of the Effective Date, the projections
of Borrower and its Subsidiaries for the period of fiscal year 2014 through and
including fiscal year 2016, including monthly projections for each month during
the fiscal year in which the Effective Date takes place (the "Projections"), are
based on good faith estimates and assumptions made by the management of Borrower
and as of the Effective Date, management of Borrower believes that the
Projections are reasonable and attainable (it being understood by the Lenders
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that such Projections are not to be viewed as facts and that estimates are
subject to significant uncertainties and contingencies, that no assurances can
be given that any Projections will be attained and that variances from actual
results may be material).
Section 7.25 Affiliate Transactions. Except as set forth on Schedule 7.25,
there are no existing or proposed agreements, arrangements, understandings, or
transactions between any Loan Party and any of the officers, members, managers,
directors, stockholders, parents, other interest holders, employees, or
Affiliates (other than Subsidiaries) of any Loan Party or any members of their
respective immediate families and, except as set forth on Schedule 7.25, none of
the foregoing Persons are directly or indirectly indebted to or have any direct
or indirect ownership, partnership, or voting interest in any Affiliate of any
Loan Party or any Person with which any Loan Party has a business relationship
or which competes with any Loan Party.
Section 7.26 Security Documents. The provisions of this Agreement and the
Security Documents are effective to create legal and valid Liens on all the
Collateral in favor of Administrative Agent, for the benefit of the Secured
Parties, and in the case of Collateral in which a security interest may be
perfected by filing a financing statement, when financing statements in
appropriate form are filed in the appropriate office, such security interests
constitute perfected and continuing security interests on the Collateral,
securing the Obligations, enforceable against the applicable Loan Party and all
third parties, and having priority over all other Liens on the Collateral except
in the case of Excepted Liens, to the extent any such Excepted Liens would have
priority over the Liens in favor of Administrative Agent pursuant to any
applicable law.
Section 7.27 Material Contracts; Operating Agreements. Schedule 7.27(a)
contains a correct and complete list of all the Material Contracts (other than
oil and gas leases, oil, gas and mineral leases, or other liquid or gaseous
hydrocarbon leases) and Operating Agreements of the Borrower and its
Subsidiaries in effect on the Effective Date. On the Effective Date, all
Material Contracts and the Operating Agreements are in full force and effect and
no defaults of the Borrower, any Subsidiary party thereto or, to Borrower's
knowledge, of any other party thereto, currently exist thereunder (other than as
described in Schedule 7.27(a). Schedule 7.27(b) contains a true, correct and
complete list of all the Material Contracts (other than oil and gas leases, oil,
gas and mineral leases, or other liquid or gaseous hydrocarbon leases) and
Operating Agreements requiring consent from the counterparty thereto, or payment
of any fee or sum to the counterparty thereto, prior to an assignment to
Administrative Agent or a Lender pursuant to a foreclosure action or that would
otherwise prohibit, restrict or hinder Administrative Agent or the Lenders, or
any successor in interest to Administrative Agent or any Lender, from
foreclosing upon such contract or agreement.
Section 7.28 Acquisition Documents. The copies of the Acquisition Documents
delivered by Borrower to Administrative Agent are true, accurate and complete
and have not been amended or modified in any manner, other than pursuant to
amendments or modifications previously delivered to and approved in writing by
the Administrative Agent. No party to any Acquisition Document is in default in
respect of any term or obligation thereunder.
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Section 7.29 Location of Deposit and Securities Accounts; Etc. As of the
Effective Date, Schedule 7.29 sets forth a complete and accurate list of all
deposit, checking and other bank accounts, all securities and other accounts
maintained with any broker dealer and all other similar accounts maintained by
the Borrower and each Subsidiary, together with a description thereof (i.e., the
bank or broker dealer at which such deposit or other account is maintained and
the account number and the purpose thereof).
ARTICLE VIII
AFFIRMATIVE COVENANTS
Until the Commitments have expired or been terminated and the principal of
and interest on each Loan and all fees payable hereunder and all other amounts
payable under the Loan Documents shall have been Paid in Full, the Parent and
the Borrower jointly and severally covenant and agree with the Administrative
Agent and the Lenders that:
Section 8.01 Financial Statements; Other Information. The Borrower will
furnish to the Administrative Agent and each Lender:
(a) Annual Financial Statements. As soon as available, but in any event in
accordance with then Requirement of Law and not later than 90 days after the end
of each fiscal year of the Borrower, (i) its audited consolidated balance sheet
and related statements of operations, members' equity and cash flows as of the
end of and for such year, setting forth in each case in comparative form the
figures for the previous fiscal year, all reported on by independent public
accountants of recognized national standing (without a "going concern" or like
qualification or exception and without any qualification or exception as to the
scope of such audit) to the effect that such consolidated financial statements
present fairly in all material respects the financial condition and results of
operations of the Borrower and its Subsidiaries on a consolidated basis in
accordance with GAAP consistently applied.
(b) Quarterly Financial Statements. As soon as available, but in any event
in accordance with then Requirement of Law and not later than 60 days after the
end of each of the first three fiscal quarters of each fiscal year of the
Borrower, its consolidated balance sheet and related statements of operations,
members' equity and cash flows as of the end of and for such fiscal quarter and
the then elapsed portion of the fiscal year, setting forth in each case in
comparative form the figures for the corresponding period or periods of (or, in
the case of the balance sheet, as of the end of) the previous fiscal year, all
certified by one of its Financial Officers as presenting fairly in all material
respects the financial condition and results of operations of the Borrower and
its Subsidiaries on a consolidated basis in accordance with GAAP consistently
applied, subject to normal year-end audit adjustments and the absence of
footnotes.
(c) Certificate of Financial Officer -- Compliance. Concurrently with any
delivery of financial statements under Section 8.01(a) or Section 8.01(b), or
52
Section 8.01(d), a certificate of a Financial Officer in substantially the form
of Exhibit C hereto (i) certifying as to whether a Default has occurred and, if
a Default has occurred, specifying the details thereof and any action taken or
proposed to be taken with respect thereto, (ii) setting forth reasonably
detailed calculations demonstrating compliance with Section 8.13(b) and Section
9.01 and (iii) stating whether any change in GAAP or in the application thereof
has occurred since the date of the audited financial statements referred to in
Section 7.04 and, if any such change has occurred, specifying the effect of such
change on the financial statements accompanying such certificate.
(d) Monthly Financial Statements. As soon as available, but in any event
within 45 days after the end of each month, its consolidated balance sheet, and
related statements of operations, members' equity and cash flows as of the end
of and for such month, setting forth in each case in comparative form the
figures for the corresponding period or periods of (or, in the case of the
balance sheet, as of the end of) the previous fiscal year, all certified by one
of its Financial Officers as presenting fairly in all material respects the
financial condition and results of operations of the Borrower and its
Subsidiaries on a consolidated basis in accordance with GAAP consistently
applied, subject to normal year-end audit adjustments and the absence of
footnotes.
(e) Certificate of Financial Officer - Swap Agreements. Concurrently with
any delivery of financial statements under Section 8.01(a) or Section 8.01(b), a
certificate of a Financial Officer, in form and substance satisfactory to the
Administrative Agent, setting forth as of the last Business Day of such quarter,
a true and complete list of all Swap Agreements of the Borrower and each
Subsidiary, the material terms thereof (including the type, term, effective
date, termination date and notional amounts or volumes), the net mark-to-market
value therefor, any new credit support agreements relating thereto not listed on
Schedule 7.20, any margin required or supplied under any credit support
document, and the counterparty to each such agreement.
(f) Certificate of Insurer -- Insurance Coverage. Concurrently with any
delivery of financial statements under Section 8.01(a), a certificate of
insurance coverage from each insurer with respect to the insurance required by
Section 8.07, in form and substance satisfactory to the Administrative Agent,
and, if requested by the Administrative Agent or any Lender, all copies of the
applicable policies.
(g) Other Accounting Reports. Promptly upon receipt thereof, a copy of each
other report or letter submitted to the Borrower or any Subsidiaries by
independent accountants in connection with any annual, interim or special audit
made by them of the books of the Borrower or any such Subsidiary, and a copy of
any response by the Borrower or any such Subsidiary, or the board of directors
or other appropriate governing body of the Borrower or any such Subsidiary, to
such letter or report.
(h) SEC and Other Filings; Reports to Shareholders. Promptly after the same
become publicly available, copies of all periodic and other reports, proxy
statements and other materials filed by the Parent or any of its Subsidiaries
with the SEC, or with any national securities exchange, or distributed by the
Parent to its shareholders generally, as the case may be.
53
(i) Notices Under Material Instruments. Promptly after the furnishing
thereof, copies of any financial statement, report or notice furnished to or by
any Person pursuant to the terms of any preferred stock designation, indenture,
loan or credit or other similar agreement, other than this Agreement and not
otherwise required to be furnished to the Lenders pursuant to any other
provision of this Section 8.01.
(j) Lists of Hydrocarbon Purchasers. Concurrently with the delivery of any
Reserve Report to the Administrative Agent pursuant to Section 8.12, a list of
all Persons purchasing Hydrocarbons from the Borrower or any Subsidiary.
(k) Notice of Sales of Oil and Gas Properties. In the event the Borrower or
any Subsidiary intends to sell, transfer, assign or otherwise dispose of any Oil
or Gas Properties or any Equity Interests in any Subsidiary in accordance with
Section 9.12, prior written notice of such disposition, the price thereof and
the anticipated date of closing and any other details thereof reasonably
requested by the Administrative Agent or any Lender.
(l) Notice of Recovery Events. Prompt written notice, and in any event
within three Business Days, of the occurrence of any Recovery Event or the
commencement of any action or proceeding that could reasonably be expected to
result in a Recovery Event.
(m) Information Regarding Borrower and Guarantors. Prompt written notice of
(and in any event at least twenty (20) days prior thereto) any change (i) in the
Borrower or any Guarantor's corporate name or in any trade name used to identify
such Person in the conduct of its business or in the ownership of its
Properties, (ii) in the location of the Borrower or any Guarantor's chief
executive office or principal place of business, (iii) in the Borrower or any
Guarantor's identity or corporate structure or in the jurisdiction in which such
Person is incorporated or formed, (iv) in the Borrower or any Guarantor's
jurisdiction of organization or such Person's organizational identification
number in such jurisdiction of organization, and (v) in the Borrower or any
Guarantor's federal taxpayer identification number.
(n) Production Report and Lease Operating Statements. Within 30 days after
the end of each calendar month, a report setting forth, for each calendar month
during the then current fiscal year to date, the volume of production and sales
attributable to production (and the prices at which such sales were made and the
revenues derived from such sales) for each such calendar month from the Oil and
Gas Properties of the Borrower and its Subsidiaries, and setting forth the
related ad valorem, severance and production taxes and lease operating expenses
attributable thereto and incurred for each such calendar month.
(o) Notice of Certain Changes. Promptly, but in no event within five (5)
Business Days after the execution thereof, copies of any amendment, modification
or supplement to any of the Organization Documents of the Parent, the Borrower
or any Subsidiary.
(p) Notice of Swap Agreement Modifications. Prompt written notice of any
amendment to or other modification of any Swap Agreement or the terms thereof
since the delivery of the last certificate pursuant to Section 8.01(e)
(including a summary of the terms of such amendment or modification and the net
mark-to-market value therefor).
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(q) Drilling Reports. As soon as available, and in any event within twenty
(20) days after the end of each month, reports on active field operations on a
field and well basis, as applicable, including but not limited to any drilling,
completions, well workovers, installation, modification or repair of surface
facilities and flowlines, and pipeline hookups, including a "daily drilling
report", as applicable, and information related to pipe depth, completion
percentage, perforation intervals, updated spud date or date of first production
(as applicable), flow-rates, upon request copies of any well logs across the pay
sectors and such other information as may be reasonably requested, in form and
substance satisfactory to Administrative Agent (including a discussion of any
current material operating problems with any wells and any proposed solutions
and any material technical studies conducted during the month).
(r) Title Opinions. Upon the request of Administrative Agent, the Borrower
shall provide to Administrative Agent copies of such division order title
opinions or such other title information in form and substance reasonably
satisfactory to the Administrative Agent, evidencing the applicable Loan Party's
good and defensible title to any of the Mortgaged Properties.
(s) Notices Relating to Acquisition. In the event that after the Effective
Date: (i) the Borrower is required or elects to purchase any of the Acquisition
Properties which had been excluded from, or return any of the Acquisition
Properties which had been included in, the Acquisition Properties in accordance
with the terms of the Acquisition Documents, (ii) the Borrower is required to
honor any preferential purchase or consent right in respect of any Acquisition
Property which has not been waived, (iii) any matter being disputed in
accordance with the terms of the Acquisition Documents is resolved or (iv) the
Borrower and the seller(s) calculate and agree upon a "final statement", if any,
contemplated by the Acquisition Documents, then, in each such case, the Borrower
shall promptly give Administrative Agent notice in reasonable detail of such
circumstances.
(t) Other Requested Information. Promptly following any request therefor,
such other information regarding the operations, business affairs and financial
condition of the Borrower or any Subsidiary (including, without limitation, any
Plan and any reports or other information required to be filed with respect
thereto under the Code or under ERISA), or compliance with the terms of this
Agreement or any other Loan Document, as the Administrative Agent or any Lender
may reasonably request.
(u) Annual Business Plan and Budget. As soon as practicable and in any
event within sixty (60) days after the end of each fiscal year, a business plan
and operating and capital budget of the Borrower and its Subsidiaries for the
ensuing four (4) fiscal quarters, such plan to be prepared in accordance with
GAAP and to include, on a quarterly basis, the following: a quarterly operating
and capital budget, a projected income statement, statement of cash flows and
balance sheet, calculations demonstrating projected compliance with the
financial covenants set forth in Section 9.01 and a report containing
management's discussion and analysis of such budget with a reasonable disclosure
of the key assumptions and drivers with respect to such budget, accompanied by a
certificate from a Responsible Officer of the Borrower to the effect that such
budget contains good faith estimates (utilizing assumptions believed to be
55
reasonable at the time of delivery of such budget) of the financial condition
and operations of the Borrower and its Subsidiaries for such period.
Section 8.02 Notices of Material Events. The Borrower will furnish to the
Administrative Agent and each Lender prompt written notice of the following:
(a) the occurrence of any Default;
(b) the occurrence of any Recovery Event;
(c) the filing or commencement of, or the threat in writing of, any action,
suit, proceeding, investigation or arbitration by or before any arbitrator or
Governmental Authority against or affecting the Borrower or any Affiliate
thereof not previously disclosed in writing to the Lenders or any material
adverse development in any action, suit, proceeding, investigation or
arbitration (whether or not previously disclosed to the Lenders) that, in either
case could reasonably be expected to result in liability in excess of $50,000,
not fully covered by insurance, subject to normal deductibles; and
(d) any other development that results in, or could reasonably be expected
to result in, a Material Adverse Effect.
Each notice delivered under this Section 8.02 shall be accompanied by a
statement of a Responsible Officer of the Borrower setting forth the details of
the event or development requiring such notice and any action taken or proposed
to be taken with respect thereto.
Section 8.03 Existence; Conduct of Business. The Borrower will, and will
cause each Subsidiary to, do or cause to be done all things necessary to
preserve, renew and keep in full force and effect its legal existence and the
rights, licenses, permits, privileges and franchises material to the conduct of
its business and maintain, if necessary, its qualification to do business in
each other jurisdiction in which its Oil and Gas Properties is located or the
ownership of its Properties requires such qualification, except where the
failure to so qualify could not reasonably be expected to have a Material
Adverse Effect; provided that the foregoing shall not prohibit any merger,
consolidation, liquidation or dissolution permitted under Section 9.11.
Section 8.04 Payment of Obligations. The Borrower will, and will cause each
Subsidiary to, pay its obligations, including Tax liabilities of the Borrower
and each Subsidiary before the same shall become delinquent or in default ,
except where (a) the validity or amount thereof is being contested in good faith
by appropriate proceedings, (b) the Borrower or such Subsidiary has set aside on
its books adequate reserves with respect thereto in accordance with GAAP and (c)
the failure to make payment pending such contest could not reasonably be
56
expected to result in a Material Adverse Effect or result in the seizure or levy
of any material Property of the Borrower or any Subsidiary, provided that that
Borrower shall not permit any of the trade payables of the Borrower or any of
its Subsidiaries to be outstanding for more than 60 days from the original date
of invoice unless the validity or amount thereof is being challenged pursuant to
clause (a) of this Section.
Section 8.05 Performance of Obligations under Loan Documents. The Borrower
will pay the Notes according to the reading, tenor and effect thereof, and the
Borrower will, and will cause each Subsidiary to, do and perform every act and
discharge all of the obligations to be performed and discharged by them under
the Loan Documents, including, without limitation, this Agreement, at the time
or times and in the manner specified.
Section 8.06 Operation and Maintenance of Properties; Material Contracts.
The Borrower, at its own expense, will, and will cause each Subsidiary to:
(a) operate its Oil and Gas Properties and other material Properties or
cause such Oil and Gas Properties and other material Properties to be operated
in a careful and efficient manner in accordance with the practices of the
industry and in compliance with all applicable contracts and agreements and in
compliance with all Requirements of Law, including, without limitation,
applicable pro ration requirements and Environmental Laws, and all laws, rules
and regulations of every other Governmental Authority from time to time
constituted to regulate the development and operation of its Oil and Gas
Properties and the production and sale of Hydrocarbons and other minerals
therefrom.
(b) keep and maintain all Property material to the conduct of its business
in good working order and condition, ordinary wear and tear excepted preserve,
maintain and keep in good repair, working order and efficiency (ordinary wear
and tear excepted) all of its material Oil and Gas Properties and other material
Properties, including, without limitation, all equipment, machinery and
facilities.
(c) promptly pay and discharge, or make reasonable and customary efforts to
cause to be paid and discharged, all delay rentals, royalties, expenses and
indebtedness accruing under the leases or other agreements affecting or
pertaining to its Oil and Gas Properties and will do all other things necessary
to keep unimpaired their rights with respect thereto and prevent any forfeiture
thereof or default thereunder.
(d) promptly perform or make reasonable and customary efforts to cause to
be performed, in accordance with industry standards, the obligations required by
each and all of the assignments, deeds, leases, sub-leases, contracts and
agreements affecting its interests in its Oil and Gas Properties and other
material Properties.
57
(e) to the extent the Borrower is not the operator of any Property, the
Borrower shall use commercially reasonable efforts to cause the operator to
comply with this Section 8.06.
(f) perform and observe all the terms and provisions of each Material
Contract to be performed or observed by it, maintain each such Material Contract
in full force and effect, enforce each such Material Contract in accordance with
its terms, take all such action to such end as may be from time to time
requested by the Administrative Agent and, upon request of the Administrative
Agent, make to each other party to each such Material Contract such demands and
requests for information and reports or for action as the Borrower or any of its
Subsidiaries is entitled to make under such Material Contract, and cause each of
its Subsidiaries to do so.
(g) drill three PUD locations on the Frio County, Texas, Oil and Gas
Properties (including the Stewart 1-H recompletion) within 18 months of the
Effective Date, unless this requirement is waived by the Administrative Agent;
provided, however, that it shall not be a breach of this paragraph (g) if (i)
the Borrower fails to comply with this paragraph solely as a result of a
Defaulting Lender not funding a portion of its Commitment after the Effective
Date, and (ii) the Borrower does not otherwise have (or have access to) funds
sufficient for it to comply with this paragraph (g).
Section 8.07 Insurance. The Borrower will, and will cause each Subsidiary
to, maintain, with financially sound and reputable insurance companies,
insurance in such amounts and against such risks as are customarily maintained
by companies engaged in the same or similar businesses operating in the same or
similar locations and otherwise in form and amounts and with insurers acceptable
to the Administrative Agent, including insurance of the types and coverages
described in Schedule 8.07 and with limits of coverage no less than those set
out in Schedule 8.07. The loss payable clauses or provisions in said insurance
policy or policies insuring any of the collateral for the Loans shall be
endorsed in favor of and made payable to the Administrative Agent as its
interests may appear and such policies shall name the Administrative Agent and
the Lenders as "additional insureds" and provide that the insurer will endeavor
to give at least 30 days prior notice of any cancellation to the Administrative
Agent.
Section 8.08 Books and Records; Inspection Rights. The Borrower will, and
will cause each Subsidiary to, keep proper books of record and account in which
full, true and correct entries are made in conformity with GAAP and all
Requirements of Law of all dealings and transactions in relation to its business
and activities. The Borrower will, and will cause each Subsidiary to, permit any
representatives designated by the Administrative Agent or any Lender, upon
reasonable prior notice, to visit and inspect its Properties, to examine and
make extracts from its books and records, and to discuss its affairs, finances
and condition with its officers and independent accountants, all at such
reasonable times and as often as reasonably requested.
Section 8.09 Compliance with Laws. The Borrower will, and will cause each
Subsidiary to, comply with all Requirements or Law (including all Requirements
of Law relating to plugging and abandonment) and all Contractual Obligations
applicable to it or its Property, except where the failure to do so,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect.
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Section 8.10 Environmental Matters.
(a) The Borrower shall at its sole expense: (i) comply, and shall cause its
Properties and operations and each Subsidiary and each Subsidiary's Properties
and operations to comply, with all applicable Environmental Laws, the breach of
which could be reasonably expected to have a Material Adverse Effect; (ii) not
dispose of or otherwise release, and shall cause each Subsidiary not to dispose
of or otherwise release, any oil, oil and gas waste, hazardous substance, or
solid waste on, under, about or from any of the Borrower's or its Subsidiaries'
Properties or any other Property to the extent caused by the Borrower's or any
of its Subsidiaries' operations except in compliance with applicable
Environmental Laws, the disposal or release of which could reasonably be
expected to have a Material Adverse Effect; (iii) timely obtain or file, and
shall cause each Subsidiary to timely obtain or file, all notices, permits,
licenses, exemptions, approvals, registrations or other authorizations, if any,
required under applicable Environmental Laws to be obtained or filed in
connection with the operation or use of the Borrower's or the Subsidiaries'
Properties, which failure to obtain or file could reasonably be expected to have
a Material Adverse Effect; (iv) promptly commence and diligently prosecute to
completion, and shall cause each Subsidiary to promptly commence and diligently
prosecute to completion, any assessment, evaluation, investigation, monitoring,
containment, cleanup, removal, repair, restoration, remediation or other
remedial obligations (collectively, the "Remedial Work") in the event any
Remedial Work is required or reasonably necessary under applicable Environmental
Laws and industry practice because of or in connection with the actual or
suspected past, present or future disposal or other release of any oil, oil and
gas waste, hazardous substance or solid waste on, under, about or from any of
the Borrower's or the Subsidiaries' Properties, which failure to commence and
diligently prosecute to completion could reasonably be expected to have a
Material Adverse Effect; and (v) establish and implement, and shall cause each
Subsidiary to establish and implement, such policies of environmental audit and
compliance as may be necessary to determine and assure that the Borrower's and
the Subsidiaries' obligations under this Section 8.10(a) are timely and fully
satisfied, which failure to establish and implement could reasonably be expected
to have a Material Adverse Effect.
(b) The Borrower will promptly, but in no event later than five days after
the Borrower's knowledge of the occurrence of a triggering event, notify the
Administrative Agent and the Lenders in writing of any threatened action,
investigation or inquiry by any Governmental Authority or any threatened demand
or lawsuit by Person against the Borrower or the Subsidiaries or their
Properties of which the Borrower has knowledge in connection with any
Environmental Laws if the Borrower reasonably anticipates that such action will
result in liability (whether individually or in the aggregate) in excess of
$50,000, not fully covered by insurance, subject to normal deductibles.
(c) The Borrower will, and will cause each Subsidiary to, provide
environmental audits and tests in accordance with American Society of Testing
Materials standards upon reasonable request by the Administrative Agent and the
Lenders and no more than once per year in the absence of any Event of Default
(or as otherwise required to be obtained by the Administrative Agent or the
Lenders by any Governmental Authority), in connection with any future
acquisitions of Oil and Gas Properties or other Properties.
Section 8.11 Further Assurances.
(a) The Borrower at its sole expense will, and will cause each Subsidiary to,
promptly execute and deliver to the Administrative Agent all such other
documents, agreements and instruments reasonably requested by the Administrative
59
Agent to comply with, cure any defects or accomplish the conditions precedent,
covenants and agreements of the Borrower or any Subsidiary, as the case may be,
in the Loan Documents, including the Notes, or to further evidence and more
fully describe the collateral intended as security for the Obligations, or to
correct any omissions in this Agreement or the Security Documents, or to state
more fully the obligations secured therein, or to perfect, protect or preserve
any Liens created pursuant to this Agreement or any of the Security Documents or
the priority thereof, or to make any recordings, file any notices or obtain any
consents, all as may be reasonably necessary or appropriate, in the sole
discretion of the Administrative Agent, in connection therewith.
(b) The Borrower hereby authorizes the Administrative Agent to file one or
more financing or continuation statements, and amendments thereto, relative to
all or any part of the Mortgaged Property without the signature of the Borrower
or any other Guarantor where permitted by law. A carbon, photographic or other
reproduction of the Security Documents or any financing statement covering the
Mortgaged Property or any part thereof shall be sufficient as a financing
statement where permitted by law.
Section 8.12 Reserve Reports.
(a) On or before April 1 and October 1 of each year, commencing April 1,
2015, the Borrower shall furnish to the Administrative Agent and the Lenders a
Reserve Report evaluating the Oil and Gas Properties of the Borrower and its
Subsidiaries as of the immediately preceding February 1 and August 1. The
Reserve Report as of August 1 of each year shall be prepared by one or more
Approved Petroleum Engineers, and the February 1 Reserve Report of each year
shall be prepared, in a form reasonably acceptable to the Administrative Agent,
by or under the supervision of the chief engineer of the Borrower who shall
certify such Reserve Report to be true and accurate in all material respects and
to have been prepared in accordance with the procedures used in the immediately
preceding August 1 Reserve Report.
(b) With the delivery of each Reserve Report, the Borrower shall provide to
the Administrative Agent and the Lenders a certificate from a Responsible
Officer of the Borrower certifying that: (i) the information contained in the
Reserve Report and any other information delivered in connection therewith is
true and correct in all material respects, (ii) the Borrower or its Subsidiaries
owns good and defensible title to the Oil and Gas Properties evaluated in such
Reserve Report and such Properties are free of all Liens except for Liens
permitted by Section 9.03, (iii) except as set forth on an exhibit to the
certificate, on a net basis there are no gas imbalances, take or pay or other
prepayments in excess of the volume specified in Section 7.18 with respect to
its Oil and Gas Properties evaluated in such Reserve Report which would require
the Borrower or any Subsidiary to deliver Hydrocarbons either generally or
produced from such Oil and Gas Properties at some future time without then or
thereafter receiving full payment therefor, (iv) none of their Oil and Gas
Properties have been sold since the date of the last Reserve Report except as
set forth on an exhibit to the certificate, which certificate shall list all of
its Oil and Gas Properties sold and in such detail as reasonably required by the
Administrative Agent, (v) attached to the certificate is a list of all marketing
agreements entered into subsequent to the later of the date hereof or the most
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recently delivered Reserve Report which the Borrower could reasonably be
expected to have been obligated to list on Schedule 7.19 had such agreement been
in effect on the date hereof and (vi) attached thereto is a schedule of the Oil
and Gas Properties evaluated by such Reserve Report that are Mortgaged
Properties and demonstrating the percentage of the total proved value of such
Mortgaged Properties represent in compliance with Section 8.14(a).
Section 8.13 Title Information.
(a) On or before the delivery to the Administrative Agent and the Lenders
of each Reserve Report required by Section 8.12(a), the Borrower will deliver
title information in form and substance reasonably acceptable to the
Administrative Agent covering enough of the Oil and Gas Properties evaluated by
such Reserve Report that were not included in the immediately preceding Reserve
Report, so that the Administrative Agent shall have received together with title
information previously delivered to the Administrative Agent, reasonably
satisfactory title information on at least 90% of the total value of the Oil and
Gas Properties evaluated by such Reserve Report.
(b) If the Borrower has provided title information for additional
Properties under Section 8.13(a), the Borrower shall, within 60 days of notice
from the Administrative Agent that title defects or exceptions exist with
respect to such additional Properties, either (i) cure any such title defects or
exceptions (including defects or exceptions as to priority) which are not
permitted by Section 9.03 raised by such information, (ii) substitute acceptable
Mortgaged Properties with no title defects or exceptions except for Excepted
Liens (other than Excepted Liens described in clauses (e), (g) and (h) of such
definition) having an equivalent value or (iii) deliver title information in
form and substance reasonably acceptable to the Administrative Agent so that the
Administrative Agent shall have received, together with title information
previously delivered to the Administrative Agent, reasonably satisfactory title
information on at least 90% of the value of the Oil and Gas Properties evaluated
by such Reserve Report.
Section 8.14 Additional Collateral; Additional Guarantors.
(a) The Borrower shall review promptly each Reserve Report delivered
pursuant to this Agreement after the Effective and the list of current Mortgaged
Properties (as described in Section 8.12(b)(vi)) to ascertain whether the
Mortgaged Properties represent at least 90% of the total value of the Oil and
Gas Properties evaluated in the most recently completed Reserve Report after
giving effect to exploration and production activities, acquisitions,
dispositions and production. In the event that the Mortgaged Properties do not
represent at least 90% of such total value, then the Borrower shall, and shall
cause the Subsidiaries to, grant, within thirty (30) days of delivery of the
certificate required under Section 8.12(b), to the Administrative Agent as
security for the Obligations a first-priority Lien (provided that Excepted Liens
of the type described in clauses (a) to (d) and (f) of the definition thereof
may exist, but subject to the provisos at the end of such definition) on
additional Oil and Gas Properties not already subject to a Lien of the Security
Documents such that after giving effect thereto, the Mortgaged Properties will
represent at least 90% of such total value. All such Liens will be created and
perfected by and in accordance with the provisions of deeds of trust, security
agreements and financing statements or other Security Documents, all in form and
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substance satisfactory to the Administrative Agent and in sufficient executed
(and acknowledged where necessary or appropriate) counterparts for recording
purposes. In order to comply with the foregoing, if any Subsidiary places a Lien
on its Oil and Gas Properties and such Subsidiary is not a Guarantor, then it
shall become a Guarantor and comply with Section 8.14(b).
(b) The Borrower shall promptly cause each Subsidiary to guarantee the
Obligations pursuant to the Guaranty Agreement. In connection with any such
guaranty, the Borrower shall, or shall cause such Subsidiary to (A) execute and
deliver a supplement to the Guaranty Agreement executed by such Subsidiary, (B)
pledge all of the Equity Interests of such new Subsidiary (including, without
limitation, delivery (if applicable) of original certificates evidencing the
Equity Interests of such Subsidiary, together with an appropriate undated stock
powers for each certificate duly executed in blank by the registered owner
thereof) and (C) execute and deliver such other additional closing documents,
certificates and legal opinions as shall be requested by the Administrative
Agent.
(c) On each Collateral Addition Date, the Borrower and each Subsidiary
shall take all such actions and execute and deliver, or cause to be executed and
delivered, all such Security Documents that Administrative Agent shall request
to create in favor of Administrative Agent, for the benefit of the Secured
Parties, a valid and, subject to any filing and/or recording referred to herein,
perfected first priority Lien on and security interest in all Oil and Gas
Properties of the Borrower and its Subsidiaries not already subject to a Lien of
the Security Documents (subject only to Excepted Liens of the type described in
clause (a) to (d) and (f) of the definition thereof, but subject to the provisos
at the end of such definition). All such Liens will be created and perfected by
and in accordance with the provisions of deeds of trust, security agreements and
financing statements or other Security Documents, all in form and substance
satisfactory to the Administrative Agent and in sufficiently executed (and
acknowledged where necessary or appropriate) counterparts for recording
purposes. If requested by Administrative Agent, each Affiliate of a Loan Party
who is an operator under any Operating Agreement shall have executed and
delivered a subordination agreement to Administrative Agent, in form and
substance reasonably satisfactory to Administrative Agent.
Section 8.15 ERISA Compliance. The Borrower will promptly furnish and will
cause the Subsidiaries and any ERISA Affiliate to promptly furnish to the
Administrative Agent (a) promptly after the filing thereof with the United
Stated Secretary of Labor or the Internal Revenue Service, copies of each annual
and other report with respect to each Plan or any trust created thereunder, and
(b) immediately upon becoming aware of the occurrence of any "prohibited
transaction," as described in section 406 of ERISA or in section 4975 of the
Code, in connection with any Plan or any trust created thereunder, a written
notice signed by the President or the principal Financial Officer, the
Subsidiary or the ERISA Affiliate, as the case may be, specifying the nature
thereof, what action the Borrower, the Subsidiary or the ERISA Affiliate is
taking or proposes to take with respect thereto, and, when known, any action
taken or proposed by the Internal Revenue Service or the Department of Labor
with respect thereto.
Section 8.16 Key Man Life Insurance. Commencing on the date occurring 60
days after the Effective Date and at all times thereafter, the Borrower shall
maintain, at its expense, key man life insurance policies on each of Ronnie
Steinocher and Lisa Hamilton. Each such key man life insurance policy shall be
in the amount of at least $3,000,000, shall be for a term of at least two years,
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shall be issued by an insurance company satisfactory to the Administrative
Agent, shall be otherwise reasonably satisfactory in form and substance to the
Administrative Agent, and shall be collaterally assigned to the Administrative
Agent, for the benefit of the Secured Parties, pursuant to documentation
satisfactory in form and substance to the Administrative Agent.
Section 8.17 Observation Rights. Upon reasonable advance notice, the
Administrative Agent shall be entitled to have one or more observers (the
"Observers") attend and participate in all meetings of the board of directors,
managing members, managers, general partners, or other governing authorities of
each Loan Party (and all committees thereof) and its equity owners (each, if it
involves more than one person, a "Meeting"). The Observers shall not be entitled
to vote on matters presented to or discussed at any Meeting. The Observers shall
be timely notified of the time and place of each Meeting, if any, and will be
given written notice of all proposed actions to be taken at each Meeting. Each
such notice shall describe in reasonable detail the nature and substance of the
matters to be discussed and/or voted upon at any such Meeting (or the proposed
actions to be taken by written consent without a Meeting). The Observers shall
have the right to receive all information provided to any director, manager,
managing member, committee member, or general partner, partner, member or other
equity owner of the Borrower, in addition to copies of the records of the
proceedings or minutes of any such Meeting when provided to the applicable
Meeting participants. The Borrower will also furnish or will cause to be
furnished to the Administrative Agent a copy of each written consent without a
meeting adopted by the board of directors or other managers of the any Loan
Party or any committee thereof or the partners, members or other equity owners
of the Borrower, as applicable, not later than five (5) days before it is
effective. The board of directors or other managers of each Loan Party shall
hold regularly scheduled Meetings quarterly.
Section 8.18 Deposit Accounts; Etc. In the event that the Borrower or any
Subsidiary establishes a deposit account other than the Debt Service Reserve
Account or a securities account, such Loan Party will, prior to transferring any
funds or assets into such account, execute and deliver a control agreement and
grant in favor of Administrative Agent all the rights necessary to control such
account, provided that with respect to deposit accounts of the Borrower in
effect on the Effective Date, the Borrower shall comply with this Section 8.18
on or before August 1, 2014. Each such control agreement shall be satisfactory
in form and substance to the Administrative Agent.
Section 8.19 Additional Equity Issuance. On or before January 31, 2015, the
Borrower shall receive in cash gross proceeds of at least $2,000,000 from an
issuance of Equity Interests by the Parent, unless the Borrower has sold its Oil
and Gas Properties in Taylor County, Texas for Net Cash Proceeds of at least
$3,000,000.
Section 8.20 Riggan Lease. The Borrower shall exercise reasonable efforts
to acquire the Riggan Lease within 90 days after the Effective Date.
ARTICLE IX
NEGATIVE COVENANTS
Until the Commitments have expired or terminated and the principal of and
interest on each Loan and all fees payable hereunder and all other amounts
payable under the Loan Documents have been Paid in Full, the Parent and the
Borrower jointly and severally covenant and agree with the Administrative Agent
and the Lenders that:
Section 9.01 Financial Covenants.
(a) Consolidated Interest Coverage Ratio. The Borrower will not permit the
Consolidated Interest Coverage Ratio on the last day of any calendar month set
forth below to be less than the ratio set forth below opposite such calendar
month:
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Month Ending On Consolidated Interest Coverage Ratio
--------------- ------------------------------------
10/31/2014 1.20
11/31/2014 1.40
12/31/2014 1.60
1/31/2015 1.75
2/28/2015 and 3/31/2015 2.00
4/30/2015, 5/31/2015 and 6/30/2015 2.25
7/31/2015, 8/31/2015 and 9/31/2015 2.50
10/31/2015 and on the last day of
each calendar month thereafter 3.00
(b) Consolidated Debt Ratio. The Borrower will not permit the Consolidated
Debt Ratio on the last day of any calendar month set forth below to exceed the
ratio set forth below opposite such calendar month:
Month Ending On Consolidated Debt Ratio
--------------- -----------------------
10/31/2014 7.00
11/31/2014 5.50
12/31/2014 5.00
1/31/2015 4.50
2/28/2015 4.00
3/31/2015 3.50
4/30/2015 3.00
5/31/2015 and 6/30/2015 2.50
7/31/2015, 8/31/2015 and 9/30/2015 2.00
10/31/2015 and on the last day of each
Calendar month thereafter 1.75
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(c) Current Ratio. Commencing on September 30, 2014, the Borrower will not
permit, as of the last day of any fiscal quarter, the ratio of (i) Consolidated
Current Assets (excluding non-cash assets under FAS 133) to (ii) Consolidated
Current Liabilities (excluding non-cash obligations under FAS 133 and current
maturities under this Agreement) to be less than 1.0 to 1.25.
(d) Minimum Monthly Production. On the last day of any calendar month
occurring during any period set forth below, the Borrower will not permit the
average monthly gross production (calculated as gross barrels of oil and BOE of
natural gas) from the Oil and Gas Properties of the Borrower and the Subsidiary
Guarantors during the three month period ending on such date to be less than the
BOE (calculated as gross barrels of oil and Mcf of natural gas converted at a
ratio of 6 Mcf of natural gas per barrel of oil) set forth below opposite the
relevant period:
Period Oil and BOE Production
------ ----------------------
10/1/2014 through and including 1/31/2015 4,500
2/1/2015 through and including 3/31/2015 6,000
4/1/2015 through and including 6/30/2015 8,000
On 7/31/2015 and on the last day of each
calendar month thereafter 10,000
(e) Minimum Cash Balances. The Borrower will not permit the aggregate
amount of unrestricted cash and Cash Equivalents of the Borrower (exclusive of
funds on deposit in the Debt Service Reserve Account) to at any time be less
than $35,000.
(f) Maximum Monthly Total G&A Expense. On the last day of each calendar
month (commencing on October 31, 2014), for the three month period ending on
such date, the Borrower will not permit the average monthly Total G&A Expense
during such three month period to exceed $60,000.
(g) Maximum Consolidated Total Indebtedness. The Borrower shall not at any
time permit Consolidated Total Indebtedness to exceed $5,450,000.
Section 9.02 Indebtedness. Neither the Borrower nor any of its Subsidiaries
will incur, create, assume or suffer to exist any Indebtedness, except:
(a) the Notes or other Obligations arising under the Loan Documents or any
guaranty of or suretyship arrangement for the Notes or other Obligations arising
under the Loan Documents.
(b) Indebtedness of the Borrower and the Subsidiaries existing on the date
hereof that is reflected in the Financial Statements.
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(c) accounts payable and accrued expenses, liabilities or other obligations
to pay the deferred purchase price of Property or services, from time to time
incurred in the ordinary course of business which are not greater than sixty
(60) days past the date of invoice or delinquent or which are being contested in
good faith by appropriate action and for which adequate reserves have been
maintained in accordance with GAAP.
(d) Indebtedness under Capital Leases and purchase money obligations not to
exceed $250,000 in the aggregate at any time outstanding.
(e) Indebtedness associated with bonds or surety obligations required by
Requirements of Law in connection with the operation of the Oil and Gas
Properties.
(f) intercompany Indebtedness between the Borrower and any Wholly-Owned
Subsidiary Guarantor or between Wholly-Owned Subsidiary Guarantors to the extent
permitted by Section 9.05(d); provided that any such Indebtedness owed by the
Borrower or a Guarantor Wholly-Owned Subsidiary shall be subordinated to the
Obligations on terms set forth in the Guaranty Agreement.
(g) endorsements of negotiable instruments for collection in the ordinary
course of business.
(h) other unsecured Indebtedness not to exceed $50,000 in the aggregate at
any one time outstanding.
Section 9.03 Liens. Neither the Borrower nor any Subsidiary will create,
incur, assume or permit to exist any Lien on any of its Properties (now owned or
hereafter acquired), except:
(a) Liens securing the payment of any Obligations.
(b) Excepted Liens.
(c) Liens securing Capital Leases or purchase money obligations permitted
by Section 9.02(d) but only on the Property financed by such Indebtedness.
(d) Liens on Property not constituting collateral for the Obligations and
not otherwise permitted by the foregoing clauses of this Section 9.03; provided
that the aggregate principal or face amount of all Indebtedness secured under
this Section 9.03(e) shall not exceed $50,000 at any time.
(e) the VPP and the VPP Mortgage, provided that the VPP Mortgage shall at
all times be subordinate to the Liens of the Security Documents pursuant to
documents satisfactory to the Administrative Agent.
66
Section 9.04 Restricted Payments. The Borrower will not, and will not
permit any Subsidiary to, declare or make, or agree to pay or make, directly or
indirectly, any Restricted Payment, return any capital or make any distribution
of its Property to its Equity Interest holders, except for the following:
(a) the Borrower may declare and pay dividends with respect to its Equity
Interests payable solely in additional shares of its Equity Interests (other
than Disqualified Stock).
(b) Subsidiaries of the Borrower may declare and pay dividends ratably with
respect to their Equity Interests.
(c) the Borrower may make Restricted Payments pursuant to and in accordance
with stock option plans or other benefit plans for management or employees of
the Borrower and its Subsidiaries.
(d) the Borrower may make tax distributions to it's the Parent in an amount
equal to the highest marginal rate applicable to aggregate federal and state
income tax liability of the Parent, as calculated in accordance with the terms
thereof, attributable to the Consolidated Net Income.
(e) the Borrower may make cash distributions to the Parent to pay for the
portion of the Parent's Total G&A Expense that is reasonably attributable to the
Borrower.
Section 9.05 Investments. The Borrower will not, and will not permit any
Subsidiary to, make or permit to remain outstanding any Investments in or to any
Person, except that the foregoing restriction shall not apply to:
(a) Investments reflected in the Financial Statements or which are
disclosed to the Lenders in Schedule 9.05.
(b) accounts receivable arising in the ordinary course of business.
(c) Investments in cash and Cash Equivalents.
(d) Investments (i) made by the Borrower in or to the Guarantors and/or
(ii) made by any Subsidiary in or to the Borrower or any Guarantor that is a
Subsidiary.
(e) subject to the limits in Section 9.06, Investments in direct ownership
interests in additional Oil and Gas Properties and gas gathering systems related
thereto or related to farm-out, farm-in, participation agreements, joint
operating, joint venture or area of mutual interest agreements, gathering
systems, pipelines or other similar arrangements which are usual and customary
in the oil and gas exploration and production business located within the
geographic boundaries of the United States of America.
(f) loans or advances to employees, officers or directors in the ordinary
course of business of the Borrower or any Subsidiary, in each case only as
67
permitted by Requirement of Law, including section 402 of the Sarbanes Oxley Act
of 2002, but in any event not to exceed $50,000 in the aggregate at any time.
(g) Investments in stock, obligations or securities received in settlement
of debts arising from Investments permitted under this Section 9.05 owing to the
Borrower or any Subsidiary as a result of a Debtor Relief Law of the obligor in
respect of such debts or upon the enforcement of any Lien in favor of the
Borrower or any of its Subsidiaries; provided that the Borrower shall give the
Administrative Agent prompt written notice in the event that the aggregate
amount of all Investments held at any one time under this Section 9.05(k)
exceeds $50,000.
(h) the Acquisition.
(i) other Investments not to exceed $50,000 in the aggregate at any time.
Section 9.06 Nature of Business; International Operations. The Borrower
will not, and will not permit any Subsidiary to, allow any material change to be
made in the character of its business as an independent oil and gas exploration
and production company. From and after the date hereof, the Borrower and the
Subsidiaries will not acquire or make any other expenditure (whether such
expenditure is capital, operating or otherwise) in or related to, any Oil and
Gas Properties not located within the geographical boundaries of the United
States.
Section 9.07 Proceeds of Notes. The Borrower will not permit the proceeds
of the Notes to be used for any purpose other than those permitted by Section
7.21. Neither the Borrower nor any Person acting on behalf of the Borrower has
taken or will take any action which might cause any of the Loan Documents to
violate Regulations T, U or X or any other regulation of the Board or to violate
section 7 of the Securities Exchange Act of 1934 or any rule or regulation
thereunder, in each case as now in effect or as the same may hereinafter be in
effect. If requested by the Administrative Agent, the Borrower will furnish to
the Administrative Agent and each Lender a statement to the foregoing effect in
conformity with the requirements of FR Form U-1 or such other form referred to
in Regulation U, Regulation T or Regulation X of the Board, as the case may be.
Section 9.08 Limitation on Leases. The Borrower will not, and will not
permit any Subsidiary to, create, incur, assume or suffer to exist any
obligation for the payment of rent or hire of Property of any kind whatsoever
(real or personal but excluding Capital Leases, leases of corporate and field
office space utilized by the Borrower and its Subsidiaries in the ordinary
course of business and leases of Hydrocarbon Interests), under leases or lease
agreements which would cause the aggregate amount of all payments made by the
Borrower and the Subsidiaries pursuant to all such leases or lease agreements,
including, without limitation, any residual payments at the end of any lease, to
exceed $5,000 in any period of twelve consecutive calendar months during the
life of such leases.
Section 9.09 ERISA Compliance. The Borrower will not, and will not permit
any Subsidiary to, at any time:
(a) engage in, or permit any ERISA Affiliate to engage in, any transaction
in connection with which the Borrower, a Subsidiary or any ERISA Affiliate could
68
be subjected to either a material civil penalty assessed pursuant to subsections
(c), (i), (l) or (m) of section 502 of ERISA or a material tax imposed by
Chapter 43 of Subtitle D of the Code.
(b) fail to make, or permit any ERISA Affiliate to fail to make, full
payment when due of all material amounts which, under the provisions of any
Plan, agreement relating thereto or Requirement of Law, the Borrower, a
Subsidiary or any ERISA Affiliate is required to pay as contributions thereto.
(c) permit to exist, or allow any ERISA Affiliate to permit to exist, any
accumulated funding deficiency within the meaning of section 302 of ERISA or
section 412 of the Code, whether or not waived, with respect to any Plan.
(d) create or sponsor any employee pension benefit plan, as defined in
section 3(2) of ERISA, that is subject to Title IV of ERISA, section 302 of
ERISA or section 412 of the Code.
Section 9.10 Sale or Discount of Receivables. Except for receivables
obtained by the Borrower or any Subsidiary out of the ordinary course of
business or the settlement of joint interest billing accounts in the ordinary
course of business or discounts granted to settle collection of accounts
receivable or the sale of defaulted accounts arising in the ordinary course of
business in connection with the compromise or collection thereof and not in
connection with any financing transaction, the Borrower will not, and will not
permit any Subsidiary to, discount or sell (with or without recourse) any of its
notes receivable or accounts receivable.
Section 9.11 Mergers, Etc. (a) The Borrower will not, and will not permit
any Subsidiary to, merge into or with or consolidate with any other Person, or
sell, transfer, lease or otherwise dispose of (whether in one transaction or in
a series of transactions) all or substantially all of its Property to any other
Person, or liquidate, wind up or dissolve itself (or suffer any liquidation or
dissolution), except that any Wholly-Owned Subsidiary Guarantor may merge with
any other Subsidiary so long as the survivor is a Wholly-Owned Subsidiary
Guarantor and that the Borrower may merge with any Wholly-Owned Subsidiary so
long as the Borrower is the survivor.
(b) The Parent will not merge into or with or consolidate with any other
Person, or sell, transfer, lease or otherwise dispose of (whether in one
transaction or in a series of transactions) all or substantially all of its
Property to any other Person, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution).
Section 9.12 Sale of Properties. The Borrower will not, and will not permit
any Subsidiary to, (i) sell, assign, farm-out, convey or otherwise transfer
(including sale-and-lease back transactions) any Property, or (ii) enter into
any agreement to do any of the foregoing, except for the following:
(a) the sale of Hydrocarbons in the ordinary course of business.
(b) the sale of the VPP pursuant to the VPP Purchase Agreement.
69
(c) the sale or transfer of equipment that is no longer necessary for the
business of the Borrower or such Subsidiary or is replaced by equipment of at
least comparable value and use.
Section 9.13 Environmental Matters. The Borrower will not, and will not
permit any Subsidiary to, cause or permit any of its Property to be in violation
of, or do anything or permit anything to be done which will subject any such
Property to any Remedial Work under any Environmental Laws, assuming disclosure
to the applicable Governmental Authority of all relevant facts, conditions and
circumstances, if any, pertaining to such Property where such violations or
remedial obligations could reasonably be expected to have a Material Adverse
Effect.
Section 9.14 Transactions with Affiliates. The Borrower will not, and will
not permit any Subsidiary to, enter into any transaction, including, without
limitation, any purchase, sale, lease or exchange of Property or the rendering
of any service, with any Affiliate (other than the Parent and Wholly-Owned
Subsidiary Guarantors) unless such transactions are otherwise permitted under
this Agreement and are upon fair and reasonable terms no less favorable to it
than it would obtain in a comparable arm's length transaction with a Person not
an Affiliate.
Section 9.15 Subsidiaries. The Borrower will not, and will not permit any
Subsidiary to, create or acquire any additional Subsidiary unless the Borrower
gives written notice to the Administrative Agent of such creation or acquisition
and complies with Section 8.14(b) and Section 8.14(c). The Borrower shall not,
and shall not permit any Subsidiary to, sell, assign or otherwise dispose of any
Equity Interests in any Subsidiary except in compliance with Section 9.12(d).
Section 9.16 Negative Pledge Agreements; Dividend Restrictions. The
Borrower will not, and will not permit any Subsidiary to, create, incur, assume
or suffer to exist any contract, agreement or understanding (other than (i) this
Agreement and the Security Documents (ii) Capital Leases or other obligations
creating Liens permitted by Section 9.03(c) and (d), provided that the
restriction or prohibition is limited to the Property financed thereby, (iii)
any leases or licenses or similar contracts as they affect any Property or Lien
subject to a lease or license, (iv) any restriction with respect to a Subsidiary
imposed pursuant to an agreement entered into for the direct or indirect sale or
disposition of all or substantially all the Equity Interests or Property of such
Subsidiary (or the Property that is subject to such restriction) pending the
closing of such sale or disposition, or (v) customary provisions with respect to
the distribution of Property in joint venture agreements) which in any way
prohibits or restricts the granting, conveying, creation or imposition of any
Lien on any of its Property in favor of the Administrative Agent and the Lenders
or restricts any Subsidiary from paying dividends or making distributions to the
Borrower or any Subsidiary Guarantor, or which requires the consent of or notice
to other Persons in connection therewith.
Section 9.17 Gas Imbalances, Take-or-Pay or Other Prepayments. The Borrower
will not, and will not permit any Subsidiary to, allow gas imbalances,
take-or-pay or other prepayments with respect to the Oil and Gas Properties of
the Borrower or any Subsidiary that would require the Borrower or such
Subsidiary to deliver Hydrocarbons at some future time without then or
thereafter receiving full payment therefor.
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Section 9.18 Swap Agreements.
(a) The Borrower will not, and will not permit any Subsidiary to, enter
into any Swap Agreements with any Person other than Swap Agreements in respect
of commodities that have been approved in writing by the Administrative Agent.
(b) No Swap Agreements shall be entered into for speculative purposes.
Section 9.19 Accounting Changes; Organization Documents; Material
Contracts; Operating Agreements.
(a) The Borrower will not change its fiscal year end, or make any material
change in its accounting treatment and reporting practices except as required by
GAAP.
(b) The Borrower will not, and will not permit any Subsidiary to, (i) amend
or permit any amendments to its Organization Documents, except any amendments
not adverse to the interests of the Lenders; or (ii) enter into, or amend or
permit any amendments to, or terminate or waive any provision of any Operating
Agreement or Material Contract, except any amendment that (x) does not amend any
financial or economic terms of such Operating Agreement or Material Contract and
(y) is not adverse to the interests of the Administrative Agent and the Lenders.
Section 9.20 Marketing Activities. The Borrower will not, and will not
permit any Subsidiaries to, engage in marketing activities for any Hydrocarbons
or enter into any contracts related thereto other than (a) contracts for the
sale of Hydrocarbons scheduled or reasonably estimated to be produced from their
proved Oil and Gas Properties during the period of such contract, (b) contracts
for the sale of Hydrocarbons scheduled or reasonably estimated to be produced
from proved Oil and Gas Properties of third parties during the period of such
71
contract associated with the Oil and Gas Properties of the Borrower and the
Subsidiaries that the Borrower or one of the Subsidiaries has the right to
market pursuant to joint operating agreements, unitization agreements or other
similar contracts that are usual and customary in the oil and gas business and
(c) other contracts for the purchase and/or sale of Hydrocarbons of third
parties (i) which have generally offsetting provisions (i.e., corresponding
pricing mechanics, delivery dates and points and volumes) such that no
"position" is taken and (ii) for which appropriate credit support has been taken
to alleviate the material credit risks of the counterparty thereto.
Section 9.21 Well Drilling Costs. The Borrower will not permit the well
drilling costs of the Borrower and its Subsidiaries to materially exceed the
well drilling costs set forth in the Projections.
ARTICLE X
EVENTS OF DEFAULT; REMEDIES
Section 10.01 Events of Default. One or more of the following events shall
constitute an "Event of Default":
(a) the Borrower shall fail to pay any principal of any Loan when and as
the same shall become due and payable, whether at the due date thereof or at a
date fixed for prepayment thereof, by acceleration or otherwise.
(b) the Borrower shall fail to pay any interest on any Loan, any fee, any
Make-Whole Premium or any other amount (other than an amount referred to in
Section 10.01(a)) payable under any Loan Document, when and as the same shall
become due and payable.
(c) any representation or warranty made or deemed made by or on behalf of
the Parent, the Borrower or any Subsidiary in or in connection with any Loan
Document or any amendment or modification of any Loan Document or waiver under
such Loan Document, or in any report, certificate, financial statement or other
document furnished pursuant to or in connection with any Loan Document or any
amendment or modification thereof or waiver thereunder, shall prove to have been
incorrect in any material respect when made or deemed made.
(d) the Borrower or any Subsidiary shall fail to observe or perform any
covenant, condition or agreement contained in Section 8.01(i), Section 8.01(m),
Section 8.02, Section 8.03, Section 8.14 or in ARTICLE IX.
(e) the Parent, the Borrower or any Subsidiary shall fail to observe or
perform any covenant, condition or agreement contained in this Agreement (other
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than those specified in Section 10.01(a), Section 10.01(b) or Section 10.01(d))
or any other Loan Document, and such failure shall continue unremedied for a
period of 15 days after the earlier to occur of (A) notice thereof from the
Administrative Agent to the Borrower (which notice will be given at the request
of any Lender) or (B) a Responsible Officer of the Borrower or such Subsidiary
otherwise becoming aware of such default.
(f) the Parent, the Borrower or any Guarantor shall fail to make any
payment (whether of principal or interest and regardless of amount) in respect
of any Material Indebtedness, when and as the same shall become due and payable
and such failure continues beyond any applicable grace period.
(g) any event or condition occurs that results in any Material Indebtedness
becoming due prior to its scheduled maturity or that enables or permits (with or
without the giving of notice, the lapse of time or both) the holder or holders
of any Material Indebtedness or any trustee or agent on its or their behalf to
cause any Material Indebtedness to become due, or to require the Redemption
thereof or any offer to Redeem to be made in respect thereof, prior to its
scheduled maturity or require the Borrower or any Subsidiary to make an offer in
respect thereof and such event or condition continues beyond any applicable
grace period.
(h) an involuntary proceeding shall be commenced or an involuntary petition
shall be filed seeking (i) liquidation, reorganization or other relief in
respect of the Parent, the Borrower or any Subsidiary or its debts, or of a
substantial part of its assets, under any Federal, state or foreign Debtor
Relief Laws now or hereafter in effect or (ii) the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar official for the
Parent, the Borrower or any Subsidiary or for a substantial part of its assets,
and, in any such case, such proceeding or petition shall continue undismissed
for thirty (30) days or an order or decree approving or ordering any of the
foregoing shall be entered.
(i) the Parent, the Borrower or any Subsidiary shall (i) voluntarily
commence any proceeding or file any petition seeking liquidation, reorganization
or other relief under any Federal, state or foreign Debtor Relief Law now or
hereafter in effect, (ii) consent to the institution of, or fail to contest in a
timely and appropriate manner, any proceeding or petition described in Section
10.01(h), (iii) apply for or consent to the appointment of a receiver, trustee,
custodian, sequestrator, conservator or similar official for the Parent, the
Borrower or any Subsidiary or for a substantial part of its assets, (iv) file an
answer admitting the material allegations of a petition filed against it in any
such proceeding, (v) make a general assignment for the benefit of creditors or
(vi) take any action for the purpose of effecting any of the foregoing; or any
member/s of the Borrower shall make any request or take any action for the
purpose of calling a meeting of the members of the Borrower to consider a
resolution to dissolve and wind up the Borrower's affairs.
(j) the Parent, the Borrower or any Subsidiary shall become unable, admit
in writing its inability or fail generally to pay its debts as they become due.
(k) (i) one or more judgments for the payment of money in an aggregate
amount in excess of $100,000 (to the extent not covered by independent third
party insurance provided by insurers of the highest claims paying rating or
financial strength as to which the insurer does not dispute coverage and is not
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subject to an insolvency proceeding) or (ii) any one or more non-monetary
judgments that have, or could reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect, shall be rendered against the Parent,
the Borrower, any Subsidiary or any combination thereof and the same shall
remain undischarged for a period of 30 consecutive days during which execution
shall not be effectively stayed, or any action shall be legally taken by a
judgment creditor to attach or levy upon any assets of the Parent, the Borrower
or any Subsidiary to enforce any such judgment.
(l) any of the Loan Documents after delivery thereof shall for any reason
cease to be in full force and effect and valid, binding and enforceable in
accordance with their terms against the Borrower or any other Loan Party party
thereto or shall be repudiated by any of them, or cease to create a valid and
perfected Lien of the priority required thereby on any of the collateral
purported to be covered thereby, except to the extent permitted by the terms of
this Agreement, or the Borrower or any Subsidiary or any of their Affiliates
shall so state in writing.
(m) a Change of Control shall occur.
(n) there is filed against any Loan Party any civil or criminal action,
suit or proceeding under any federal or state racketeering (including, without
limitation, the Racketeer Influenced and Corrupt Organization Act of 1970) or
any other statute, which action, suit or proceeding could, in the opinion of the
Administrative Agent, result in the confiscation or forfeiture of any of the
Collateral.
(o) the Borrower shall (i) fail to observe or perform any covenant,
condition or agreement contained in any of the VPP Documents, or (ii) breach any
representation or warranty in any of the VPP Documents.
Section 10.02 Remedies.
(a) In the case of an Event of Default other than one described in Section
10.01(h), Section 10.01(i) or Section 10.01(j), at any time thereafter during
the continuance of such Event of Default, the Administrative Agent may, and at
the request of the Required Lenders, shall, by notice to the Borrower, take
either or both of the following actions, at the same or different times: (i)
terminate the Commitments, and thereupon the Commitments shall terminate
immediately, and (ii) declare the principal of the Notes and the Loans then
outstanding, together with accrued and unpaid interest thereon, and all fees and
other amounts owing under this Agreement and the other Loan Documents (including
Make-Whole Premium) to be due and payable in whole (or in part, in which case
any amount not so declared to be due and payable may thereafter be declared to
be due and payable), and thereupon the principal of the Loans so declared to be
due and payable, together with accrued interest thereon and all fees and other
obligations of the Borrower and the Guarantors accrued and/or owing hereunder
and under the Notes and the other Loan Documents (including the Make-Whole
Premium), shall become due and payable immediately, without presentment, demand,
protest, notice of intent to accelerate, notice of acceleration or other notice
of any kind, all of which are hereby waived by the Borrower and each Guarantor;
and in case of an Event of Default described in Section 10.01(h), Section
10.01(i) or Section 10.01(j), the Commitments shall automatically terminate and
the Notes and the principal of the Loans then outstanding, together with accrued
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interest thereon and all fees and the other obligations of the Borrower and the
Guarantors accrued or owing hereunder and under the Notes and the other Loan
Documents (including Make-Whole Premium), shall automatically become due and
payable, without presentment, demand, protest, notice of acceleration, notice of
intent to accelerate or other notice of any kind, all of which are hereby waived
by the Borrower and each Guarantor.
(b) In the case of the occurrence of an Event of Default, the
Administrative Agent and the Lenders will have all other rights and remedies
available at law and equity and under the Loan Documents.
(c) All proceeds realized from the liquidation or other disposition of
Collateral or otherwise received after maturity of the Notes, whether by
acceleration or otherwise, shall be applied:
(i) FIRST, to payment or reimbursement of that portion of the Obligations
constituting fees, expenses and indemnities payable to the Administrative Agent
in its capacity as such;
(ii) SECOND, pro rata to payment or reimbursement of that portion of the
Obligations constituting fees, expenses and indemnities payable to the Lenders;
(iii) THIRD, pro rata to payment of Make-Whole Premium and accrued interest
on the Loans;
(iv) FOURTH, pro rata to payment of principal outstanding on the Loans;
(v) FIFTH, to the payment of all other Obligations; and
(vi) SIXTH, any excess, after all of the Obligations shall have been Paid
in Full, shall be paid to the Borrower or as otherwise required by any
applicable Requirements of Law.
(d) In addition to all rights and remedies under this Agreement, any other
Loan Document, at law and in equity, if any Event of Default shall occur and be
continuing and Administrative Agent, or its designee or representative, shall
exercise any remedies under the Security Documents with respect to any portion
of the Mortgaged Properties (or any Loan Party shall transfer any Mortgaged
Properties "in lieu of" foreclosure), the Administrative Agent and the Lenders
shall have the right to request that any operator of any Mortgaged Properties
which is either a Loan Party or an Affiliate of a Loan Party resign as operator
under the joint operating agreement applicable thereto; and no later than sixty
(60) days after receipt by a Loan Party of any such request, such Loan Party or
its Affiliate shall resign (or cause such other party to resign) as operator of
such Mortgaged Properties.
ARTICLE XI
THE ADMINISTRATIVE AGENT
Section 11.01 Appointment; Powers. Each of the Lenders hereby irrevocably
appoints the Administrative Agent as its agent and authorizes the Administrative
Agent to take such actions on its behalf and to exercise such powers as are
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delegated to the Administrative Agent by the terms hereof and the other Loan
Documents, together with such actions and powers as are reasonably incidental
thereto.
Section 11.02 Duties and Obligations of Administrative Agent. The
Administrative Agent shall not have any duties or obligations except those
expressly set forth in the Loan Documents. Without limiting the generality of
the foregoing, (a) the Administrative Agent shall not be subject to any
fiduciary or other implied duties, regardless of whether a Default has occurred
and is continuing (the use of the term "agent" herein and in the other Loan
Documents with reference to the Administrative Agent is not intended to connote
any fiduciary or other implied (or express) obligations arising under agency
doctrine of any Requirement of Law; rather, such term is used merely as a matter
of market custom, and is intended to create or reflect only an administrative
relationship between independent contracting parties), (b) the Administrative
Agent shall have no duty to take any discretionary action or exercise any
discretionary powers, except as provided in Section 11.03, and (c) except as
expressly set forth herein, the Administrative Agent shall not have any duty to
disclose, and shall not be liable for the failure to disclose, any information
relating to the Borrower or any of its Subsidiaries that is communicated to or
obtained by the bank serving as Administrative Agent or any of its Affiliates in
any capacity. The Administrative Agent shall be deemed not to have knowledge of
any Default unless and until written notice thereof is given to the
Administrative Agent by the Borrower or a Lender, and shall not be responsible
for or have any duty to ascertain or inquire into (i) any statement, warranty or
representation made in or in connection with this Agreement or any other Loan
Document, (ii) the contents of any certificate, report or other document
delivered hereunder or under any other Loan Document or in connection herewith
or therewith, (iii) the performance or observance of any of the covenants,
agreements or other terms or conditions set forth herein or in any other Loan
Document, (iv) the validity, enforceability, effectiveness or genuineness of
this Agreement, any other Loan Document or any other agreement, instrument or
document, (v) the satisfaction of any condition set forth in ARTICLE VI or
elsewhere herein, other than to confirm receipt of items expressly required to
be delivered to the Administrative Agent or as to those conditions precedent
expressly required to be to the Administrative Agent's satisfaction, (vi) the
existence, value, perfection or priority of any collateral security or the
financial or other condition of the Borrower and its Subsidiaries or any other
obligor or guarantor, or (vii) any failure by the Borrower or any other Person
(other than itself) to perform any of its obligations hereunder or under any
other Loan Document or the performance or observance of any covenants,
agreements or other terms or conditions set forth herein or therein. For
purposes of determining compliance with the conditions specified in ARTICLE VI,
each Lender shall be deemed to have consented to, approved or accepted or to be
satisfied with, each document or other matter required thereunder to be
consented to or approved by or acceptable or satisfactory to a Lender unless the
Administrative Agent shall have received written notice from such Lender prior
to the proposed closing date specifying its objection thereto.
Section 11.03 Action by Administrative Agent. The Administrative Agent
shall have no duty to take any discretionary action or exercise any
discretionary powers, except discretionary rights and powers expressly
contemplated hereby or by the other Loan Documents that the Administrative Agent
is required to exercise in writing as directed by the Required Lenders (or such
other number or percentage of the Lenders as shall be necessary under the
circumstances as provided in Section 12.02) and in all cases the Administrative
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Agent shall be fully justified in failing or refusing to act hereunder or under
any other Loan Documents unless it shall (a) receive written instructions from
the Required Lenders or the Lenders, as applicable, (or such other number or
percentage of the Lenders as shall be necessary under the circumstances as
provided in Section 12.02) specifying the action to be taken and (b) be
indemnified to its satisfaction by the Lenders against any and all liability and
expenses which may be incurred by it by reason of taking or continuing to take
any such action. The instructions as aforesaid and any action taken or failure
to act pursuant thereto by the Administrative Agent shall be binding on all of
the Lenders. If a Default has occurred and is continuing, then the
Administrative Agent shall take such action with respect to such Default as
shall be directed by the requisite Lenders in the written instructions (with
indemnities) described in this Section 11.03, provided that, unless and until
the Administrative Agent shall have received such directions, the Administrative
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default as it shall deem advisable in
the best interests of the Lenders. In no event, however, shall the
Administrative Agent be required to take any action which exposes the
Administrative Agent to personal liability or which is contrary to this
Agreement, the Loan Documents or Requirement of Law. The Administrative Agent
shall not be liable for any action taken or not taken by it with the consent or
at the request of the Required Lenders or the Lenders (or such other number or
percentage of the Lenders as shall be necessary under the circumstances as
provided in Section 12.02), and otherwise the Administrative Agent shall not be
liable for any action taken or not taken by it hereunder or under any other Loan
Document or under any other document or instrument referred to or provided for
herein or therein or in connection herewith or therewith INCLUDING ITS OWN
ORDINARY NEGLIGENCE, except for its own gross negligence or willful misconduct.
Section 11.04 Reliance by Administrative Agent. The Administrative Agent
shall be entitled to rely upon, and shall not incur any liability for relying
upon, any notice, request, certificate, consent, statement, instrument, document
or other writing believed by it to be genuine and to have been signed or sent by
the proper Person. The Administrative Agent also may rely upon any statement
made to it orally or by telephone and believed by it to be made by the proper
Person, and shall not incur any liability for relying thereon and each of the
Borrower, the Lenders hereby waives the right to dispute the Administrative
Agent's record of such statement, except in the case of gross negligence or
willful misconduct by the Administrative Agent. The Administrative Agent may
consult with legal counsel (who may be counsel for the Borrower), independent
accountants and other experts selected by it, and shall not be liable for any
action taken or not taken by it in accordance with the advice of any such
counsel, accountants or experts. The Administrative Agent may deem and treat the
payee of any Note as the holder thereof for all purposes hereof unless and until
a written notice of the assignment or transfer thereof permitted hereunder shall
have been filed with the Administrative Agent.
Section 11.05 Subagents. The Administrative Agent may perform any and all
its duties and exercise its rights and powers by or through any one or more
sub-agents appointed by the Administrative Agent. The Administrative Agent and
any such sub-agent may perform any and all its duties and exercise its rights
and powers through their respective Related Parties. The exculpatory provisions
of the preceding Sections of this ARTICLE XI shall apply to any such sub-agent
and to the Related Parties of the Administrative Agent and any such sub-agent,
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and shall apply to their respective activities in connection with the
syndication of the credit facilities provided for herein as well as activities
as Administrative Agent.
Section 11.06 Resignation of Administrative Agent. Subject to the
appointment and acceptance of a successor Agent as provided in this Section
11.06, the Administrative Agent may resign at any time by notifying the Lenders
and the Borrower. Upon any such resignation, the Required Lenders shall have the
right, in consultation with the Borrower, to appoint a successor. If no
successor shall have been so appointed by the Required Lenders and shall have
accepted such appointment within 30 days after the retiring Administrative Agent
gives notice of its resignation, then the retiring Administrative Agent may, on
behalf of the Lenders, appoint a successor Administrative Agent. Upon the
acceptance of its appointment as Administrative Agent hereunder by a successor,
such successor shall succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent, and the retiring Administrative
Agent shall be discharged from its duties and obligations hereunder. The fees
payable by the Borrower to a successor Administrative Agent shall be the same as
those payable to its predecessor unless otherwise agreed between the Borrower
and such successor. After the Administrative Agent's resignation hereunder, the
provisions of this ARTICLE XI and Section 12.03 shall continue in effect for the
benefit of such retiring Administrative Agent, its sub-agents and their
respective Related Parties in respect of any actions taken or omitted to be
taken by any of them while it was acting as Administrative Agent.
Section 11.07 Administrative Agent as Lender. The Person serving as the
Administrative Agent hereunder shall have the same rights and powers in its
capacity as a Lender as any other Lender and may exercise the same as though it
were not the Administrative Agent and the term "Lender" or "Lenders" shall,
unless otherwise expressly indicated or unless the context otherwise requires,
include the Person serving as the Administrative Agent hereunder in its
individual capacity. Such Person and its Affiliates may accept deposits from,
lend money to, act as the financial advisor or in any other advisory capacity
for and generally engage in any kind of business with the Parent, the Borrower
or any Subsidiary or other Affiliate of any of the foregoing as if such Person
were not the Administrative Agent hereunder and without any duty to account
therefor to the Lenders.
Section 11.08 No Reliance.
(a) Each Lender acknowledges that it has, independently and without
reliance upon the Administrative Agent, any other Agent or any other Lender and
based on such documents and information as it has deemed appropriate, made its
own credit analysis and decision to enter into this Agreement and each other
Loan Document to which it is a party. Each Lender also acknowledges that it
will, independently and without reliance upon the Administrative Agent, any
other Agent or any other Lender and based on such documents and information as
it shall from time to time deem appropriate, continue to make its own decisions
in taking or not taking action under or based upon this Agreement, any other
Loan Document, any related agreement or any document furnished hereunder or
thereunder. The Administrative Agent shall not be required to keep itself
informed as to the performance or observance by the Borrower or any of its
Subsidiaries of this Agreement, the Loan Documents or any other document
referred to or provided for herein or to inspect the Properties or books of the
Borrower or its Subsidiaries. Except for notices, reports and other documents
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and information expressly required to be furnished to the Lenders by the
Administrative Agent hereunder, the Administrative Agent shall not have any duty
or responsibility to provide any Lender with any credit or other information
concerning the affairs, financial condition or business of the Borrower (or any
of its Affiliates) which may come into the possession of the Administrative
Agent or any of its Affiliates. In this regard, each Lender acknowledges that
Condon Thornton Sladek Harrell PLLC is acting in this transaction as special
counsel to the Administrative Agent only. Each other party hereto will consult
with its own legal counsel to the extent that it deems necessary in connection
with the Loan Documents and the matters contemplated therein.
(b) The Lenders acknowledge that the Administrative Agent is acting solely
in administrative capacity with respect to the structuring and syndicating of
this Agreement and has no duties, responsibilities or liabilities under this
Agreement and the other Loan Documents other than its administrative duties,
responsibilities and liabilities specifically as set forth in the Loan Documents
and in its capacity as a Lender hereunder. In structuring, arranging or
syndicating this Agreement, each Lender acknowledges that the Administrative
Agent may be an agent or lender under these Notes, other loans or other
securities and waives any existing or future conflicts of interest associated
with the its role in such other debt instruments.
Section 11.09 Administrative Agent May File Proofs of Claim.
In case of the pendency of any proceeding under a Debtor Relief Law
relative to any Loan Party, the Administrative Agent (irrespective of whether
the principal of any Loan shall then be due and payable as herein expressed or
by declaration or otherwise and irrespective of whether the Administrative Agent
shall have made any demand on the Borrower) shall be entitled and empowered, by
intervention in such proceeding or otherwise:
(a) to file and prove a claim for the whole amount of the principal and
interest owing and unpaid in respect of the Loans and all other Obligations that
are owing and unpaid and to file such other documents as may be necessary or
advisable in order to have the claims of the Lenders and the Administrative
Agent (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Lenders and the Administrative Agent and their
respective agents and counsel and all other amounts due the Lenders and the
Administrative Agent under Section 12.03) allowed in such judicial proceeding;
and
(b) to collect and receive any monies or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Lender to make such payments to the Administrative Agent and, in the event
that the Administrative Agent shall consent to the making of such payments
directly to the Lenders, to pay to the Administrative Agent any amount due for
the reasonable compensation, expenses, disbursements and advances of the
Administrative Agent and its agents and counsel, and any other amounts due the
Administrative Agent under Section 12.03.
Nothing contained herein shall be deemed to authorize the Administrative
Agent to authorize or consent to or accept or adopt on behalf of any Lender any
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plan of reorganization, arrangement, adjustment or composition affecting the
Obligations or the rights of any Lender or to authorize the Administrative Agent
to vote in respect of the claim of any Lender in any such proceeding.
Section 11.10 Authority of Administrative Agent to Release Collateral and
Liens. Each Lender hereby authorizes the Administrative Agent (i) to release any
collateral that is permitted to be sold or released pursuant to the terms of the
Loan Documents, (ii) to release any Guarantor from its Guaranty Agreement
pursuant to the terms thereof and (iii) to subordinate any Lien on any
collateral granted to or held by the Administrative Agent under any Loan
Document to the holder of any Lien permitted pursuant to Section 9.03. Each
Lender hereby authorizes the Administrative Agent to execute and deliver to the
Borrower, at the Borrower's sole cost and expense, any and all releases of
Liens, termination statements, assignments or other documents reasonably
requested by the Borrower in connection with any sale or other disposition of
Property to the extent such sale or other disposition is permitted by the terms
of Section 9.12 or is otherwise authorized by the terms of the Loan Documents.
Section 11.11 Withholding Tax. To the extent required by any applicable
law, the Administrative Agent may withhold from any payment to any Lender an
amount equivalent to any applicable withholding tax. If the Internal Revenue
Service or any other authority of the United States or other jurisdiction
asserts a claim that the Administrative Agent did not properly withhold tax from
amounts paid to or for the account of any Lender for any reason (including,
without limitation, because the appropriate form was not delivered or not
property executed, or because such Lender failed to notify the Administrative
Agent of a change in circumstance that rendered the exemption from, or reduction
of withholding tax ineffective), such Lender shall indemnify and hold harmless
the Administrative Agent (to the extent that the Administrative Agent has not
already been reimbursed by the Borrower and without limiting or expanding the
obligation of the Borrower to do so) for all amounts paid, directly or
indirectly, by the Administrative Agent as Taxes or otherwise, including any
interest, additions to Tax or penalties thereto, together with all expenses
incurred, including legal expenses and any other out-of-pocket expenses, whether
or not such taxes were correctly or legally imposed or asserted by the relevant
Government Authority. A certificate as to the amount of such payment or
liability delivered to any Lender by the Administrative Agent shall be
conclusive absent manifest error.
ARTICLE XII
MISCELLANEOUS
Section 12.01 Notices.
(a) Except in the case of notices and other communications expressly
permitted to be given by telephone (and subject to Section 12.01(b)), all
notices and other communications provided for herein shall be in writing and
shall be delivered by hand or overnight courier service, mailed by certified or
registered mail or sent by telecopy or electronic transmission, as follows:
(i) if to the Borrower or the Parent, to it at:
Baron Production LLC
80
300 S. CM Allen Pkwy, Suite 400
San Marcos, TX 78666
Attention: Lisa Hamilton
(Facsimile: (512) 392-7238)
Email:
(ii) if to the Administrative Agent, to it at:
Petro Capital Energy Credit, LLC
3710 Rawlins Street, Suite 1000
Dallas, Texas 75219
Attention: Mr. Rosser Newton
(Facsimile: (214) 661-7765)
Email:
(iii) if to any other Lender, to it at its address (or telecopy number or
email address) set forth in its Administrative Questionnaire.
(b) Notices and other communications to the Lenders hereunder may be
delivered or furnished by electronic communications pursuant to procedures
approved by the Administrative Agent; provided that the foregoing shall not
apply to notices pursuant to ARTICLE II, ARTICLE III, ARTICLE IV and ARTICLE V
unless otherwise agreed by the Administrative Agent and the applicable Lender.
The Administrative Agent or the Borrower may, in its discretion, agree to accept
notices and other communications to it hereunder by electronic communications
pursuant to procedures approved by it; provided that approval of such procedures
may be limited to particular notices or communications.
(c) Any party hereto may change its address, telecopy number or email
address for notices and other communications hereunder by notice to the other
parties hereto. All notices and other communications given to any party hereto
in accordance with the provisions of this Agreement shall be deemed to have been
given on the date of receipt.
Section 12.02 No Waivers; Amendments; Cumulative Remedies; Enforcement.
(a) No failure on the part of the Administrative Agent or any Lender to
exercise and no delay in exercising, and no course of dealing with respect to,
any right, power or privilege, or any abandonment or discontinuance of steps to
enforce such right, power or privilege, under any of the Loan Documents shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power or privilege under any of the Loan Documents preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies of the Administrative Agent and the Lenders hereunder
and under the other Loan Documents are cumulative and are not exclusive of any
rights or remedies that they would otherwise have. No waiver of any provision of
this Agreement or any other Loan Document or consent to any departure by any
Loan Party therefrom shall in any event be effective unless the same shall be
permitted by Section 12.02(b), and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given.
Without limiting the generality of the foregoing, the making of a Loan shall not
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be construed as a waiver of any Default, regardless of whether the
Administrative Agent or any Lender may have had notice or knowledge of such
Default at the time.
(b) Neither this Agreement nor any provision hereof nor any other Loan
Document nor any provision thereof may be waived, amended or modified except
pursuant to an agreement or agreements in writing entered into by each Loan
Party that is a party to the relevant Loan Document and the Administrative Agent
with the consent of the Required Lenders; provided that no such agreement shall
(i) increase the Commitment of any Lender without the written consent of such
Lender, (ii) reduce the principal amount of any Loan or reduce the rate of
interest thereon, or reduce any fees or Make-Whole Premium payable hereunder,
without the written consent of each Lender affected thereby, (iii) postpone the
scheduled date of payment or prepayment of the principal amount of any Loan, or
any interest thereon, or any fees or Make-Whole Premium payable hereunder, or
reduce the amount of, waive or excuse any such payment, or postpone or extend
the Maturity Date without the written consent of each Lender affected thereby,
provided, however, that only the consent of the Required Lenders shall be
necessary to amend the definition of "Default Rate" or to waive any obligation
of the Borrower to pay interest at the Default Rate, (iv) change Section 4.01(b)
or Section 4.01(c) in a manner that would alter the pro rata sharing of payments
required thereby, without the written consent of each Lender, (v) waive or amend
Section 3.04(c), Section 3.04 (d), Section 6.01, Section 8.14, or Section
10.02(c) or Section 12.14 or change the definition of the term "Subsidiary" or
"Subsidiary Guarantor", without the written consent of each Lender (other than
any Defaulting Lender), (vi) release any Guarantor (except as set forth in the
Guaranty Agreement), release all or substantially of the collateral, without the
written consent of each Lender (other than any Defaulting Lender), or (vii)
change any of the provisions of this Section 12.02(b) or the definition of
"Required Lenders" or any other provision hereof specifying the number or
percentage of Lenders required to waive, amend or modify any rights hereunder or
under any other Loan Documents or make any determination or grant any consent
hereunder or any other Loan Documents, without the written consent of each
Lender; provided further that no such agreement shall amend, modify or otherwise
affect the rights or duties of the Administrative Agent hereunder or under any
other Loan Document without the prior written consent of the Administrative
Agent. Notwithstanding the foregoing, any supplement to Schedule 7.14
(Subsidiaries) shall be effective simply by delivering to the Administrative
Agent a supplemental schedule clearly marked as such and, upon receipt, the
Administrative Agent will promptly deliver a copy thereof to the Lenders.
(c) Notwithstanding anything to the contrary contained herein or in any
other Loan Document, the authority to enforce rights and remedies hereunder and
under the other Loan Documents against the Loan Parties or any of them shall be
vested exclusively in, and all actions and proceedings at law in connection with
such enforcement shall be instituted and maintained exclusively by, the
Administrative Agent in accordance with Section 10.02 for the benefit of all the
Secured Parties; provided, however, that the foregoing shall not prohibit (a)
the Administrative Agent from exercising on its own behalf the rights and
remedies that inure to its benefit (solely in its capacity as Administrative
Agent) hereunder and under the other Loan Documents, (b) any Lender from
exercising setoff rights in accordance with Section 12.08 (subject to the terms
of Section 4.01), or (c) any Lender from filing proofs of claim or appearing and
filing pleadings on its own behalf during the pendency of a proceeding relative
to any Loan Party under any Debtor Relief Law; and provided, further, that if at
any time there is no Person acting as Administrative Agent hereunder and under
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the other Loan Documents, then (i) the Required Lenders shall have the rights
otherwise ascribed to the Administrative Agent pursuant to Section 10.02 and
(ii) in addition to the matters set forth in clauses (b) and (c) of the
preceding proviso and subject to Section 4.01, any Lender may, with the consent
of the Required Lenders, enforce any rights and remedies available to it and as
authorized by the Required Lenders.
Section 12.03 Expenses, Indemnity; Damage Waiver.
(a) The Borrower shall pay (i) all reasonable out-of-pocket expenses
incurred by the Administrative Agent and its Affiliates, including, without
limitation, the reasonable fees, charges and disbursements of counsel and other
outside consultants for the Administrative Agent, the reasonable travel,
photocopy, mailing, courier, telephone and other similar expenses, and the cost
of environmental audits and surveys and appraisals, in connection with the
syndication of the credit facilities provided for herein, the preparation,
negotiation, execution, delivery and administration (both before and after the
execution hereof and including advice of counsel to the Administrative Agent as
to the rights and duties of the Administrative Agent and the Lenders with
respect thereto) of this Agreement and the other Loan Documents and any
amendments, modifications or waivers of or consents related to the provisions
hereof or thereof (whether or not the transactions contemplated hereby or
thereby shall be consummated), (ii) all costs, expenses, Taxes, assessments and
other charges incurred by the Administrative Agent or any Lender in connection
with any filing, registration, recording or perfection of any Lien contemplated
by this Agreement or any Security Document or any other document referred to
therein, and (iii) all expenses incurred by the Administrative Agent or any
Lender, including the fees, charges and disbursements of any counsel for the
Administrative Agent or any Lender, in connection with the enforcement or
protection of its rights in connection with this Agreement or any other Loan
Document, including its rights under this Section 12.03, or in connection with
the Loans made hereunder, including, without limitation, all such expenses
incurred during any workout, restructuring or negotiations in respect of the
Loans.
(b) THE BORROWER AND THE PARENT SHALL JOINTLY AND SEVERALLY INDEMNIFY THE
ADMINISTRATIVE AGENT AND EACH LENDER AND EACH RELATED PARTY OF ANY OF THE
FOREGOING PERSONS (EACH SUCH PERSON BEING CALLED AN "INDEMNITEE") AGAINST, AND
HOLD EACH INDEMNITEE HARMLESS FROM, ANY AND ALL LOSSES, CLAIMS, DAMAGES,
LIABILITIES AND RELATED EXPENSES, INCLUDING THE FEES, CHARGES AND DISBURSEMENTS
OF ANY COUNSEL FOR ANY INDEMNITEE, INCURRED BY OR ASSERTED AGAINST ANY
INDEMNITEE ARISING OUT OF, IN CONNECTION WITH, OR AS A RESULT OF (i) THE
EXECUTION OR DELIVERY OF THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY
AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY OR THEREBY (OTHER THAN EXPENSES IN
CONNECTION WITH THE EXECUTION AND DELIVERY OF THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS DATED OF EVEN DATE HEREWITH, WHICH EXPENSES SHALL ONLY BE PAID BY THE
BORROWER AND THE PARENT TO THE EXTENT PROVIDED IN SECTION 12.03(A)), (ii) THE
PERFORMANCE BY THE PARTIES HERETO OR THE PARTIES TO ANY OTHER LOAN DOCUMENT OF
THEIR RESPECTIVE OBLIGATIONS HEREUNDER OR THEREUNDER OR THE CONSUMMATION OF THE
TRANSACTIONS CONTEMPLATED HEREBY OR BY ANY OTHER LOAN DOCUMENT, (iii) THE
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FAILURE OF ANY LOAN PARTY OR ANY OF ITS SUBSIDIARIES TO COMPLY WITH THE TERMS OF
ANY LOAN DOCUMENT, INCLUDING THIS AGREEMENT, OR WITH ANY REQUIREMENT OF LAW,
(iv) ANY INACCURACY OF ANY REPRESENTATION OR ANY BREACH OF ANY WARRANTY OR
COVENANT OF ANY LOAN PARTY SET FORTH IN ANY OF THE LOAN DOCUMENTS OR ANY
INSTRUMENTS, DOCUMENTS OR CERTIFICATIONS DELIVERED IN CONNECTION THEREWITH, (v)
ANY LOAN OR THE USE OF THE PROCEEDS THEREFROM, (vi) ANY OTHER ASPECT OF THE LOAN
DOCUMENTS, (vii) THE OPERATIONS OF THE BUSINESS OF ANY LOAN PARTY AND ITS
SUBSIDIARIES, (viii) ANY ASSERTION THAT THE LENDERS WERE NOT ENTITLED TO RECEIVE
THE PROCEEDS RECEIVED PURSUANT TO THE SECURITY DOCUMENTS, (ix) ANY ENVIRONMENTAL
LAW APPLICABLE TO THE BORROWER OR ANY SUBSIDIARY OR ANY OF THEIR PROPERTIES,
INCLUDING WITHOUT LIMITATION, THE PRESENCE, GENERATION, STORAGE, RELEASE,
THREATENED RELEASE, USE, TRANSPORT, DISPOSAL, ARRANGEMENT OF DISPOSAL OR
TREATMENT OF OIL, OIL AND GAS WASTES, SOLID WASTES OR HAZARDOUS SUBSTANCES ON
ANY OF THEIR PROPERTIES, (x) THE BREACH OR NON-COMPLIANCE BY ANY LOAN PARTY OR
ANY OF ITS SUBSIDIARIES WITH ANY ENVIRONMENTAL LAW APPLICABLE TO ANY LOAN PARTY
OR ANY SUBSIDIARY THEREOF, (xi) THE PAST OWNERSHIP BY ANY LOAN PARTY OR ANY OF
ITS SUBSIDIARIES OF ANY OF THEIR PROPERTIES OR PAST ACTIVITY ON ANY OF THEIR
PROPERTIES WHICH, THOUGH LAWFUL AND FULLY PERMISSIBLE AT THE TIME, COULD RESULT
IN PRESENT LIABILITY, (xii) THE PRESENCE, USE, RELEASE, STORAGE, TREATMENT,
DISPOSAL, GENERATION, THREATENED RELEASE, TRANSPORT, ARRANGEMENT FOR TRANSPORT
OR ARRANGEMENT FOR DISPOSAL OF OIL, OIL AND GAS WASTES, SOLID WASTES OR
HAZARDOUS SUBSTANCES ON OR AT ANY OF THE PROPERTIES OWNED OR OPERATED BY OR ANY
SUBSIDIARY OR ANY ACTUAL OR ALLEGED PRESENCE OR RELEASE OF HAZARDOUS MATERIALS
ON OR FROM ANY PROPERTY OWNED OR OPERATED BY ANY LOAN PARTY ANY OF ITS OF ITS
SUBSIDIARIES, (xiii) ANY ENVIRONMENTAL LIABILITY RELATED IN ANY WAY TO ANY LOAN
PARTY OR ANY OF ITS SUBSIDIARIES, (xiv) ANY OTHER ENVIRONMENTAL, HEALTH OR
SAFETY CONDITION IN CONNECTION WITH THE LOAN DOCUMENTS, OR (xv) ANY ACTUAL OR
PROSPECTIVE CLAIM, LITIGATION, INVESTIGATION OR PROCEEDING RELATING TO ANY OF
THE FOREGOING, WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY AND
REGARDLESS OF WHETHER ANY INDEMNITEE IS A PARTY THERETO, AND SUCH INDEMNITY
SHALL EXTEND TO EACH INDEMNITEE NOTWITHSTANDING THE SOLE OR CONCURRENT
NEGLIGENCE OF EVERY KIND OR CHARACTER WHATSOEVER, INCLUDING ITS OWN ORDINARY
NEGLIGENCE, WHETHER ACTIVE OR PASSIVE, WHETHER AN AFFIRMATIVE ACT OR AN
OMISSION, INCLUDING WITHOUT LIMITATION, ALL TYPES OF NEGLIGENT CONDUCT
IDENTIFIED IN THE RESTATEMENT (SECOND) OF TORTS OF ONE OR MORE OF THE
INDEMNITEES OR BY REASON OF STRICT LIABILITY IMPOSED WITHOUT FAULT ON ANY ONE OR
MORE OF THE INDEMNITEES; PROVIDED THAT SUCH INDEMNITY SHALL NOT, AS TO ANY
INDEMNITEE, BE AVAILABLE TO THE EXTENT THAT SUCH LOSSES, CLAIMS, DAMAGES,
LIABILITIES OR RELATED EXPENSES ARE DETERMINED BY A COURT OF COMPETENT
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JURISDICTION BY FINAL AND NONAPPEALABLE JUDGMENT TO HAVE RESULTED FROM THE GROSS
NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH INDEMNITEE.
(c) To the extent that the Borrower fails to pay any amount required to be
paid by it to the Administrative Agent under Section 12.03(a) or (b), each
Lender severally agrees to pay to the Administrative Agent such Lender's
Aggregate Exposure Percentage (determined as of the time that the applicable
unreimbursed expense or indemnity payment is sought) of such unpaid amount;
provided that the unreimbursed expense or indemnified loss, claim, damage,
liability or related expense, as the case may be, was incurred by or asserted
against the Administrative Agent in its capacity as such.
(d) TO THE EXTENT PERMITTED BY REQUIREMENT OF LAW, THE BORROWER AND THE
PARENT SHALL NOT ASSERT, AND HEREBY WAIVE ANY CLAIM AGAINST ANY INDEMNITEE, ON
ANY THEORY OF LIABILITY, FOR SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE
DAMAGES (AS OPPOSED TO DIRECT OR ACTUAL DAMAGES) ARISING OUT OF, IN CONNECTION
WITH, OR AS A RESULT OF, THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR ANY
AGREEMENT OR INSTRUMENT CONTEMPLATED HEREBY OR THEREBY, THE TRANSACTIONS, ANY
LOAN OR THE USE OF THE PROCEEDS THEREOF.
(e) All amounts due under this Section 12.03 shall be payable not later
than three (3) days after written demand therefor.
Section 12.04 Successors and Assigns.
(a) The provisions of this Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns
permitted hereby, except that (i) the Borrower and the Guarantors may not assign
or otherwise transfer any of their rights or obligations hereunder without the
prior written consent of each Lender (and any attempted assignment or transfer
by the Borrower or any Guarantor without such consent shall be null and void)
and (ii) no Lender may assign or otherwise transfer its rights or obligations
hereunder except in accordance with this Section 12.04 (and any other attempted
assignment or transfer by any party hereto shall be null and void). Nothing in
this Agreement, expressed or implied, shall be construed to confer upon any
Person (other than the parties hereto, their respective successors and assigns
permitted hereby, Participants (to the extent provided in Section 12.04(c)) and,
to the extent expressly contemplated hereby, the Related Parties of each of the
Administrative Agent and the Lenders) any legal or equitable right, remedy or
claim under or by reason of this Agreement.
(b) (i) Subject to the conditions set forth in Section 12.04(b)(ii), any
Lender may assign to one or more assignees all or a portion of its rights and
obligations under this Agreement (including all or a portion of its Commitment
and the Loans at the time owing to it) with the prior written consent (such
consent not to be unreasonably withheld) of:
(A) the Borrower, provided that no consent of the Borrower shall be
required if such assignment is to a Lender, an Affiliate of a Lender, or, if an
Event of Default has occurred and is continuing; and
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(B) the Administrative Agent, provided that no consent of the
Administrative Agent shall be required for an assignment to an assignee that is
a Lender immediately prior to giving effect to such assignment.
(ii) Assignments shall be subject to the following additional conditions:
(A) except in the case of an assignment to a Lender or an Affiliate of a
Lender or an assignment of the entire remaining amount of the assigning Lender's
Commitment or Loans, the amount of the Commitment or Loans of the assigning
Lender subject to each such assignment (determined as of the date the Assignment
and Assumption with respect to such assignment is delivered to the
Administrative Agent) shall not be less than $1,000,000 unless each of the
Borrower and the Administrative Agent otherwise consent, provided that no such
consent of the Borrower shall be required if an Event of Default has occurred
and is continuing;
(B) each partial assignment shall be made as an assignment of a
proportionate part of all the assigning Lender's rights and obligations under
this Agreement;
(C) the parties to each assignment shall execute and deliver to the
Administrative Agent an Assignment and Assumption, together with a processing
and recordation fee of $3,500 (which fee may be waived by the Administrative
Agent at its discretion);
(D) the assignee, if it shall not be a Lender, shall deliver to the
Administrative Agent an Administrative Questionnaire; and
(E) no assignment shall be made to (i) the Borrower or any of the
Borrower's Subsidiaries or Affiliates, (ii) any Defaulting Lender or any of its
Subsidiaries, or any Person who, upon becoming a Lender hereunder, would
constitute any of the foregoing Persons described in this clause (ii), (iii) any
natural Person, or (iv) any Person that is not a U.S. Person.
(iii) Subject to Section 12.04(b)(iv) and the acceptance and recording
thereof, from and after the effective date specified in each Assignment and
Assumption the assignee thereunder shall be a party hereto and, to the extent of
the interest assigned by such Assignment and Assumption, have the rights and
obligations of a Lender under this Agreement, and the assigning Lender
thereunder shall, to the extent of the interest assigned by such Assignment and
Assumption, be released from its obligations under this Agreement (and, in the
case of an Assignment and Assumption covering all of the assigning Lender's
rights and obligations under this Agreement, such Lender shall cease to be a
party hereto but shall continue to be entitled to the benefits of Section 5.01,
Section 5.02, and Section 12.03). Any assignment or transfer by a Lender of
rights or obligations under this Agreement that does not comply with this
Section 12.04 shall be treated for purposes of this Agreement as a sale by such
Lender of a participation in such rights and obligations in accordance with
Section 12.04(c).
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(iv) The Administrative Agent, acting solely for this purpose as an agent
of the Borrower, shall maintain at one of its offices a copy of each Assignment
and Assumption delivered to it and a register for the recordation of the names
and addresses of the Lenders, and the Commitment of, and principal amount of the
Loans to, each Lender pursuant to the terms hereof from time to time (the
"Register"). The entries in the Register shall be conclusive, and the Borrower,
the Administrative Agent and the Lenders may treat each Person whose name is
recorded in the Register pursuant to the terms hereof as a Lender hereunder for
all purposes of this Agreement, notwithstanding notice to the contrary. The
Register shall be available for inspection by the Borrower and any Lender, at
any reasonable time and from time to time upon reasonable prior notice. In
connection with any changes to the Register, if necessary, the Administrative
Agent will reflect the revisions on Annex I and forward a copy of such revised
Annex I to the Borrower and each Lender.
(v) Upon its receipt of a duly completed Assignment and Assumption executed
by an assigning Lender and an assignee, the assignee's completed Administrative
Questionnaire (unless the assignee shall already be a Lender hereunder), the
processing and recordation fee referred to in Section 12.04(b) (if payable) and
any written consent to such assignment required by Section 12.04(b), the
Administrative Agent shall accept such Assignment and Assumption and record the
information contained therein in the Register. No assignment shall be effective
for purposes of this Agreement unless it has been recorded in the Register as
provided in this Section 12.04(b).
(c) (i) Any Lender may, without the consent of the Borrower or the
Administrative Agent, sell participations to one or more banks or other entities
(a "Participant") in all or a portion of such Lender's rights and obligations
under this Agreement (including all or a portion of its Commitment and the Loans
owing to it); provided that (A) such Lender's obligations under this Agreement
shall remain unchanged, (B) such Lender shall remain solely responsible to the
other parties hereto for the performance of such obligations, (C) the
Participant must be a U.S. Person, and (D) the Borrower, the Administrative
Agent, and the other Lenders shall continue to deal solely and directly with
such Lender in connection with such Lender's rights and obligations under this
Agreement. Any agreement or instrument pursuant to which a Lender sells such a
participation shall provide that such Lender shall retain the sole right to
enforce this Agreement and to approve any amendment, modification or waiver of
any provision of this Agreement; provided that such agreement or instrument may
provide that such Lender will not, without the consent of the Participant, agree
to any amendment, modification or waiver described in clause (i), (ii) or (iii)
of Section 12.02(b) that directly affects such Participant. In addition such
agreement must provide that the Participant be bound by the provisions of
Section 12.03. Subject to Section 12.04(c)(ii), the Borrower agrees that each
Participant shall be entitled to the benefits of Section 5.01 and Section 5.02
to the same extent as if it were a Lender and had acquired its interest by
assignment pursuant to Section 12.04(b). To the extent permitted by law, each
Participant also shall be entitled to the benefits of Section 12.08 as though it
were a Lender, provided such Participant agrees to be subject to Section 4.01(c)
as though it were a Lender.
(ii) A Participant shall not be entitled to receive any greater payment
under Section 5.01 or Section 5.02 than the applicable Lender would have been
entitled to receive with respect to the participation sold to such Participant,
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unless the sale of the participation to such Participant is made with the
Borrower's prior written consent. A Participant that is not a U.S. Person shall
not be entitled to the benefits of Section 5.02.
(iii) Each Lender that sells a participation shall, acting solely for this
purpose as an agent of the Borrower, maintain a register on which it enters the
name and address of each Participant and the principal amounts (and stated
interest) of each Participant's interest in the Loans or other obligations under
the Loan Documents (the "Participant Register"); provided that no Lender shall
have any obligation to disclose all or any portion of the Participant Register
(including the identity of any Participant or any information relating to a
Participant's interest in any Commitments, Loans, or its other obligations under
any Loan Document) to any Person except to the extent that such disclosure is
necessary to establish that such Commitment, Loan or other obligation is in
registered form under Section 5f.103-1(c) of the United States Treasury
Regulations. The entries in the Participant Register shall be conclusive absent
manifest error, and such Lender shall treat each Person whose name is recorded
in the Participant Register as the owner of such participation for all purposes
of this Agreement notwithstanding any notice to the contrary. For the avoidance
of doubt, the Administrative Agent (in its capacity as Administrative Agent)
shall have no responsibility for maintaining a Participant Register.
(d) Any Lender may at any time pledge or assign a security interest in all
or any portion of its rights under this Agreement to secure obligations of such
Lender, including, without limitation, any pledge or assignment to secure
obligations to a Federal Reserve Bank, provided that no such pledge or
assignment of a security interest shall release a Lender from any of its
obligations hereunder or substitute any such pledgee or assignee for such Lender
as a party hereto.
(e) Notwithstanding any other provisions of this Section 12.04, no transfer
or assignment of the interests or obligations of any Lender or any grant of
participations therein shall be permitted if such transfer, assignment or grant
would require the Borrower and the Guarantors to file a registration statement
with the SEC or to qualify the Loans under the "Blue Sky" laws of any state.
Section 12.05 Survival; Revival; Reinstatement.
(a) All covenants, agreements, representations and warranties made by the
Borrower herein and in the certificates or other instruments delivered in
connection with or pursuant to this Agreement or any other Loan Document shall
be considered to have been relied upon by the other parties hereto and shall
survive the execution and delivery of this Agreement and the making of any
Loans, regardless of any investigation made by any such other party or on its
behalf and notwithstanding that the Administrative Agent, or any Lender may have
had notice or knowledge of any Default or incorrect representation or warranty
at the time any credit is extended hereunder, and shall continue in full force
and effect as long as the principal of or any accrued interest on any Loan or
any fee or any other amount payable under this Agreement is outstanding and
unpaid and so long as the Commitments have not expired or terminated. The
provisions of Section 5.01, Section 5.02, and Section 12.03 and ARTICLE XI shall
survive and remain in full force and effect regardless of the consummation of
the transactions contemplated hereby, the repayment of the Loans, and the
Commitments or the termination of this Agreement, any other Loan Document or any
provision hereof or thereof.
(b) To the extent that any payments on the Obligations or proceeds of any
collateral are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, debtor in
possession, receiver or other Person under any Debtor Relief Law, common law or
equitable cause, then to such extent, the Obligations so satisfied shall be
revived and continue as if such payment or proceeds had not been received and
the Administrative Agent's and the Lenders' Liens, security interests, rights,
powers and remedies under this Agreement and each Loan Document shall continue
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in full force and effect. In such event, each Loan Document shall be
automatically reinstated and the Borrower shall take such action as may be
reasonably requested by the Administrative Agent and the Lenders to effect such
reinstatement.
Section 12.06 Counterparts; Integration; Effectiveness; Etc.
(a) This Agreement may be executed in counterparts (and by different
parties hereto on different counterparts), each of which shall constitute an
original, but all of which when taken together shall constitute a single
contract.
(b) This Agreement and the other Loan Documents constitute the entire
contract among the parties relating to the subject matter hereof and thereof and
supersede any and all previous agreements and understandings, oral or written,
relating to the subject matter hereof and thereof. THIS AGREEMENT AND THE OTHER
LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT AMONG THE PARTIES HERETO AND
THERETO AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
(c) Except as provided in Section 6.01, this Agreement shall become
effective when it shall have been executed by the Administrative Agent and when
the Administrative Agent shall have received counterparts hereof which, when
taken together, bear the signatures of each of the other parties hereto, and
thereafter shall be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns. Delivery of an executed counterpart
of a signature page of this Agreement by telecopy or electronic transmission
shall be effective as delivery of a manually executed counterpart of this
Agreement.
(d) Time is of the essence of this Agreement.
(e) All covenants hereunder shall be given independent effect so that if a
particular action or condition is not permitted by any of such covenants, the
fact that it would be permitted by an exception to, or be otherwise within the
limitations of, another covenant shall not avoid the occurrence of a Default or
an Event of Default if such action is taken or condition exists.
Section 12.07 Severability. Any provision of this Agreement or any other
Loan Document held to be invalid, illegal or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of such invalidity,
illegality or unenforceability without affecting the validity, legality and
enforceability of the remaining provisions hereof or thereof; and the invalidity
of a particular provision in a particular jurisdiction shall not invalidate such
provision in any other jurisdiction.
Section 12.08 Right of Setoff. If an Event of Default shall have occurred
and be continuing, each Lender and each of its Affiliates is hereby authorized
at any time and from time to time, to the fullest extent permitted by law, to
set off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other obligations (of whatsoever kind
at any time owing by such Lender or Affiliate to or for the credit or the
account of the Parent, the Borrower or any Subsidiary against any of and all the
obligations of the Parent, the Borrower or any Subsidiary owed to such Lender
now or hereafter existing under this Agreement or any other Loan Document,
irrespective of whether or not such Lender shall have made any demand under this
Agreement or any other Loan Document and although such obligations may be
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unmatured. The rights of each Lender under this Section 12.08 are in addition to
other rights and remedies (including other rights of setoff) which such Lender
or its Affiliates may have; PROVIDED that in the event that any Defaulting
Lender shall exercise any such right of setoff, (x) all amounts so set off shall
be paid over immediately to the Administrative Agent for further application in
accordance with the provisions of Section 10.02(c) and, pending such payment,
shall be segregated by such Defaulting Lender from its other funds and deemed
held in trust for the benefit of the Administrative Agent and the Lenders, and
(y) the Defaulting Lender shall provide promptly to the Administrative Agent a
statement describing in reasonable detail the Obligations owing to such
Defaulting Lender as to which it exercised such right of setoff. The rights of
each Lender and their respective Affiliates under this Section 12.08 are in
addition to other rights and remedies (including other rights of setoff) that
such Lender or their respective Affiliates may have. Each Lender agrees to
notify the Borrower and the Administrative Agent promptly after any such setoff
and application; PROVIDED FURTHER that the failure to give such notice shall not
affect the validity of such setoff and application.
Section 12.09 GOVERNING LAW; JURISDICTION; CONSENT TO SERVICE OF PROCESS.
(a) THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS. CHAPTER 346 OF THE TEXAS
FINANCE CODE (WHICH REGULATES CERTAIN REVOLVING CREDIT LOAN ACCOUNTS AND
REVOLVING TRI-PARTY ACCOUNTS) SHALL NOT APPLY TO THIS AGREEMENT OR THE NOTES.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THE LOAN DOCUMENTS SHALL
BE BROUGHT IN THE COURTS OF THE STATE OF TEXAS OR OF THE UNITED STATES OF
AMERICA FOR THE SOUTHERN DISTRICT OF TEXAS, AND, BY EXECUTION AND DELIVERY OF
THIS AGREEMENT, EACH PARTY HEREBY ACCEPTS FOR ITSELF AND (TO THE EXTENT
PERMITTED BY LAW) IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE
JURISDICTION OF THE AFORESAID COURTS. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY
OBJECTION, INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE
OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING IN SUCH RESPECTIVE
JURISDICTIONS. THIS SUBMISSION TO JURISDICTION IS NON-EXCLUSIVE AND DOES NOT
PRECLUDE A PARTY FROM OBTAINING JURISDICTION OVER ANOTHER PARTY IN ANY COURT
OTHERWISE HAVING JURISDICTION.
(c) EACH PARTY IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE
AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES
THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT THE ADDRESS
SPECIFIED IN SECTION 12.01 OR SUCH OTHER ADDRESS AS IS SPECIFIED PURSUANT TO
SECTION 12.01 (OR ITS ASSIGNMENT AND ASSUMPTION). NOTHING HEREIN SHALL AFFECT
THE RIGHT OF A PARTY OR ANY HOLDER OF A NOTE TO SERVE PROCESS IN ANY OTHER
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MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED
AGAINST ANOTHER PARTY IN ANY OTHER JURISDICTION.
(d) EACH PARTY HEREBY (i) IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING
RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM
THEREIN; (ii) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW,
ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH LITIGATION ANY SPECIAL,
EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN
ADDITION TO, ACTUAL DAMAGES; (iii) CERTIFIES THAT NO PARTY HERETO NOR ANY
REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (iv) ACKNOWLEDGES THAT IT
HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT, THE LOAN DOCUMENTS AND THE
TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS CONTAINED IN THIS SECTION 12.09.
Section 12.10 Headings. Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of this
Agreement and shall not affect the construction of, or be taken into
consideration in interpreting, this Agreement.
Section 12.11 Confidentiality. Each of the Administrative Agent and the
Lenders agrees to maintain the confidentiality of the Information (as defined
below), except that Information may be disclosed (a) to its and its Affiliates'
directors, officers, employees and agents, including accountants, legal counsel
and other advisors (it being understood that the Persons to whom such disclosure
is made will be informed of the confidential nature of such Information and
instructed to keep such Information confidential), (b) to the extent requested
by any regulatory authority, (c) to the extent required by applicable law or
regulations or by any subpoena or similar legal process, (d) to any other party
to this Agreement or any other Loan Document, (e) in connection with the
exercise of any remedies hereunder or under any other Loan Document or any suit,
action or proceeding relating to this Agreement or any other Loan Document or
the enforcement of rights hereunder or thereunder, (f) subject to an agreement
containing provisions substantially the same as those of this Section 12.11, to
(i) any assignee of or Participant in, or any prospective assignee of or
Participant in, any of its rights or obligations under this Agreement or (ii)
any actual or prospective counterparty (or its advisors) to any Swap Agreement
relating to the Borrower and its obligations, (g) with the consent of the
Borrower or (h) to the extent such Information (i) becomes publicly available
other than as a result of a breach of this Section 12.11 or (ii) becomes
available to the Administrative Agent or any Lender on a nonconfidential basis
from a source other than the Borrower. For the purposes of this Section 12.11,
"Information" means all information received from the Borrower or any Subsidiary
relating to the Borrower or any Subsidiary and their businesses, other than any
such information that is available to the Administrative Agent or any Lender on
a nonconfidential basis prior to disclosure by the Borrower or a Subsidiary;
provided that, in the case of information received from the Parent, the Borrower
91
or any Subsidiary after the date hereof, such information is clearly identified
at the time of delivery as confidential. Any Person required to maintain the
confidentiality of Information as provided in this Section 12.11 shall be
considered to have complied with its obligation to do so if such Person has
exercised the same degree of care to maintain the confidentiality of such
Information as such Person would accord to its own confidential information.
Section 12.12 Interest Rate Limitation. It is the intention of the parties
hereto that each Lender shall conform strictly to usury laws applicable to it.
Accordingly, if the transactions contemplated hereby would be usurious as to any
Lender under laws applicable to it (including the laws of the United States of
America and the State of Texas or any other jurisdiction whose laws may be
mandatorily applicable to such Lender notwithstanding the other provisions of
this Agreement), then, in that event, notwithstanding anything to the contrary
in any of the Loan Documents or any agreement entered into in connection with or
as security for the Notes, it is agreed as follows: (i) the aggregate of all
consideration which constitutes interest under law applicable to any Lender that
is contracted for, taken, reserved, charged or received by such Lender under any
of the Loan Documents or agreements or otherwise in connection with the Notes
shall under no circumstances exceed the maximum amount allowed by such
Requirement of Law, and any excess shall be canceled automatically and if
theretofore paid shall be credited by such Lender on the principal amount of the
Obligations (or, to the extent that the principal amount of the Obligations
shall have been or would thereby be paid in full, refunded by such Lender to the
Borrower); and (ii) in the event that the maturity of the Notes is accelerated
by reason of an election of the holder thereof resulting from any Event of
Default under this Agreement or otherwise, or in the event of any required or
permitted prepayment, then such consideration that constitutes interest under
law applicable to any Lender may never include more than the maximum amount
allowed by such Requirement of Law, and excess interest, if any, provided for in
this Agreement or otherwise shall be canceled automatically by such Lender as of
the date of such acceleration or prepayment and, if theretofore paid, shall be
credited by such Lender on the principal amount of the Obligations (or, to the
extent that the principal amount of the Obligations shall have been or would
thereby be paid in full, refunded by such Lender to the Borrower). All sums paid
or agreed to be paid to any Lender for the use, forbearance or detention of sums
due hereunder shall, to the extent permitted by law applicable to such Lender,
be amortized, prorated, allocated and spread throughout the stated term of the
Loans evidenced by the Notes until payment in full so that the rate or amount of
interest on account of any Loans hereunder does not exceed the maximum amount
allowed by such Requirement of Law. If at any time and from time to time (i) the
amount of interest payable to any Lender on any date shall be computed at the
Highest Lawful Rate applicable to such Lender pursuant to this Section 12.12 and
(ii) in respect of any subsequent interest computation period the amount of
interest otherwise payable to such Lender would be less than the amount of
interest payable to such Lender computed at the Highest Lawful Rate applicable
to such Lender, then the amount of interest payable to such Lender in respect of
such subsequent interest computation period shall continue to be computed at the
Highest Lawful Rate applicable to such Lender until the total amount of interest
payable to such Lender shall equal the total amount of interest which would have
been payable to such Lender if the total amount of interest had been computed
without giving effect to this Section 12.12. To the extent that Chapter 303 of
the Texas Finance Code is relevant for the purpose of determining the Highest
Lawful Rate applicable to a Lender, such Lender elects to determine the
92
applicable rate ceiling under such Chapter by the weekly ceiling from time to
time in effect. Chapter 346 of the Texas Finance Code does not apply to the
Borrower's obligations hereunder.
Section 12.13 EXCULPATION PROVISIONS. EACH OF THE PARTIES HERETO
SPECIFICALLY AGREES THAT IT HAS A DUTY TO READ THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS AND AGREES THAT IT IS CHARGED WITH NOTICE AND KNOWLEDGE OF THE TERMS
OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; THAT IT HAS IN FACT READ THIS
AGREEMENT AND IS FULLY INFORMED AND HAS FULL NOTICE AND KNOWLEDGE OF THE TERMS,
CONDITIONS AND EFFECTS OF THIS AGREEMENT; THAT IT HAS BEEN REPRESENTED BY
INDEPENDENT LEGAL COUNSEL OF ITS CHOICE THROUGHOUT THE NEGOTIATIONS PRECEDING
ITS EXECUTION OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS; AND HAS RECEIVED
THE ADVICE OF ITS ATTORNEY IN ENTERING INTO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS; AND THAT IT RECOGNIZES THAT CERTAIN OF THE TERMS OF THIS AGREEMENT
AND THE OTHER LOAN DOCUMENTS RESULT IN ONE PARTY ASSUMING THE LIABILITY INHERENT
IN SOME ASPECTS OF THE TRANSACTION AND RELIEVING THE OTHER PARTY OF ITS
RESPONSIBILITY FOR SUCH LIABILITY. EACH PARTY HERETO AGREES AND COVENANTS THAT
IT WILL NOT CONTEST THE VALIDITY OR ENFORCEABILITY OF ANY EXCULPATORY PROVISION
OF THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS ON THE BASIS THAT THE PARTY HAD
NO NOTICE OR KNOWLEDGE OF SUCH PROVISION OR THAT THE PROVISION IS NOT
"CONSPICUOUS."
Section 12.14 No Third Party Beneficiaries. This Agreement, the other Loan
Documents, and the agreement of the Lenders to make Loans hereunder are solely
for the benefit of the Borrower, and no other Person (including, without
limitation, any Subsidiary of the Borrower, any obligor, contractor,
subcontractor, supplier or materialsman) shall have any rights, claims, remedies
or privileges hereunder or under any other Loan Document against the
Administrative Agent or any Lender for any reason whatsoever. There are no third
party beneficiaries.
Section 12.15 USA Patriot Act Notice. Each Lender hereby notifies the
Borrower that pursuant to the requirements of the USA Patriot Act (Title III of
Pub. L. 107-56 (signed into law October 26, 2001)) (the "Act"), it is required
to obtain, verify and record information that identifies the Borrower, which
information includes the name and address of the Borrower and other information
that will allow such Lender to identify the Borrower in accordance with the Act.
Section 12.16 Flood Insurance Provisions. Notwithstanding any provision in
this Agreement or any other Loan Document to the contrary, in no event is any
Building (as defined in the applicable Flood Insurance Regulation) or
Manufactured (Mobile) Home (as defined in the applicable Flood Insurance
93
Regulation) included in the definition of "Mortgaged Property" and no Building
or Manufactured (Mobile) Home is hereby encumbered by this Agreement or any
other Loan Document. As used herein, "Flood Insurance Regulations" means (a) the
National Flood Insurance Act of 1968 as now or hereafter in effect or any
successor statute thereto, (b) the Flood Disaster Protection Act of 1973 as now
or hereafter in effect or any successor statue thereto, (c) the National Flood
Insurance Reform Act of 1994 (amending 42 USC 4001, et seq.), as the same may be
amended or recodified from time to time and (d) the Flood Insurance Reform Act
of 2004 and any regulations promulgated thereunder.
Section 12.17 Advertising and Publicity. No Loan Party shall issue or
disseminate to the public (by advertisement, including without limitation any
"tombstone" advertisement, press release or otherwise), submit for publication
or otherwise cause or seek to publish any information describing the credit or
other financial accommodations made available by Lenders pursuant to this
Agreement and the other Loan Documents without the prior written consent of
Administrative Agent except as required by law or a listing agreement with a
national exchange and then only after prior good faith consultation with the
Administrative Agent. Nothing in the foregoing shall be construed to prohibit
any Loan Party from making any submission or filing which it is required to make
by applicable law or pursuant to judicial process; provided, that, (i) such
filing or submission shall contain only such information as is necessary to
comply with applicable law or judicial process and (ii) unless specifically
prohibited by applicable law or court order, such Loan Party shall promptly
notify Administrative Agent of the requirement to make such submission or filing
and provide Administrative Agent with a copy thereof.
[Remainder of page intentionally left blank; signature pages follow]
94
The parties hereto have caused this Agreement to be duly executed and
delivered as of the day and year first above written.
BORROWER: BARON PRODUCTION LLC
By:
--------------------------------------------
Name:
--------------------------------------------
Title:
--------------------------------------------
PARENT: BARON ENERGY, INC.
By:
--------------------------------------------
Name:
--------------------------------------------
Title:
--------------------------------------------
95
ADMINISTRATIVE AGENT: PETRO CAPITAL ENERGY CREDIT, LLC,
as Administrative Agent
By: PCEC Management, LLC, its Managing Member
By:
--------------------------------------------
Rosser C. Newton, Authorized Signatory
96
LENDERS: PETRO CAPITAL ENERGY CREDIT, LLC,
as a Lender
By: PCEC Management, LLC, its Managing Member
By:
--------------------------------------------
Rosser C. Newton, Authorized Signatory
97
ANNEX I
LIST OF APPLICABLE PERCENTAGES AND COMMITMENTS
Name of Lender Applicable Percentage Commitment
-------------- --------------------- ----------
Petro Capital Energy Credit, LLC 100% $5,000,000 (1)
TOTAL 100% $5,000,000
----------
1. Subject to adjustment pursuant to the definition of "Commitment" in Section
1.02.
98
EXHIBIT A
FORM OF NOTE
$_____________ Dallas, Texas
July [__], 2014
FOR VALUE RECEIVED, the undersigned, Baron Production LLC, a Texas limited
liability company (the "Borrower"), hereby unconditionally promises to pay to
_____________ (the "Lender") or its registered assigns at the office of the
Administrative Agent (as hereafter defined) specified in the Credit Agreement in
lawful money of the United States and in immediately available funds, the
principal amount of (a) ________ DOLLARS ($____________), or, if less, (b) the
sum of the aggregate unpaid principal amount of all Loans made by the Lender to
the Borrower pursuant to Section 2.01 of the Credit Agreement. The Borrower
further agrees to pay interest in like money at such payment office on the
unpaid principal amount hereof from time to time outstanding at the rates and on
the dates specified the Credit Agreement.
The holder of this Note is authorized to endorse on the schedule annexed
hereto and made a part hereof or on a continuation thereof which shall be
attached hereto and made a part hereof the date and amount of each Loan made
pursuant to the Credit Agreement and the date and amount of each payment or
prepayment of principal thereof. Each such endorsement shall constitute prima
facie evidence of the accuracy of the information endorsed. The failure to make
any such endorsement or any error in any such endorsement shall not affect the
obligations of the Borrower in respect of any Loan.
This Note (a) is one of the Notes referred to in the Credit Agreement
dated as of July 28, 2014 (as amended, restated, supplemented or otherwise
modified from time to time, the "Credit Agreement"), among the Borrower, Baron
Energy, Inc., a Nevada corporation, the several lenders from time to time
parties thereto, and Petro Capital Energy Credit, LLC, as Administrative Agent,
(b) is subject to the provisions of the Credit Agreement and (c) is subject to
optional and mandatory prepayment in whole or in part as provided in the Credit
Agreement. This Note is secured and guaranteed as provided in the Loan
Documents. Reference is hereby made to the Loan Documents for a description of
the properties and assets in which a security interest has been granted, the
nature and extent of the security and the guarantees, the terms and conditions
upon which the security interests and each guarantee were granted and the rights
of the holder of this Note in respect thereof.
Upon the occurrence of any one or more of the Events of Default, all
principal and all accrued interest then remaining unpaid on this Note shall
become, or may be declared to be, immediately due and payable, all as provided
in the Credit Agreement.
All parties now and hereafter liable with respect to this Note, whether
maker, principal, surety, guarantor, endorser or otherwise, hereby waive
presentment, demand, protest, notice of acceleration, notice of intent to
accelerate and all other notices of any kind.
99
Unless otherwise defined herein, terms defined in the Credit Agreement
and used herein shall have the meanings given to them in the Credit Agreement.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF TEXAS.
BARON PRODUCTION LLC
By:
--------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
100
Schedule A to Note
LOANS AND REPAYMENTS OF LOANS
Amount Amount of Principal Unpaid Principal Notation
Date of Loans of Loans Repaid Balance of Loans Made By
---- -------- --------------- ---------------- -------
101
EXHIBIT B
FORM OF BORROWING REQUEST
_______, 201_
Petro Capital Energy Credit, LLC,
as Administrative Agent
3710 Rawlins, Suite 400
Dallas, Texas 75219
Ladies and Gentlemen:
The undersigned, Baron Production, LLC, an Texas limited liability company
(the "Borrower"), refers to the Credit Agreement dated as of July 28, 2014 (as
amended, restated, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among the Borrower, Baron Energy, Inc., a Nevada
corporation, the lenders from time to time parties thereto (the "Lenders"), and
Petro Capital Energy Credit, LLC, as administrative agent for the Lenders (the
"Administrative Agent"). Capitalized terms used but not otherwise defined herein
shall have the meanings assigned to such terms in the Credit Agreement.
The Borrower gives you irrevocable notice pursuant to Section 2.03 of the
Credit Agreement that it hereby requests a Loan under the Credit Agreement and
sets forth below the information required therein:
1. The Borrower requests a Loan in the principal amount of [$_______].
2. The date of the Borrowing of the Loan requested herein is _____, 201_,
which is a Business Day.
The Borrower represents and warrants that, on and as of the date of the
Loan requested herein, all of the conditions precedent specified in [Section
6.01 and] (2) Section 6.02 of the Credit Agreement shall be satisfied.
[Signature Page Follows]
----------
2. Include for initial Borrowing.
102
Very truly yours,
BARON PRODUCTION, LLC
By:
--------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
103
EXHIBIT C
FORM OF COMPLIANCE CERTIFICATE
Financial Statement Date: ________, ____
To: Petro Capital Energy Credit, LLC, as Administrative Agent, and each Lender
Ladies and Gentlemen:
Reference is made to that certain Credit Agreement, dated as of July 28,
2014 (as amended, restated, extended, supplemented or otherwise modified in
writing from time to time, the "Agreement;" the terms defined therein being used
herein as therein defined), among Baron Energy, Inc., a Nevada corporation (the
"Parent"), Baron Production LLC, a Texas limited liability company (the
"Borrower"), the Lenders from time to time party thereto, and Petro Capital
Energy Credit, LLC, as Administrative Agent for the Lenders.
The undersigned Responsible Officer of the Borrower hereby certifies as of
the date hereof that he/she is the ___________________________________ of the
Borrower, and that, as such, he/she is authorized to execute and deliver this
Certificate to the Administrative Agent and each Lender on the behalf of the
Borrower, and that:
[USE FOLLOWING PARAGRAPH 1 FOR FISCAL YEAR-END FINANCIAL STATEMENTS]
1. The Borrower has delivered the year-end audited consolidated balance
sheet and related statements of operations, members' equity and cash flows
required by Section 8.01(a) of the Agreement as of and for the fiscal year of
the Borrower ended as of the above date, setting forth in each case in
comparative form the figures for the previous fiscal year, all reported on by
independent public accountants of recognized national standing (without a "going
concern" or like qualification or exception and without any qualification or
exception as to the scope of such audit). Such balance sheet and related
statements present fairly in all material respects the financial condition and
results of operations of the Borrower and its Subsidiaries on a consolidated
basis in accordance with GAAP consistently applied.
[USE FOLLOWING PARAGRAPH 1 FOR FISCAL QUARTER-END FINANCIAL STATEMENTS]
1. The Borrower has delivered the consolidated balance sheet and related
statements of operations, members' equity and cash flows required by Section
8.01(b) of the Agreement as of and for the fiscal quarter of the Borrower ended
as of the above date and the then-elapsed portion of the fiscal year in
question. Such balance sheet and related statements present fairly in all
material respects the financial condition, results of operations and cash flows
of the Borrower and its Subsidiaries on a consolidated basis in accordance with
GAAP consistently applied, subject to normal year-end audit adjustments and the
absence of footnotes.
104
[USE THE FOLLOWING PARAGRAPH 1 FOR MONTHLY FINANCIAL STATEMENTS]
1. The Borrower has delivered the consolidated balance sheet and related
statements of operations, members' equity and cash flows required by Section
8.01(d) of the Agreement as of and for the month ended as of the above date.
Such balance sheet and related statements present fairly in all material
respects the financial condition, results of operations and cash flows of the
Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP
consistently applied, subject to normal year-end audit adjustments and the
absence of footnotes.
2. The undersigned has reviewed and is familiar with the terms of the
Agreement and has made, or has caused to be made under his/her supervision, a
detailed review of the transactions and condition (financial or otherwise) of
the Borrower and the other Loan Parties during the accounting period covered by
such financial statements.
3. A review of the activities of the Borrower and the other Loan Parties
during such fiscal period has been made under the supervision of the undersigned
with a view to determining whether during such fiscal period the Borrower and
the other Loan Parties performed and observed all their respective Obligations
under the Loan Documents, and
[SELECT ONE:]
[during such fiscal period the Borrower and the other Loan Parties
performed and observed each covenant and condition of the Loan Documents
applicable to it, and no Default has occurred and is continuing.
--OR--
[the following covenants or conditions have not been performed or observed
and the following is a list of each such Default and its nature and status:]
4. The representations and warranties of the Borrower and the Parent
contained in Article VII of the Agreement and all representations and warranties
of any Loan Party that are contained in an Loan Document or any document
furnished at any time under or in connection with the Loan Documents, are true
and correct on and as of the date hereof, except to the extent that such
representations and warranties specifically refer to an earlier date, in which
case they are true and correct as of such earlier date.
6. Schedule 3 attached hereto describes each change in GAAP that has
occurred since the date of the audited financial statements referred to in
Section 7.04 of the Credit Agreement and the effect of such change on the
financial statements accompanying this Certificate.
7. The financial covenant analyses and information set forth on Schedules
1, 2 and 3 attached hereto are true and accurate on and as of the date of this
Certificate.
105
IN WITNESS WHEREOF, the undersigned has executed this Certificate as
of ____________, ______________.
BARON PRODUCTION LLC
By:
--------------------------------------------
Name:
--------------------------------------------
Title:
--------------------------------------------
106
For the Quarter/Year/Month ended ___________________, ____ ("Statement
Date")
SCHEDULE 1
to the Compliance Certificate
($ in 000's)
I. Section 9.01(a) - Consolidated Interest Coverage Ratio.
A. Consolidated EBITDA as of the Statement Date: $______
1. Consolidated Net Income as of such date: $______
2. Consolidated Interest Expense as of such date: $______
3. Income tax expense as of such date: $______
4. Depreciation expenses as of such date: $______
5. Amortization expenses as of such date: $______
6. Consolidated EBITDA (Lines I.A.1 + 2 + 3 + 4 + 5): $______
B. Consolidated Interest Expense for Subject Period: $______
C. Consolidated Interest Coverage Ratio
(Line I.A.6 / Line I.B): ____ to 1.00
MINIMUM REQUIRED: ________
The Borrower is in compliance (circle yes or no) Yes/No
II. Section 9.01(b) - Consolidated Debt Ratio
A. Consolidated Total Indebtedness as of the Statement Date: $______
B. Consolidated EBITDA as of the Statement Date (from Line IA.6): $______
C. Consolidated Debt Ratio (Line II.A / Line II.B: ____ to 1.00
MAXIMUM PERMITTED: ____ to 1.00
The Borrower is in compliance (circle yes or no) Yes/No
107
III. Section 9.01(c) - Current Ratio
A. Consolidated Current Assets at the Statement Date for the
fiscal quarter then ended as of the Statement Date, less
non-cash assets under FAS 133 as of the such Statement
Date: $______
B. Consolidated Current Liabilities as of such Statement
Date, less non-cash obligations under FAS 133 and less
current maturities under the Agreement, as of such
Statement Date: $______
C. Current Ratio (Line I.A.6 / Line I.B): 1.00 to 1.__
MINIMUM PERMITTED: 1.00 to 1.25
The Borrower is in compliance (circle yes or no) Yes/No
IV. Section 9.01(d) - Minimum Monthly Gross Production.
A. Average monthly gross production for the 3-calendar month
period ending on the Statement Date (calculated as gross
barrels of oil and BOE of natural gas): ______
B. Minimum permitted monthly gross production (calculated as
gross barrels of oil and BOE of natural gas): ______
C. Deficiency for covenant compliance
(Line IV.B - IV.A): ______
MINIMUM PERMITTED: ______
The Borrower is in compliance (circle yes or no) Yes/No
V. Section 9.01(e) - Minimum Cash Balances.
A. Cash and Cash Equivalents of Borrower on the Statement
Date, less funds on deposit in the Debt Service Reserve
Account as of such Statement Date: $______
B. Minimum permitted Cash Balances as of any date $35,000
C. Deficiency for covenant compliance
(Line V.B - V.A): $______
The Borrower is in compliance (circle yes or no) Yes/No
108
VI. Section 9.01(f) - Maximum Total G&A Expense.
A. Average monthly Total G&A Expense for the 3-calendar
month period ending on the Statement Date (3): $______
B. Maximum average monthly permitted Total G&A Expense
permitted: $60,000
C. Excess (deficiency) for covenant compliance
(Line VI.A - VI.B): $______
The Borrower is in compliance (circle yes or no) Yes/No
VII. Section 9.01(g) - Maximum Consolidated Total Indebtedness.
A. Total Consolidated Indebtedness as of the Statement Date: $______
B. Maximum permitted Consolidated Total Indebtedness as of
any date: $5,450,000
C. Excess for covenant compliance
(Line VII.A - VII.B): $______
The Borrower is in compliance (circle yes or no) Yes/No
----------
3. Commencing with the month ending October 31, 2014.
109
For the Quarter/Year ended ___________________("Statement Date")
SCHEDULE 2
to the Compliance Certificate
($ in 000's)
Consolidated EBITDA
(in accordance with the definition of Consolidated EBITDA
as set forth in the Agreement)
Twelve
Quarter Quarter Quarter Quarter Months
CONSOLIDATED Ended Ended Ended Ended Ended
EBITDA ----- ----- ----- ----- -----
Consolidated
Net Income
+ Consolidated Interest Expense
+ income taxes
+ depreciation expense
+ amortization expense
= Consolidated EBITDA
110
SCHEDULE 3
to the Compliance Certificate
($ in 000's)
Changes in GAAP and the Application Thereof
111
EXHIBIT D
SECURITY DOCUMENTS
1. Deed of Trust, Assignment of As-Extracted Collateral, Security Agreement,
Fixture Filing and Financing Statement, dated as of July 28, 2014, executed by
the Borrower for the benefit of the Administrative Agent.
112
EXHIBIT E
FORM OF ASSIGNMENT AND ASSUMPTION
This Assignment and Assumption (the "Assignment and Assumption") is dated
as of the Effective Date set forth below and is entered into by and between
[INSERT NAME OF ASSIGNOR] (the "Assignor") and [INSERT NAME OF ASSIGNEE] (the
"Assignee"). Capitalized terms used but not defined herein shall have the
meanings given to them in the Credit Agreement identified below (as amended, the
"Credit Agreement"), receipt of a copy of which is hereby acknowledged by the
Assignee. The Standard Terms and Conditions set forth in Annex 1 attached hereto
are hereby agreed to and incorporated herein by reference and made a part of
this Assignment and Assumption as if set forth herein in full.
For an agreed consideration, the Assignor hereby irrevocably sells and
assigns to the Assignee, and the Assignee hereby irrevocably purchases and
assumes from the Assignor, subject to and in accordance with the Standard Terms
and Conditions and the Credit Agreement, as of the Effective Date inserted by
the Administrative Agent as contemplated below (i) all of the Assignor's rights
and obligations in its capacity as a Lender under the Credit Agreement and any
other documents or instruments delivered pursuant thereto to the extent related
to the amount and percentage interest identified below of all of such
outstanding rights and obligations of the Assignor under the respective
facilities identified below (including any letters of credit and guarantees
included in such facilities) and (ii) to the extent permitted to be assigned
under Applicable Law, all claims, suits, causes of action and any other right of
the Assignor (in its capacity as a Lender) against any Person, whether known or
unknown, arising under or in connection with the Credit Agreement, any other
documents or instruments delivered pursuant thereto or the loan transactions
governed thereby or in any way based on or related to any of the foregoing,
including contract claims, tort claims, malpractice claims, statutory claims and
all other claims at law or in equity related to the rights and obligations sold
and assigned pursuant to clause (i) above (the rights and obligations sold and
assigned pursuant to clauses (i) and (ii) above being referred to herein
collectively as the "Assigned Interest"). Such sale and assignment is without
recourse to the Assignor and, except as expressly provided in this Assignment
and Assumption, without representation or warranty by the Assignor.
1. Assignor:
---------------------------------------------
2. Assignee:
---------------------------------------------
[and is an Affiliate of [IDENTIFY LENDER] (4)
3. Borrower: Baron Production LLC
4. Administrative
Agent: Petro Capital Energy Credit, LLC
5. Credit Agreement: Credit Agreement dated as of July 28, 2014, among
Baron Energy, Inc., Baron Production LLC, and Petro
Capital Energy Credit, LLC, as Administrative
Agent, for the Lenders
----------
4. Select as applicable.
113
Assigned Interest:
Aggregate Amount of Amount of Percentage
Commitment Commitment/Loans for Commitment/Loans Assigned of
Assigned all Lenders Assigned Commitment/Loans (5)
-------- ----------- -------- --------------------
$ $ %
$ $ %
$ $ %
Effective Date: _____________ ___, 201_ [TO BE INSERTED BY ADMINISTRATIVE
AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE
REGISTER THEREFOR.]
The terms set forth in this Assignment and Assumption are hereby agreed to:
ASSIGNOR
[NAME OF ASSIGNOR]
By:
--------------------------------------------
Title:
ASSIGNEE
[NAME OF ASSIGNEE]
By:
--------------------------------------------
Title:
----------
5. Set forth, to at least 9 decimals, as a percentage of the Commitment/Loans
of all Lenders thereunder.
114
Consented to and Accepted:
PETRO CAPITAL ENERGY CREDIT, LLC, as
Administrative Agent
By
------------------------------------------
Name:
Title:
[Consented to and Accepted:
BARON PRODUCTION LLC
By
------------------------------------------
Name:
Title:]
115
ANNEX 1
STANDARD TERMS AND CONDITIONS FOR
ASSIGNMENT AND ASSUMPTION
1. Representations and Warranties.
1.1 Assignor. The Assignor (a) represents and warrants that (i) it is the
legal and beneficial owner of the Assigned Interest, (ii) the Assigned Interest
is free and clear of any lien, encumbrance or other adverse claim and (iii) it
has full power and authority, and has taken all action necessary, to execute and
deliver this Assignment and Assumption and to consummate the transactions
contemplated hereby; and (b) assumes no responsibility with respect to (i) any
statements, warranties or representations made in or in connection with the
Credit Agreement or any other Loan Document, (ii) the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Loan
Documents or any collateral thereunder, (iii) the financial condition of the
Parent, Borrower, any of its Subsidiaries or Affiliates or any other Person
obligated in respect of any Loan Document or (iv) the performance or observance
by the Parent, the Borrower, any of its Subsidiaries or Affiliates or any other
Person of any of their respective obligations under any Loan Document.
1.2. Assignee. The Assignee (a) represents and warrants that (i) it has
full power and authority, and has taken all action necessary, to execute and
deliver this Assignment and Assumption and to consummate the transactions
contemplated hereby and to become a Lender under the Credit Agreement, (ii) it
satisfies the requirements, if any, specified in the Credit Agreement that are
required to be satisfied by it in order to acquire the Assigned Interest and
become a Lender, (iii) from and after the Effective Date, it shall be bound by
the provisions of the Credit Agreement as a Lender thereunder and, to the extent
of the Assigned Interest, shall have the obligations of a Lender thereunder,
(iv) it has received a copy of the Credit Agreement, together with copies of the
most recent financial statements delivered pursuant to Section 8.01 thereof, as
applicable, and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into this
Assignment and Assumption and to purchase the Assigned Interest on the basis of
which it has made such analysis and decision independently and without reliance
on the Administrative Agent or any other Lender, and (v) it is a U.S. Person;
and (b) agrees that (i) it will, independently and without reliance on the
Administrative Agent, the Assignor or any other Lender, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under the Loan
Documents, and (ii) it will perform in accordance with their terms all of the
obligations which by the terms of the Loan Documents are required to be
performed by it as a Lender.
2. Payments. From and after the Effective Date, the Administrative Agent
shall make all payments in respect of the Assigned Interest (including payments
of principal, interest, fees and other amounts) to the Assignor for amounts
which have accrued to but excluding the Effective Date and to the Assignee for
amounts which have accrued from and after the Effective Date.
3. General Provisions. This Assignment and Assumption shall be binding
upon, and inure to the benefit of, the parties hereto and their respective
successors and assigns. This Assignment and Assumption may be executed in any
number of counterparts, which together shall constitute one instrument. Delivery
of an executed counterpart of a signature page of this Assignment and Assumption
by telecopy or other electronic means shall be effective as delivery of a
manually executed counterpart of this Assignment and Assumption. This Assignment
and Assumption shall be governed by, and construed in accordance with, the laws
of the State of Texas.
116
SCHEDULE 1.01A
Scheduled Capital Expenditures
Month Amount
----- ------
August 2014 $ 67,500
September 2014 $ 101,250
October 2014 $ 101,250
November 2014 $ 116,250
December 2014 $ 101,250
January 2015 $ 636,250
February 2015 $ 636,250
March 2015 $1,600,000
April 2015 $1,000,000
May 2015 $ 0
June 2015 $ 0
July 2015 $1,000,000
August 2015 $1,000,000
117
SCHEDULE 7.05
LITIGATION
None
118
SCHEDULE 7.12
INSURANCE
[GRAPHICS SHOWING INSURANCE DOCUMENTS FROM NATIONAL AMERICAN INSURANCE COMPANY]
119
SCHEDULE 7.14
SUBSIDIARIES
None
120
SCHEDULE 7.18
GAS IMBALANCES
None
121
SCHEDULE 7.19
MARKETING CONTRACTS
None
122
SCHEDULE 7.20
SWAP AGREEMENTS
None
123
SCHEDULE 7.25
AFFILIATE TRANSACTIONS
1. Executive Employment Agreement dated March 1, 2014 between Ronnie L.
Steinocher and Baron Energy, Inc.
2. Executive Employment Agreement dated March 1, 2014 between Lisa P. Hamilton
and Ronnie L. Steinocher
3. Advance from Lisa P. Hamilton to Baron Energy, Inc. in the amount of
$188,548 as of June 30, 2014
4. Account payable owed by Baron Energy, Inc. to Esconde Energy LLC, general
partner of Esconde Resources LP, in the amount of $45,900
124
SCHEDULE 7.27
MATERIAL CONTRACTS AND OPERATING AGREEMENTS
EAST PEARSALL (STEWART) PROSPECT
Participation Agreement (East Pearsall Prospect) dated effective January 15,
2010, between Ricochet Energy, Inc., as Operator, and Sien Energy Company et
al., as Participants, together with Joint Operating Agreement dated effective
January 15, 2010 attached thereto, unrecorded.
Participation Agreement (East Pearsall Prospect) dated effective May 1, 2010,
between Ricochet Energy, Inc., as Operator, and Ricochet Interests, Ltd. et al.,
as Participants, unrecorded.
Letter Agreement dated February 24, 2011, between Ricochet Energy, Inc., and
Borden Jenkins, unrecorded, setting forth certain agreements to purchase
interests in the East Pearsall Prospect Leases from Borden Jenkins.
Letter Agreements dated June 1, 2012, between Ricochet Energy, Inc., and Sien
Energy Company, LLC and Mark Thompson, unrecorded, setting forth certain
agreements to purchase certain interests in the East Pearsall Prospect Leases
from Sien Energy Company, LLC and Mark Thompson.
Eastex Crude Company Contract No. 4900, as amended (currently Amendment #18),
dated March 26, 2010, between Eastex Crude Company, and Ricochet Energy, Inc.,
setting forth the terms for sales of crude oil from wells located in Frio
County.
Base Contract for Sale and Purchase of Natural Gas, undated, between Faraday
Pipeline Co., as purchaser, and Ricochet Energy, Inc., as seller, unrecorded.
BREAZEALE PROSPECT (NEAL TRUST UNIT)
Participation Agreement (Breazeale Prospect) dated effective August 1, 2012,
between Ricochet Energy, Inc., as Operator, and Ricochet Interests, Ltd. et al.,
as Participants, together with Joint Operating Agreement dated effective August
1, 2012 attached thereto, unrecorded.
MAXWELL PROSPECT
Letter Agreements dated January 24, 2012, between Ricochet Energy, Inc. and
Vaquillas Energy, Ltd., JOB Energy II, Ltd., Lord's Energy, Ltd., Hubberd-Smith
Energy Investments, Ltd., Nettleship Energy Interests, Ltd. and Laredo Gateway
Energy, Ltd., setting forth elections to participate in drilling and development
activities on the referenced prospect area.
PETTY PROSPECT
Letter Agreements dated April 16, 2012, between Ricochet Energy, Inc. and
Vaquillas Energy, Ltd., JOB Energy II, Ltd., Lord's Energy, Ltd., Hubberd-Smith
Energy Investments, Ltd., Nettleship Energy Interests, Ltd. and Laredo Gateway
Energy, Ltd., setting forth elections to participate in drilling and development
activities on the referenced prospect area.
125
FRIO AUSTIN CHALK PROSPECT
(CULPEPPER, 3C, KOTZEBUE AND RIGGAN)
Participation Agreement (Frio Austin Chalk Prospect) dated effective June 1,
2011, between Ricochet Energy, Inc., as Operator, and Ricochet Interests, Ltd.
et al., as Participants, together with Joint Operating Agreement dated effective
June 1, 2011 attached thereto, unrecorded.
Agreement dated April 21, 2010, between Sien Energy Company, Ricochet Energy,
Inc. and Goodrich Petroleum Company, L.L.C., regarding the sale and conveyance
of certain rights below the top of the Eagleford formation to Goodrich Petroleum
in the "Culpepper" Leases listed therein, unrecorded.
EXPRESS RE-ENTRY PROSPECTS
(CANTU-HENDERSON UNIT AND HARRIS LEASE)
Participation Agreement (Express Re-entry Prospects) dated effective July 15,
2009, between Ricochet Energy, Inc., as Operator, and Express Oil & Gas, Mark
Pinson and Rustic Oil & Gas, L.L.C., covering the Cantu/Henderson Leases and the
Harris Lease in Frio County, unrecorded.
Operating Agreement dated July 15, 2009, between Ricochet Energy, Inc., as
Operator, and Express Oil & Gas, as non-operator, recorded by Memorandum of
Operating Agreement and Financing Statement dated effective July 15, 2009, in
Volume 63, page 442, Official Records, Frio County, Texas, covering the
Cantu/Henderson Lease Prospect.
Operating Agreement dated July 15, 2009, between Ricochet Energy, Inc., as
Operator, and Express Oil & Gas and Rustic Oil & Gas, L.L.C., as non-operators,
recorded by Memorandum of Operating Agreement and Financing Statement dated
effective July 15, 2009, in Volume 63, page 435, Official Records, Frio County,
Texas, covering the Harris Lease (Re-entry) Prospect.
Participation Agreement (Express Re-entry Prospects) dated effective November
10, 2009, between Ricochet Energy, Inc., as Operator, and Ricochet Interests,
Ltd. et al, as Participants, covering the Cantu/Henderson Leases and the Harris
Lease in Frio County, unrecorded.
Gas Sales and Purchase Agreement dated December 1, 2010, between Frio LaSalle
Pipeline, LLC, and Ricochet Energy, Inc., regarding sales of gas from the
Cantu-Henderson No. 1H well in Frio County.
Salt Water Disposal Agreement dated effective September 1, 2012, between Manuel
Cantu Family Trust, as Owner, and Ricochet Energy, Inc., as Operator, regarding
disposal of salt water from the Cantu-Henderson No. 1H Well into the wellbore of
the former Cantu No. 1 Well, unrecorded.
W.S. SHAFFER AND W.S. SHAFFER -B- LEASES
Operating Agreement dated August 1, 2007, between Permian Legend LLC, as
Operator, and Permian Legend Petroleum LP, as non-operator.
126
W.S. SHAFFER -C- LEASE
Operating Agreement dated August 1, 2007, between Permian Legend LLC, as
Operator, and Permian Legend Petroleum LP, as non-operator.
127
SCHEDULE 7.29
DEPOSIT AND SECURITIES ACCOUNTS, ETC.
Name on Account: Baron Production LLC
Bank Routing #:
Bank ABA# (Wiring):
Bank Name:
Account Number:
Purpose: Checking
128
SCHEDULE 8.07
INSURANCE
Required Coverage
The Borrower will at all times procure and maintain with responsible
insurance companies the following insurance and such other insurance as the
Administrative Agent deems appropriate:
(a) Worker's Compensation Insurance and Employer's Liability Insurance in
compliance with all applicable Laws.
(b) Comprehensive General Liability Insurance (including pollution) with a
combined single limit of not less than $1,000,000 per occurrence and $2,000,000
in the aggregate. This policy will be endorsed to provide coverage for
explosion, collapse and underground damage hazards to property of others;
contractual liability; and products and completed operations;
(c) Comprehensive Liability Insurance covering all owned, hired or
non-owned vehicles with a combined single limit of not less than $1,000,000 per
occurrence;
(d) Excess Umbrella Liability Insurance with a combined single limit of not
less than $5,000,000 per occurrence, provided that on and after August 15, 2014,
the Borrower shall maintain Excess Umbrella Liability Insurance with a Combined
single limit of not less than $10,000,000;
(e) Well Control Operator's Excess Expense Liability Insurance (including
cost of well control, relief wells, redrilling) in an amount not less than
$15,000,000 per occurrence; and
(f) Property Insurance (subject to deductibles that are customary in the
case of independent oil and gas companies engaged in operations of similar
properties) fully covering the Oil and Gas Properties of the Borrower and its
Subsidiaries including the value of all facilities and well surface equipment.
Additional Requirements
1. All insurance policies will be endorsed to be primary and
noncontributory with any other valid and collectible insurance.
2. The Borrower will provide to the Administrative Agent from time to time
as requested a Certificate of Insurance, in form satisfactory to the
Administrative Agent, as evidencing that satisfactory coverages of the type and
limits set forth hereinabove are in effect. Policies providing such coverages
will contain provisions that no cancellation or material changes in the policies
will become effective except on 30 days' advance written notice thereof to the
Administrative Agent. Irrespective of the requirements as to insurance to be
carried as provided for herein, the insolvency, bankruptcy or failure of any
insurance company carrying insurance of the Borrower or any of its Subsidiaries,
129
the failure of any insurance company to pay claims accruing, or the inadequacy
of the limits of the insurance, will not affect, negate or waive any of the
provisions of any Loan Document applicable to the property, including, without
exception, the indemnity obligations of the Borrower. The Borrower will furnish
to the Administrative Agent copies of all renewal applications or applications
for replacement insurance promptly following submission of the same.
3. The Borrower will promptly notify the Administrative Agent of any one or
more claims made under any insurance policy where the Borrower or any Subsidiary
is a named or additional insured (whether such claim is made by the Borrower or
any other Person insured thereunder) where such claim(s) are for an aggregate
amount in excess of 50% of any aggregate policy limit.
4. The Borrower will require any policies of liability insurance, except
workers compensation coverage, that are in any way related to the Oil and Gas
Properties of the Borrower and its Subsidiaries, and that are obtained or
maintained by the Borrower, to include the Administrative Agent and the Lenders
and their respective parent and affiliated companies and mortgagees, and their
directors, managers, officers, employees and agents, as Additional Insureds,
without any limitations based on the fault or negligence, in whole or in part,
of such Additional Insureds. The Borrower will require any property and casualty
policies that are in any way related to the Oil and Gas Properties of the
Borrower and its Subsidiaries, to name the Administrative Agent as the loss
payee. If any insurance policy is issued with the name of the insured being
other than the name of the Borrower, then the Borrower will be added as a named
insured and the Administrative Agent and the Lenders and their parent and
affiliated companies and mortgagees, and their directors, officers, employees
and agents will be named as Additional Insureds and loss payee as required in
the preceding sentences of this paragraph.
5. The Borrower will require all policies of insurance that are in any way
related to this Credit Agreement to include clauses providing that each
underwriter will waive its rights of recovery, under subrogation or otherwise,
against the Administrative Agent and the Lenders and their respective parent and
affiliated companies and mortgagees, and their directors, managers, officers,
employees and agents.
130
SCHEDULE 9.05
INVESTMENTS
None
131